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| February 01, 2004 | COPYRIGHT 2004 Financial Times Ltd. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

(From Reinsurance)

By John Butler.

Eagle Star v JN Cresswell & others [2003] EWHC 2224 (Comm), a trial of preliminary issues before Mr Justice Morison, arose out of a dispute between the claimants and the defendants, (a group of Lloyd's underwriters and companies) over the reinsurance of a comprehensive general liability excess policy issued by the claimants to a US company, Varian Associates, for one year from November 1970. In October 1995 the claimants had entered into a settlement agreement with Varian in respect of a number of environmental damage claims made against them.

The claimants contended that the defendants were liable to indemnify them for their liabilities to Varian under the settlement agreement and the costs they had incurred in investigating and defending the Varian claim. While the defendants contended that they were under no liability to Eagle Star because, under clause (b) of the claims co-operation clause, it was a condition precedent that the defendants should control negotiation and settlement of such claims. The defendants had not controlled the negotiation or settlement of the claim or claims, and had not been given the opportunity to do so.

Wording issue

The reinsuring clause in the reinsurance policy reads in part as follows: "... being a reinsurance of and warranted same gross rate, terms and conditions as and to follow-the-settlements of the company (the claimants) and that the company retains during the currency of this policy at least the amount stated in the schedule as the retention on the identical subject matter and risk and in identically the same proportion on each separate part thereof but, in the event of the retention being less than that stated in the schedule, the underwriters' lines to be proportionately reduced."

The policy also contained, as an addendum, a claims co-operation clause which provided, inter alia, that the claimants agreed: "(a) To notify all claims or occurrences likely to involve the underwriters within seven days from the time that such claims or occurrences become known to them; (b) The underwriters hereon shall control the negotiations and settlements of any claims under this policy. In this event the underwriters hereon will not be liable to pay any claim not controlled as set out above."

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