Loss settlement clauses
Produced in partnership with Professor Özlem Gürses of King’s College London
Loss settlement clauses

The following Insurance & Reinsurance practice note produced in partnership with Professor Özlem Gürses of King’s College London provides comprehensive and up to date legal information covering:

  • Loss settlement clauses
  • Full reinsurance clauses in proportional reinsurance
  • Proof of loss in the absence of a loss settlement clause
  • Follow the settlements and follow the fortunes clauses
  • Businesslike and good faith requirements
  • Challenging unbusinesslike loss settlements
  • Establishing liability under the reinsurance
  • Tension with claims cooperation and claims control clauses
  • Varieties of full follow the settlement clauses
  • Excluding without prejudice settlements
  • More...

Loss settlement clauses

Reinsurance contracts may be proportional or non-proportional. Loss settlement clauses are observed in both types. The main purpose of loss settlement clauses is to record what the parties to a reinsurance contract have agreed as to how the reinsured may prove its loss in order to claim under its reinsurance.

The usual intention, if the reinsurer has sufficient faith in its cedant to settle inwards losses properly, is to mitigate the burden on the reinsured of having to prove its loss to the standard required by the common law and to minimise the need for reinsurers to reinvestigate underlying losses. Some loss settlement clauses also impose express safeguards or provisos to ensure that the bargain struck by the reinsurer is not undermined by binding loss settlements that are beyond the scope of cover provided.

Loss settlement language may also be combined with words that incorporate the terms and conditions of the underlying policy so as to align the scope of cover with it (typically, but not exclusively in proportional reinsurance policies). The paradigmatic example of this is the ‘full reinsurance clause’, which incorporates the terms of the original insurance into reinsurance contracts as well as setting out the parties’ arrangements as to the proof of the reinsured’s loss.

For information on reinsurance generally, see Practice Note: Forms of reinsurance and terminology.

Full reinsurance clauses in proportional

Popular documents