UK: Gan V Tai Ping - The Sequel Again!

Last Updated: 1 August 2001
Article by Marcus Knight

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:

"…….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 clause as drafted had to be interpreted as Longmore J had done. For example, no-one would suggest that the phrase "Smoking and spitting prohibited" was not intended to prohibit smoking and spitting separately.

Sir Christopher Staughton agreed with the overall result but reached that conclusion by a different route. He also held that the clause as drafted did not have an ordinary English meaning, commenting that "Something has gone wrong." Considering the intentions of the parties in these circumstances, he concluded that it was "highly improbable that they wished to allow a settlement or compromise if it stood on its own, but to ban a settlement and/or compromise together with an admission of liability. It would make no sense." By contrast, there was clear business and commercial sense in construing the words disjunctively. Latham L J agreed with this "straightforward and robust approach."

Considerations To Be Taken Into Account By Reinsurers

In the Commercial Court, it was also held that a term should be implied into the CCC, to the effect that "Reinsurers may not withhold approval of a settlement unless there are reasonable grounds for withholding approval."

Longmore J stated that business efficacy demanded the implication of the term. He gave as an example, the possibility of Tai Ping and the underlying insured reaching a reasonable settlement, with 98% of reinsurers agreeing with the proposed settlement. In that situation could Gan with a 2% participation, refuse consent and prevent the underlying settlement? The answer plainly had to be no if there was no tenable objection to the settlement.

The Court of Appeal, however, unanimously declined to imply such a term. Mance L J commented that any implication could only be justified if it represented the obvious though unexpressed intention of the parties or was necessary for the business efficacy of the contract.

Nevertheless, Mance L J held that reinsurers’ right to withhold approval of settlements was significantly qualified:

"It is a right to be exercised in good faith after consideration of and on the basis of the facts giving rise to the particular claim, and not with reference to considerations wholly extraneous to the subject-matter of the particular reinsurance or arbitrarily."

Addressing the issue of Gan’s 2% share (actually 2% of 35%) preventing a settlement in circumstances where the majority of reinsurers approved, Mance L J stated that the only way to protect against different approaches by reinsurers would be to insert a follow the leader clause into the contract. In the absence of such a clause, each reinsurer was entitled to take its own view.

Sir Christopher Staughton also held that the only way that a term could be implied was "if it is so obvious that the parties did not think it worth saying (the officious bystander), or if it is necessary to give the contract business efficacy." He declined to imply the proposed term (or any other term) on the basis that these requirements were not satisfied in this case. He held, agreeing with Mance L J, that the awkward situation which arose, in that other reinsurers took different views, was a consequence of Tai Ping not inserting a follow the leader clause into the reinsurance contract.

The following guidelines can be extracted from the judgment of Mance L J:

  • Reinsurers and reinsureds have a common interest in determining whether a claim should be settled, viewing the claim as a whole;
  • Reinsurers are entitled to impose their own judgment and policy on such matters as whether a particular claim is one that should be strictly proved by the direct insured, or to take a view as to appropriate settlement levels;
  • Reinsurers should view a claim objectively and as a whole, and form a genuine view as to the appropriateness of a proposed settlement;
  • Reinsurers should not look only at their own sectional interests with an eye solely to their own financial exposure. For example, reinsurers should not refuse approval for reasons unconnected with the merits of a claim, but as part of an attempt to influence a reinsured’s mind in relation to a matter arising under another reinsurance, or to harm a reinsured as a competitor in respect of other business or in the eyes of a local regulator. Another example would be a reinsurer who wished to prolong payment of all claims for as long as possible, for reasons unrelated to a particular claim;
  • It would be wrong for reinsurers to insist that a claim be fought regardless of its real merits, eg because the reinsurance cover was limited or they hoped some complete defence might emerge;
  • Reinsurers should not withhold approval "arbitrarily", i.e. in circumstances so extreme that no reasonable company in their position could possibly withhold approval.

'The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.'

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.