Much has been written about the case of Gan v Tai Ping. What is of note however is the length oftime this case is taking to resolve. The initial loss occurred in 1996 and despite at least five hearings in the English Courts and Taiwanese proceedings the case still rambles on.

Tai Ping was a Taiwanese insurer which insured under an Erection All Risks policy a local 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 contained various London market clauses including a claims co-operation clause ("CCC") in the SCOR (UK) (0124/83) form. The relevant parts of the clause provided as follows:

"…….it is a condition precedent to liability under this policy that…..

(a) The reinsured shall, upon knowledge of any circumstances which may give rise to a claim….advise the reinsurers immediately….

(b) The reinsured shall co-operate with reinsurers…in the investigation and assessment of any loss and/or circumstances giving rise to a loss;

(c) No settlement and/or compromise shall be made and liability admitted without the prior approval of reinsurers.…"

Tai Ping had settled the claim in the sum of Taiwan $2.65 billion with its insured on 31 July 1997 following litigation in Taiwan. Tai Ping then sought to recover from Gan under its facultative reinsurance policy.

As a result of hearings in September 1997, March 1998 and an appeal in May 1999 it was held that England was the appropriate forum and that English law governed the contract as the reinsurance contracts were placed in London and the use of the English form CCC demonstrated an implied choice of English law. Even though the reinsurance contract was stated to be "following original", it was held that a Taiwanese choice of law clause could not be incorporated into the reinsurance contract. At most, the words "as original" were confined to provisions of the underlying policy which defined the extent of the risk insured.

Having established that English law applied to the dispute, the Court was then asked to consider the meaning of the CCC as outlined above. Longmore J on 21 June 2000 held as follows:

1. that compliance by Tai Ping with each limb of the CCC was a condition precedent to liability. Any breach of such a condition would therefore preclude any recovery by the reinsured, even if it was able to establish that it was or would have been liable to indemnify the original insured;

2. there is only a breach of sub paragraph (c) of the CCC if there is a settlement/compromise and an admission of liability without the approval of reinsurers; and

3. 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.

In the meantime an action was brought by Tai Ping for summary judgement on the basis that Gan had no real prospect of establishing that the CCC was breached. Mr Justice Andrew Smith made his determination on 8 February 2001 finding as follows:

(a) there had been no failure by Tai Ping to co-operate with Gan in the "investigation and assessment of any loss and/or circumstances giving rise to a loss". Investigators were appointed by Tai Ping and reports were shown to Gan. Gan did not identify any shortcomings in the reports. The CCC did not impose any obligation to carry out pointless investigations. Furthermore sub paragraph (b) of the CCC did not cover investigation of matters whereby Tai Ping might avoid the underlying policy or with a view to showing that Tai Ping was in breach of the reinsurance;

(b) there was no admission of liability by Tai Ping even though the settlement agreement contained a provision that there had been a "a fire within the scope of the coverage"; and

(c) the underlying settlement was reasonable and businesslike. In order for an insurer to act in a proper and businesslike manner there is no need for him to obtain his reinsurer's consent to what he is doing.

Smith J emphasised that the burden of proof, in relation to allegations of breach of condition precedent in the CCC and showing that a reinsured has not acted in a proper and businesslike manner, rests upon the reinsurer.

Despite Longmore J's recommendation that this case be decided by ADR, the case continues. Leave to appeal the issues relating to the construction of the CCC was granted by Longmore J on 21 July 2000 and the appeal is due to be heard on 25 or 26 April 2001.

If different findings are made by the Court of Appeal as to the construction of the CCC there could be a further hearing as to whether Tai Ping breached the CCC. The reinsurance market awaits the decision of the Court of Appeal with interest in a case termed by Longmore J as an "unfortunate dispute"!

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