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In the early 1980s, EAIC insured Dow Chemical Company under 10 insurance
contracts reinsured 100% by Abeille Reassurance. The reinsurances contained
a standard follow the settlements clause.
In the late 1990s, Dow claimed against EAIC in respect of breast implant
losses.
English & American ("EAIC") were made subject to a scheme
of arrangement in 1995. In 2002, the EAIC scheme administrators acknowledged
to Dow that they had a liability of at least US$3m, AXA's proportion
of which was around US$700,000. The greater proportion of this represented
paid claims and the remainder IBNR. EAIC sought to recover from AXA,
as a successor to Abeille Reassurance, under the back-to-back reinsurances.
All agreed the follow the settlements clause bound AXA so long as the
claim submitted by EAIC fell within the risk covered by the policy of
reinsurance as a matter of law and EAIC had acted honestly and taken
all proper and businesslike steps in reaching the settlement. However,
AXA argued that EAIC's settlement was ex gratia, that it had simply
made a subjective estimate of the minimum sum for which the scheme administrators
believed EAIC would be liable, that there had been no allocation of
the sum to any particular claims and no identification of those claims
and that there had been no proper evaluation of whatever claims Dow
had said were to have been settled. As such, AXA submitted that they
were not obliged to follow and pay. EAIC sought summary judgment but
conceded in submissions that there was an arguable defence to the IBNR
element, which should proceed to a full trial.
The court granted summary judgment for the paid claims, finding that
AXA had no plausible basis for asserting that it had a realistic prospect
of defending those claims.
Of particular interest, however, is the obiter comment of Gloster J
that "It is just about conceivable, although unlikely, that
Axa might have a defence in relation to settlement amounts paid in respect
of IBNR, as opposed to paid claims, and I give Axa the benefit of the
doubt in that respect" thereby adding fuel to the debate as
to recoverability of IBNR settlements from reinsurers under 'follow
the settlement' provisions.
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