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In a
dispute between a reinsured and its reinsurers as to the effect of an
annual aggregate deductible clause in the reinsurance policy, the Court
looked once more at interpretation of clauses in reinsurance contracts
in the light of the parties' intention that they be back-to-back with
the original.
The reinsured,
XL Specialty, covered a chain of clothing shops, a number of which were
destroyed in the World Trade Center disaster in 2001. They sought recovery
from their reinsurers, Goshawk, who refused indemnity for a number of
reasons, including an allegation that an Annual Aggregate Deductible
of US$5m contained in the policy had not been exhausted at the relevant
time.
Under the
original policy, XL Specialty were on risk in relation to large claims
in excess of $1m arising from, amongst other things, damage to the insured's
goods, even though the Annual Aggregate Deductible had not been exhausted.
Goshawk
argued that the way in which the Annual Aggregate Deductible was drawn
in the reinsurance policy differed from this underlying term. They argued
that under the reinsurance, the Annual Aggregate Deductible had to be
exhausted and it was common ground between the parties that it had not
been. XL Specialty argued in turn that the reinsurance had to be looked
at as a whole and the reference to "as original" made it clear
that it was intended that the reinsurers were to follow the fortunes
of the reinsured.
Although
he admitted there was "an obvious tension" between the actual
words used and XL Specialty's arguments, Mr Justice Morison found that
the emphasis in the reinsurance was very much on creating a back-to-back
arrangement and as such, the natural and ordinary meaning of the words
meant that the reinsurers were under an obligation to pay.
The Judge
acknowledged, however, that different Judges might take different views
and immediately granted leave to appeal. A close call for the reinsured,
therefore, and a good example of the need for absolute clarity in contracts
intended to be back-to-back with the underlying.
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