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'Follow the Settlements' Doctrine: Implications on a Reinsured's Allocation and Aggregation of Losses
The applicability of the bedrock reinsurance principle of “follow the settlements” is at the core of an increasing number of recent reinsurance disputes concerning whether a reinsurer must follow the manner its reinsureds allocate and aggregate underlying losses. Over the last 5 years, a number of courts have addressed whether the doctrine of “follow the settlements” precludes a reinsurer from second-guessing its reinsured's determination of how it allocated and/or aggregated losses in resolving disputes with the underlying insured. As discussed more fully below, reinsureds typically argue that under the “follow the settlements” doctrine, a reinsurer must defer to the allocation and aggregation decisions of its reinsured, provided those decisions are made in good faith. Reinsurers on the other hand, typically argue that “follow the settlements” is not unlimited, but that the reinsured's decisions must be consistent with the language of the reinsurance agreement.
Commercial insurers are regularly faced with losses that occur over time, and implicate multiple policy periods and multiple insured locations as commonly seen in pollution claims. In resolving these types of losses, the insured and insurer typically reach agreement about how to allocate such losses to the policies, and specifically, how such losses erode the insured's policy limits, or implicate the insured's deductible, retention or retrospective premium, as the case may be. Such matters, moreover, are important to the insurer's ability to collect reinsurance proceeds, as the manner in which the underlying settlement is allocated can dictate the specific reinsurance policies that are applicable and the retention that applies to any reinsurance proceeds.
Similarly, the manner that an insurer combines ' or aggregates ' related claims submitted by its insured is important for reinsurance purposes. The number of occurrences attributable to a group of claims is important to the underlying insured and insurer because the number of occurrences can impact the amount or number of deductibles applicable to the loss or losses as well as whether or not the loss or losses exceed a policy per occurrence limit. The determination concerning the number of occurrences is equally important to the insurer's ability to collect reinsurance. The “extent to which a cedent may aggregate losses under its reinsurance contract often determines whether the cedent is entitled to any reinsurance protection or whether it must incur multiple retentions so as to effectively render a loss unreinsured.” Barry R. Ostrager and Mary Kay Vyskocil, Modern Reinsurance Law and Practice, '10.02 (2nd ed. 2000). For example, where an underlying insurer settles as a separate occurrence numerous claims for small dollar amounts, such as instances where an insured submits thousands of small asbestos losses, the insurer may pay millions in total claim payments yet never reach the per occurrence retention threshold necessary to collect the proceeds of its reinsurance coverage.
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.