UK Legal - Elements of conspiracy.

(From Reinsurance)

Byline: John Butler.

The judgement of Mr Justice Thomas in Sphere Drake Insurance v Euro International Underwriting and others [2003] EWI-IC 1630 (Comm) has created a great deal of interest in reinsurance circles. The judgment itself is some 1400 pages long, which can hardly be seen as surprising considering that there were seven defendants and the complexity of the matters involved.

A large part of the judgement consists of a detailed exposition of the facts upon which the judge based his conclusions, which, obviously, can only be touched upon in a very truncated form here. Anyone who would like a further insight into the way in which business was carried on by some in a particular section of the reinsurance market in the 1990s could do worse than read the judgement itself.

The action arose out of the involvement of various underwriters in the London market in the reinsurance of US workers' compensation (WC) insurance, in the shape of what came to be known as WC carveout business. That is to say business where the Workers' Compensation Act (section B) of the standard US WC policy (which covered employers' liability in limited circumstances) had been taken out and the residue - amounting in most cases to some 90% of the liability - offered for reinsurance separately.

Liability business

Although WC carveout was liability business, it was treated as a form of accident business. Consequently, many life companies, particularly in the US, were able to cover what was in fact liability business (which they were prohibited from writing), on the basis that it was personal accident business which they could write.