In every reinsurance arrangement, there is an element of partnership, particularly where the insurance and reinsurance are written back-to-back on fundamentally the same terms. This partnership is enshrined in the commonly used ‘follow the settlements’ wording, which binds reinsurers, subject to any express exceptions, to the settlements made by their reinsured (the original insurer) with the underlying insured. This type of wording has clear benefits for the reinsured, who can settle claims safe in the knowledge that the reinsurer will pay his share.
However, what happens if the reinsured, having settled what it believes to be a legitimate claim, seeks to recover from its reinsurer claims that the rein-surer considers should never have been settled? Can the reinsurer refuse to pay if the policy incorporates a ‘follow the settlements’ clause? Following the Court of Appeal decision on 6 April in Assicurazioni Generali v CGU, the reinsurer’s options may now be extremely limited, giving greater comfort to the reinsured, but fewer options for the reinsurer.
