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8/20 M97/February 2018 Reinsurance

Key points

The main ideas covered by this chapter can be summarised as follows:
The law applicable to reinsurance contracts
• A contract of reinsurance is a distinct and separate contract from the underlying contract of (re)insurance.
• A contract of reinsurance is subject to the general rules governing contracts and, therefore, requires for its valid
formation offer and acceptance, consideration and legality.
• A contract of reinsurance is subject to the special rules governing insurance contracts, for example, utmost good
faith, indemnity and insurable interest. It is also subject to the duty of fair presentation under the Insurance
Act 2015.
Interpreting contractual documents – key issues and case law
• Reinsurance contracts are subject to the ordinary principles of construction (or interpretation):
– The court must give effect to the expressed intention of the parties.
– Words should be given their ordinary and natural meaning. However, if the meaning of the word has been settled
by a court, or if a word has a technical meaning, it is presumed that such meanings were intended.
– Context may come from either within, or exceptionally, outside the terms and conditions of the reinsurance
contract.
– Extrinsic evidence may be sought to elucidate technical meaning, to resolve ambiguity or absurdity or, as
envisaged by Lord Hoffmann in ICS v. West Bromwich BS (1998), to ascertain what a reasonable man, having
the background knowledge and information of the parties at the time of the contract, would have understood the
parties to have meant.
• The courts continue to make use of the long established rules of construction, but now as presumptions or
guidelines. These include the Parol Evidence Rule; contra proferentem; standard printed terms which are overridden
by those terms specifically agreed by the parties, which may, for example, have been written, typed or stamped;
and ejusdem generis. Reference copy for CII Face to Face Training

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