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The
defendant reinsurer did not validly invoke a premium review clause because
the triggering event was unsubstantiated; when subsequent triggers did
actually occur the clause was not re-invoked.
At first
instance, Morison J held that a three year reinsurance contract between
two Lloyd's syndicates, of which the Claimant was a member, and NCR,
the Defendant, had lapsed at the end of the second year. The contract
contained a premium review clause:
"The
reinsurer reserves the right to increase the Annual Premium at any Anniversary
Date during the Term on a pro rata basis, if prior to the Termination
Date, there is a material change in the normal underwriting guidelines,
classes of business, volume of business or proportion of business, as
described in the submission and/or any extraordinary claims developments.
Material change to be deemed to be substantial and as mutually agreed."
At the
end of the first year, NCR purported to revoke the review clause on
the basis of "extraordinary claims developments" (ECD). Morison
J held that the invocation was invalid due to a lack of ECD at this
point. He also held, however, that the invocation itself was "a
continuing act". ECD was substantiated at trial in relation to
the second year. Although NCR did not expressly invoke the review clause
at the end of the second year, nor did it nominate or agree a new premium
for the third year, Morison J nevertheless held that the review clause
was properly invoked for the third year, as a continuing act at the
end of the first year, and effectively the reinsurance contract lapsed
at the end of the second year.
On appeal,
the Claimant contended that the contract did not lapse and that it continued
on the basis of the originally agreed premium until such time as a new
premium was validly nominated or agreed. The appeal was successful as
the review clause had not been properly invoked at the outset, could
not be construed to constitute a "continuing act" and had
not been invoked at the end of the second year. Furthermore, it was
stated, obiter, that the failure to nominate or agree a new premium
did not cause the contract to lapse. The premium review clause made
no express provision for termination of the contract and the reinsured
rejected any purported termination or avoidance by the reinsurer.
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