Reinsurance is a global business by nature. It operates on the macroeconomic level and spread the risks not only between companies but also between countries and regions. The situation in the reinsurance market changed significantly during the last 20-30 years. It has changed from being a relationship based on trust and loyalty, so-called “Gentlemens Agreement” into more precise performance of contract rights and obligations. The reasons for this are changed economic situation and the fact that cedants previously took most of the risks, while nowadays cedants often keep only 5-10 percent of the total insured risk. It became more common to reduce the risk exposure by the use of reinsurance.
Under the ordinary insurance contract a person, who is exposed to risk transfers it to an insurer/ cedant who assumes the risk for a fee, insurance premium. Reinsurance objects usually involve significant property values which are often endangered and it is rather unusual that a single insurer is responsible for all risk and typically there is a need to allocate the risk among several insurers. Therefore, the insurer/cedant who already concluded an insurance contract with assured/ person effecting the insurance insures further a portion of his risk with another insurer/ reinsurer. As a result there are two contracts: original insurance contract and reinsurance contract.
The purpose of this thesis is to examine the relationship between the “cedant”/ “reinsured” and the “reinsurer” in reinsurance contracts. Consequently attention will be put on the interrelationship and use of the most often disputed “as original”, “follow the settlements” and “claims cooperation” clauses in reinsurance contracts. Particularly this thesis will focus on analysis of problematic relationship and combination of “follow the settlements” and “claims cooperation” clauses in the reinsurance contracts. This work does not aim to provide an exhaustive analysis of all the legal questions that may arise, but seek to solve selected problems that illustrate main aspects of the topic.
The essential characteristic of reinsurance is that there is no contractual relationship between the assured/ person effecting the insurance and the reinsurer. Therefore, the original policyholder will claim against the cedant and can not go directly against the reinsurer. This can cause difficulties for the cedant in a situation where the cedant and reinsurer/reinsurers can not agree on the settlement.
The relevance and interest of the topic “The combination and use of “as original”, “follow the settlement” and “claims co-operation” clauses in reinsurance contracts” is also proved by the fact that there is very little Norwegian legal practice covering the reinsurance field. Most disputes are resolved through negotiations or arbitration but arbitration awards are very seldom published. There are only two Norwegian courts decisions that are directly related to reinsurance. In 2006 there has been taken a decision by Borgarting Court of Appeal which directly involved interpretation of claim cooperation clause in reinsurance contract. Except the above mentioned case of Borgarting Court of Appeal there was only decision by the Supreme Court of Norway concerning reinsurance issue in so-called “Vingtor” case. On contrary the English law provides an extensive legal practice and a number of court decisions covering interpretation of the “as original”, “follow the settlement” and “claims cooperation clause” in reinsurance contracts.From the above mentioned it looks very valuable to look at the English law practice in this field. Therefore, this thesis will be mostly based on the English court decisions. However, it should be kept in mind that English interpretation tradition is different from the Norwegian one. Under the English law there is “four corners rule” principle and most emphasis is put on the contract wording. Instead under Norwegian law the negotiations between the parties and surrounding circumstances play very important role. Therefore it is obvious that Norwegian courts will not necessarily always accept the English courts position because the assessment of the issue can be different. However in practice the English court decisions usually have relevance for Norwegian courts especially if there is no other practice.
In the last chapter it will be discussed the main problem that arise with the combination and use of “follow the settlements” and “claims cooperation” clauses in the same reinsurance contract. In particular, whether the reinsurer/reinsurers are obliged by the “follow the settlements” clause in the situation where the conditions of the “claims cooperation” clause are breached. So, the relationship between these two clauses is problematic and can cause difficulty. The courts tried to solve this problem during the last decades and it seems that English courts have more clear position on this question. The central cases dealing with this issue are The Insurance Company of Africa vs. Scor (UK) Reinsurance Company Ltd (“ICA v. Scor’) and Eagle Star Insurance Company Limited v J N Cresswell and Others (“Eagle Star v Cresswell”). In the last case the Court of Appeal concluded that the effect of the “follow the settlements” clause was nullified by the “claims cooperation” clause, which was formulated as a “condition precedent” to reinsurer’s liability.