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Insurance - Re-insurance. Wiener Städtische Versicherung AG Vienna Insurance Group v. Infrassure Ltd. [retrocession agreement]
In Wiener Städtische Versicherung AG Vienna Insurance Group v. Infrassure Ltd. (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from a trial addressing "the meaning and effect of a so-called “follow settlements” clause in a contract of reinsurance" in the context of a business interruption claim:
Here the court illustrates a sample of a re-insurance arrangement, and a related 'retrocession agreement' [SS confession: I had to look up what a retrocession agreement was: https://www.insuranceopedia.com/definition/3970/retrocession]:[3] Zurich had entered into reinsurance contracts with a number of reinsurers,[1] including the respondent Wiener Städtische Versicherung AG Vienna Insurance Group (“VIG”).[2] Zurich’s reinsurance applied to a percentage of a settlement under the Primary Policy that exceeded US$50 million/C$63.465 million (the “Attachment Point”). In March 2015, VIG paid $8,433,643.78 to Zurich, representing VIG’s portion of the Settlement pursuant to its reinsurance contract with Zurich.
[4] VIG, in turn, had entered into a retrocession agreement (the “Retrocession Agreement”)[3] with the appellant Infrassure Ltd. (“Infrassure”), whereby VIG ceded to Infrassure 99.89% of the risk and the associated premium that VIG had assumed under its policy of reinsurance with Zurich. VIG sought indemnification from Infrassure for 99.89% of the amount it had paid to Zurich, along with various other loss adjustment costs, arguing that Infrassure was bound by a “follow settlements” clause in the Retrocession Agreement (the “Follow Settlements Clause”).[4] Infrassure denied that it was required by the Retrocession Agreement to indemnify VIG. This led VIG to commence the present action for damages against Infrassure.
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THE RETROCESSION AGREEMENT
[22] The Retrocession Agreement between VIG and Infrassure consisted of the following:(i) a 15-page “Risk Details Form”, setting out the terms and conditions of the contract; and
(ii) a 7-page “Contract Administration and Advisory Details Form”, addressing various matters relating to the administration of the Risk Details Form. [23] These documents (sometimes referred to collectively as the “Slip”) were part of a global insurance program put in place by Vale S.A., a Brazilian mining company and the parent of Vale Canada. They are standard London market forms and contain standard London market clauses and terminology.
A. The Risk Details Form
[24] As noted above, the Risk Details Form set out the key terms and conditions of the Retrocession Agreement, including the parties, the risks covered, limits on coverage and cancellation rights. Of particular relevance to this appeal are two provisions of the Risk Details Form: the Follow Settlements Clause and the “Claims Co-operation Clause”.
(i) The Follow Settlements Clause
[25] The Follow Settlements Clause provided as follows:This reinsurance will follow the terms and conditions of the Original policy(ies) in all respects and will follow the settlements of the Original policy(ies), in each case save in so far as any express term on this reinsurance provides otherwise. [26] As is evident from this wording, the Follow Settlements Clause had two operative elements. The first was that the terms and conditions of the reinsurance under the Retrocession Agreement would follow in all respects the terms and conditions of the Primary Policy. This meant, amongst other things, that the risks insured under the Retrocession Agreement were co-extensive or “back-to-back” with those under the Primary Policy.[7]
[27] The second element was that parties to the Retrocession Agreement would “follow” settlements reached under the Primary Policy, except to the extent that “any express term on this reinsurance provides otherwise”. The parties differ on the circumstances in which the obligation to be bound by settlements under the Primary Policy is engaged, as well as what constitutes an “express term provid[ing] otherwise”.
(ii) The Claims Co-operation Clause
[28] The Claims Co-operation Clause imposed a number of obligations on VIG, including that it provide Infrassure with written notice as soon as reasonably practicable of any claim notified to VIG. VIG was also required to furnish Infrassure with all information in respect of any claim and to keep Infrassure fully informed of any developments regarding the claim. VIG was further required to cooperate with Infrassure, or any persons designated by Infrassure, in the investigation, adjustment and settlement of such claims. However, the Claims Co-operation Clause did not require VIG to secure Infrassure’s approval of any settlement reached under either the Primary Policy, or VIG’s reinsurance policy with Zurich.
