UK: Insurance/Reinsurance: Settlement Agreements

A recent High Court decision in the on-going case between the Korean National Insurance Corporation ("KNIC") and its reinsurers highlighted:

• The need for settlements between insurers to be evidenced in writing, particularly in large and/or complex disputes.
• A claimant is entitled to commence representative proceedings against a lead reinsurer as the only named defendant and, if the named defendant has the same interest as all the other parties which it represented, does not need to go to the hassle and expense of serving all named (re)insurers subscribing to the policy. Commencing proceedings against a subscription market has historically tended to give rise to procedural and practical difficulties, because of the need to identify and serve each of the syndicates and companies participating on the risk. This decision may assist in saving time and costs in commencing proceedings.
• (Re)insurers should not agree to a currency conversion clause which is not linked to the open market rate and could have the effect of artificially inflating claims.
• (Re)insurers need to exercise caution before agreeing to law and jurisdiction clauses of states where a fair trial cannot be guaranteed.

The case followed the crash of a North Korean medical rescue helicopter which killed three crew members, three passengers and caused substantial damage to a warehouse and its contents. By the underlying contract of insurance covering the period 1 November 2004 to 31 October 2005, the claimant (an insurance company incorporated in the Democratic People’s Republic of Korea ("DPRK")) insured Air Koryo (a North Korean airline based in Pyongyang) under an aviation hull and liability policy. The policy was expressly subject to the law and jurisdiction of DPRK. The contract of reinsurance covered the same period. The claimant was reinsured by the defendant which led a syndicate of reinsurers on the case (together "the Reinsurers") under an aircraft third party liability reinsurance policy. When the defendant refused to indemnify the claimant, the claimant launched proceedings in the courts of DPRK against the defendant on its own behalf and on behalf of the other reinsurers in accordance with the DPRK jurisdiction clause in the policy. The judgment upheld the claimant’s claim and ordered the reinsurers to pay the sum of €43 million. The English case was brought to enforce the North Korean judgment in England.

The Reinsurers alleged that KNIC had accepted a settlement of €43 million paid in Korean Won rather than Euros, with an agreed exchange rate. The Judge, however, found that no such deal had been agreed upon since there was no written proof. In particular, the Court held:

• The claimant was fully entitled to commence representative proceedings because the named defendant had the same interest as all the other parties which it represented.
• Given the size of the claim and the significance of the currency exchange clause, it was wholly improbable if not inconceivable that the claimant and reinsurers would reach (or be viewed as intending to reach) a settlement without a written record of the agreement, or at least a minute of the meeting in which the compromise was achieved.
• It was impossible to reconcile the existence of any agreement on either party’s part to be bound by the terms of a settlement with the contemporary correspondence.
• The belief of the Reinsurers’ solicitor that such a settlement had been reached (as demonstrated by his Statement of Truth) was irrelevant. The assessment as to whether a concluded contract had been entered into was an entirely objective exercise.

The trial to deal with the remaining issues is due to begin next year. For a link to the full article, please click here.

Further reading: Korea National Insurance Corporation v Allianz Global Corporate & Speciality AG [2007] EWHC 1744 (Comm).

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 21/09/2007.