Will Reinsurers Still 'Follow-the- Settlements'?

In the insurance arena, allocations of claims amounts are frequently the subject of litigation among policyholders and insurers. Courts seek to fashion allocation formulas based upon a number of factors including policy language, legal principles and equitable considerations. In the reinsurance context, allocation questions are generally resolved in arbitration. A number of courts, however, have recently addressed the allocation of claims settlements in the reinsurance context. The issue in reinsurance is whether the reinsurer is bound by the cedents' allocation of a loss or settlement amount to the cedents' policies at issue in the underlying claim. Reinsurers are generally bound to "follow-the-fortunes" or "follow-the-settlements" of a cedent provided the cedent has acted reasonably and in good faith and in accordance with the terms of the reinsurance contracts. <i>Aetna Cas. &amp; Sur. Co. v. Home Ins. Co.,</i> 882 F. Supp. 1328, 1346 (S.D.N.Y. 1995). This article surveys recent case law that has addressed the question of whether the "follow-the-settlements" or "follow-the-fortunes" doctrine applies to allocation of claims payments or settlements to reinsured policies.

28 minute read September 01, 2003 at 10:06 AM

By

John M. Nonna