(iii) Infrassure proposes and then deletes stamp language giving it the right to approve settlements under the Retrocession Agreement
[29] Infrassure had originally sought to participate as a direct reinsurer in Vale S.A.’s global insurance program and, accordingly, had been provided with a copy of Zurich’s Risk Details Form. Infrassure executed the Risk Details Form but in so doing affixed a stamp to the Form stating, inter alia, that “[n]otwithstanding slip conditions, all terms, changes, endorsements, policy wording and claims payments to be agreed by Infrassure” (the “Proposed Stamp Language”).
[30] Vale S.A.’s broker immediately rejected the inclusion of the Proposed Stamp Language on the basis that it contradicted the follow settlements clause and would not be accepted by Zurich. Infrassure then affixed a revised stamp to the Risk Details Form in which the Proposed Stamp Language was struck out. Infrassure also signed and affixed this revised stamp to the Zurich Conditions, which included an obligation by reinsurers to follow Zurich’s settlements.
[31] Despite Infrassure’s removal of the Proposed Stamp Language, Zurich rejected Infrassure as a reinsurer because of concerns over Infrassure’s security and capacity. Infrassure then decided to participate in the global insurance program through a retrocession agreement rather than as a direct reinsurer. Arrangements were made for VIG to serve as a fronting reinsurer so that Infrassure could participate in the program as a retrocessionaire. VIG entered into a reinsurance agreement with Zurich, while Infrassure signed the Retrocession Agreement with VIG. The latter agreement included the Follow Settlements Clause as set out above, rather than the follow settlements provisions in the Zurich Conditions.[8] The Retrocession Agreement also included an identical version of Infrassure’s stamp, as it had appeared on its revised initial offer, with the Proposed Stamp Language struck out.
B. The Contract Administration and Advisory Details Form
[32] The Contract Administration and Advisory Details Form included a subscription agreement (the “Subscription Agreement”), which identified Infrassure as the “Slip Leader” and, as such, as a “Claims Agreement Party”. It also contained a section entitled “Basis of Claims Agreement” which provided that reinsurers under the Retrocession Agreement agreed on how claims were to be managed. This section stated that “Non-Bureau/Overseas Reinsurers” were to “agree each for their own proportion”. Although the Subscription Agreement contemplates other reinsurers subscribing to the policy, no others did.
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[63] .... Insurance policies and their reinsurance policies are separate, independent contracts: Wasa International Insurance Co. Ltd. v. Lexington Insurance Co., [2009] UKHL 40, at paras. 32–33. ....
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[74] The relevant cases have not exhaustively canvassed what “proper and businesslike steps” include, although an allegation that a reinsured did not act in a proper and businesslike manner is tantamount to an allegation of professional negligence: Edelman, at para. 4.22. It is also clear that insurers must turn their minds to possible defences and have regard to “the prospects and risks attaching to the claim”: Gan Insurance Co. Ltd. v. Tai Ping Insurance Co. Ltd. (No. 2), at para. 49. Additionally, the views of co-insurers may be an indication of whether the reinsured has acted in a bona fide and businesslike fashion: Colinvaux, at paras. 8–69; English and American Insurance Co Ltd. v. Axa Re SA, [2007] Lloyd’s Rep. I.R. 359, at para. 30.
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[76] Once it was established that the settlement by Zurich was covered by the Primary Policy as a matter of law, the burden of proof shifted to Infrassure to prove an absence of good faith or that the settlement was not made in a businesslike fashion: Charman v. Guardian Royal Exchange Assurance plc, [1992] 2 Lloyd’s Rep. 607, at p. 613; Edelman, at para. 4.22. ....
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