The Court of Appeal's recent judgment in this long running saga clears up the previous uncertainty regarding the proper interpretation of the SCOR Claims Control Clause, and provides authoritative guidance on the considerations to be taken into account by reinsurers when deciding whether to withhold approval of proposed settlements.
As previously reported in REINSURANCE (March 2001), Tai Ping was a Taiwanese insurer which insured under an Erection All Risks policy a Taiwanese company in respect of machinery to be installed in its computer factory. Tai Ping obtained facultative reinsurance cover from various reinsurers including Gan. The reinsurance included a Claims Co-operation Clause ("CCC") in the SCOR (UK) (0124/83) form, the relevant part of which provided as follows:
"Ņ.it is a condition precedent to liability under this policy that
(c) No settlement and/or compromise shall be made and liability admitted without the prior approval of reinsurers..."
Tai Ping settled the claim in the sum of Taiwan $2.65 billion with its insured on 31st July 1997 following litigation in Taiwan, and then sought to recover from Gan under the reinsurance.
Interpretation Of The SCOR Claims Control Clause.
In the Commercial Court, determining preliminary issues, Longmore J held that there was only a breach of sub paragraph (c) of the CCC if there was a settlement/compromise and an admission of liability without the approval of reinsurers.
By contrast, the Court of Appeal held that this interpretation made no commercial sense and cannot have been intended. Endorsing the approach of most if not all reinsurers in the market, the court concluded that there would be a breach of the CCC on the part of Tai Ping if they settled/compromised a claim or admitted liability.
Mance L J held that the clause as drafted had no natural or ordinary meaning, and it was therefore legitimate to consider the intention of the parties in order to arrive at a sensible and businesslike interpretation of the clause, having considered the implications of each rival interpretation. If the second part of the clause had read "and [no] liability admitted" then the word "and" would have split the clause into two topics; the settlement/compromise and the admission of liability, neither of which could occur without the reinsurers' prior approval. As it stood however, the word "and" arguably introduced an additional element of the same topic. Nevertheless, Mance L J did not consider that the...