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In RE Brown v. GIO Insurance (1998) and at a time when the law equated ‘event’ with ‘originating cause’,
the reinsured sought to aggregate claims arising from each (negligent) underwriter for the purposes of
claiming under its ‘event’-based reinsurance. It was held open to the reinsured to decide mixed
questions of fact and law and, as the reinsured had directed itself to the correct question and the answer
was neither perverse nor in bad faith nor otherwise manifestly unreasonable, the decision was not open
to question by reinsurers.

Consider this…
In your view, could a series of thefts over the period of a month by the same person in the same manner constitute
an ‘event’?

Reinforce
Before you move on, make sure that you know the meaning of an event or occurrence in a reinsurance contract.

C4 Follow clauses

Without a follow clause (also known as loss settlement clause) in a reinsurance contract binding
reinsurers to pay in accordance with the payments of the reinsured under the original insurance contract,
the reinsured ‘must prove the loss in the same manner as the original assured must have proved it
against them, and the reinsurers can raise all defences which were open to the reassured against the
original assured’ (Re London County Commercial Reinsurance Office (1922)).
This latter approach is far from practical, hence the parties invariably agree – in facultative as well as
treaty reinsurances – some sort of loss settlement provision and, in this section, we look at three types:
‘follow the settlements’ clauses, ‘loss settlements binding’ clauses and, briefly, ‘follow the fortunes’
clauses.
It is important when interpreting such provisions to understand the inherent tension or conflict which
was articulated by Lord Mustill in Hill & Others v. Mercantile and General Reinsurance Co. (1996). On the
one hand, a reinsured wishes to avoid having to investigate and agree a loss a second time, the first
time when responding to a claim under an insurance contract and the second time for the purpose of Reference copy for CII Face to Face Training
claiming under a reinsurance contract. On the other hand, a reinsurer does not want to be bound to
respond to all of the reinsured’s original claim payments, of whatever nature. So, while payments
relating to a judgment or award are unlikely to be contentious, the same cannot necessarily be said of
settlements reached between an insured and its insurer. A loss settlement provision must find a balance
between these competing requirements of the parties.
Follow the settlements clause

A typical example of a follow the settlements clause is as follows:
‘Being a reinsurance of and warranted same gross terms and conditions as and to follow the settlements
of [the reinsured].’
8
Chapter In Insurance Company of Africa v. SCOR (1985), a facultative reinsurance contract contained both a
‘follow the settlements’ clause and a claims cooperation clause. Warehouse premises in Monrovia,
Liberia were insured against fire by the Insurance Company of Africa (ICA) and, in turn, the ICA was
reinsured facultatively by SCOR and other London Market reinsurers. The warehouse caught fire. The
adjusters – a local unqualified adjuster and a second qualified adjuster from the head office –
appointed by ICA found no suspicious circumstances and, in due course, a claim was made against
reinsurers. Reinsurers, however, received anonymous letters claiming arson and fraud, and SCOR, after
having instructed its own adjusters, denied the claim. Later, it emerged that the anonymous letters had
been sent by business rivals of ICA. ICA was sued by the insured in Liberia and lost, and brought
proceedings against SCOR in London.

Both the court at first instance and on appeal held that ICA was entitled to indemnity. Importantly,
Robert Goff, LJ, set out the effect of such a ‘follow the settlement’ clause, namely that reinsurers agree to
indemnify insurers if:

• the claim as recognised by the reinsured falls within the risks covered by the reinsurance contract as a
matter of law; and
• the reinsured acted honestly and has taken all proper and businesslike steps in settling the claim (the
implied obligation).