Victory for Reinsurers in Court of Appeal Spiking Case

News / / Victory for Reinsurers in Court of Appeal Spiking Case

The Court of Appeal has handed down its judgment on an appeal by reinsurers concerning the question of allocation of liability to annual reinsurances by Employers Liability (EL) insurers which have settled claims for mesothelioma arising under EL policies which span several years This decision will provide welcome certainty and clarification for reinsurers of EL policies as the Court of Appeal allowed reinsurers' appeal, holding that insurers were obliged to present their claims to reinsurers on a pro-rata time on risk basisIt is useful to quickly summarise the background leading up to this case In Fairchild it was held that where a mesothelioma victim was tortiously exposed to asbestos by two or more employers but the victim could not prove on the balance of probabilities which of them caused the mesothelioma, bothall employers were jointly and severally liable for the loss Reversing the decision in Barker, the Compensation Act 2006 provided that where an employer was liable to a mesothelioma victim, he would be liable in respect of the whole of the damage irrespective of whether there were other additional exposures There could then be an apportionment of liability according to each employer's contribution to the riskThe case dealing with allocation of liability under EL policies was Zurich Insurance v International Energy Group, which established that the insurer of any one EL policy year during the exposure period may be liable for the whole of the claim This ensured full compensation to victims of mesotheliomaThe problem arising in the Equitas v MMI case was a direct result of the decision in International Energy Group whether an insurer who has paid out on a mesothelioma claim in accordance with International Energy Group (that is, without allocating their loss to a particular policy year) could then select to which reinsurance policy year it wished to allocate the loss (which is described as spiking) The alternative would be that the insurer is obliged to allocate the loss nbspon a pro rata time on risk basis across the full period of exposureThe Court of Appeal considered two possible bases for the allocation of the loss on a pro rata basis firstly, whether such an allocation was an implied term of the reinsurance contracts, or secondly, whether the doctrine of good faith required the insurer to present the claim to the reinsurer on that basis The first of these two arguments was rejected on the basis that the court had already determined, in International Energy Group, that spiking was permissible at the insurance level It could therefore not be said at the reinsurance level that a term must be implied into the contracts to avoid that same situation However, the second of the two arguments was accepted by the Court of Appeal In view of the case law regarding the manner in which contractual powers should be exercised, the court concluded that the insurer must present its reinsurance claims in a manner which is not arbitrary, irrational or capricious This leads to the result that the insurer should present the claim with reference to each year's contribution to the risk, as spiking would be inconsistent with the intentions and reasonable expectations of the parties at the time of making the contract

Related sectors:

Related services:

Related news & insights

Insights / Success with subrogation in the UAE

25-05-2021 / Insurance

Insurers often perceive subrogated recoveries as challenging and uncertain in this region and that can be true to some extent. 

Success with subrogation in the UAE

Insights / Insurance & Reinsurance guide 2021

25-01-2021 / Insurance

We are pleased to share with you Chambers and Partners 'Insurance & Reinsurance guide 2021', of which Simon Cooper is the contributing editor.

Insurance & Reinsurance guide 2021

Insights / Supreme Court checks out of Orient Express Hotel

19-01-2021 / Insurance

On 15 January 2020, the Supreme Court handed down its judgment in this test case that was initiated by the Financial Conduct Authority (“”FCA”) in order to determine a number of common coverage issues pertaining to the correct response of non-damage business interruption policies to the Covid-19 pandemic.

Supreme Court checks out of Orient Express Hotel

Insights / Decennial Liability in the UAE

05-10-2020 / Insurance

At its core, decennial liability is a form of strict liability imposed on architects, engineers and contractors in the case of total or partial collapse of a building or structure or defects found in the building or structure that threaten the structural integrity of the building.

Decennial Liability in the UAE

Insights / The Insurance and Reinsurance Law Review Eighth Edition

16-06-2020 / Insurance

We’re pleased to share with you the eighth edition of The Insurance and Reinsurance Law Review. Ince is a member of The Law Reviews (TLR) leading panel of contributors and the team this year led by Peter Rogan as the Editor, contributed to the following topics:

The Insurance and Reinsurance Law Review Eighth Edition

Insights / Chapter 15 - England and Wales

16-06-2020 / Insurance

The UK insurance and reinsurance industry is the largest in Europe and the fourth-largest in the world.

Chapter 15 - England and Wales

Quick links

The Legal 500 2021

“Very available and responsive to company developments in real time. Frank, clear advice – not just the ‘easy’ answer.”

The Legal 500 2022

“The solicitors who have handled our employment related issues are of the highest quality in terms of their specialist area of expertise, their professionalism and their approach to us as clients and as people. Special mention has to be made of Laura Livingstone. Laura became a key member of our team and felt more like a colleague than an external adviser – a colleague you could rely upon. Laura’s attention to detail, professionalism and responsiveness was second to none. Laura has come to know and understand us as individuals and this has enabled her to personalise her advice and even sometimes to preempt our future requirements. We have a very special and extremely valuable relationship with her and the firm.”

- The Legal 500

The Legal 500 2022

“Ince are an excellent “fit” with our specific needs. The firm has consistently provided a broad range of personnel-related advice and in our experience that advice has been consistently of the very highest professional standard: it has been timely, comprehensive, accurate and at a cost which is commensurate with the budget of an organisation of our size.”

- The Legal 500

The Legal 500 2022

“The firm has an unusually high degree of insight into the practices and policies required by the Gambling Commission as regards compliance with its own requirements and conditions – particularly Andrew Tait, derived from his previous in-house experience.”

- The Legal 500