1. REINSURING CLAUSES Ozlem Gurses University of Southampton

2. Facultative reinsurance-Reinsuring Clauses “As original” (incorporation of terms /back-to-back cover) “Follow the Settlements” “Follow the Form” (concurrency between original insurance and reinsurance) “Follow the Fortunes” (used interchangeably with follow the settlements)

3. Gard Marine & Energy Ltd v Tunnicliffe [2011] EWHC1658 (Comm), Gard subscribed to a 12.5% share of a policy issued to Devon Energy Corporation The policy was against all risks of physical loss or damage to offshore and onshore property, and business interruption The policy was subject to a combined single limit of US$400 million (for 100% interest), any one accident or occurrence arising out of a Named Windstorm in the Gulf of Mexico The policy stated: [the] Combined Single Limit of Liability … [and] the Assured's Retention … shall be reduced proportionately and shall apply in the same proportion as the total interest of the Assured in said well hereunder bears to 100% …

4. Gard Marine & Energy Ltd v Tunnicliffe 7.5% of the line was reinsured with Lloyd’s syndicates (Advent’s share: 2%) 5% was reinsured with Glacier Re. The reinsurance was “subject to all terms, clauses, and conditions as Original and to follow the Original in every respect” The “Sum Insured” clause in the reinsurance policy provided as follows: To pay up to Original Package Policy limits/amounts/sums insured excess of USD$250 million (100%) any one occurrence of losses to the original placement.

5. Gard Marine & Energy Ltd v Tunnicliffe Hurricane Rita caused Devon to suffer substantial losses. Total loss: US$912.5 million Devon’s interest was about 46% : US$416 million The claim was settled in the sum of US$365 million Gard’s share of the payment : 12.5% proportion: US$45,625,000.

6. Gard Marine & Energy Ltd v Tunnicliffe Dispute arose in relation to the deductible: Two interpretations: 1- (100%) in the sum insured clause meant that it was necessary to “scale” the deductible to match the assured’s actual interest in the insured subject matter. Thus, the deductible would be reduced from US$250 million to US$114 million The amount recoverable was US$365 million minus US$114 million: US$251 million. 2% of US$5,020,737

7. Gard Marine & Energy Ltd v Tunnicliffe 2) the deductible was not to be scaled The full US$250 million was to be deducted from the loss of US$365 million: US$115 million. 2% of US$115 = US$2,300,000

8. Construction of reinsurance contracts A contract is to be construed in the way that it would have been understood by a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract The reinsurance contract was subject to the same terms and conditions as original It was supported by expert evidence of the market for insurance of offshore energy risks that the notation “(100%)” had a specialised and recognised meaning, namely, that of scaling.

9. Commercial Union Ins. Co. v. Swiss Reinsurance America Corp. 413 F.3d 121, C.A.1 (Mass.),2005. W.R.Grace & Co. (assured) -------Maryland (insurer) 5 successive one-year policies: 1962-63 1963-64 1964-65 1965-66 1966-67 and two three-year policies from 1967-1970 1970-1973

10. Excess insurance Grace – Commercial Union (Excess insurer) Four successive multi-year umbrella policies 1962-1965 1965-1968 1968-1971 1971-1974

11. Excess policies [A]ll personal injury and property damage... arising out of one event or continuous or repeated exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed to be one occurrence. “Follow-the-form” clauses: “the terms, conditions and limitations of this policy will not be construed any more restrictive [sic] than the terms, conditions and limitations of Underlying Insurance.”

12. Reinsurance Swiss Re issued three multi-year “certificates” to Commercial Union for the period 1965 to 1974. Swiss Re agreed to share 50 per cent of Commercial Union's first $1 million in loss for “each occurrence” Follow-the-form: except as “otherwise specifically provided” in the certificate-Swiss Re's liability would “follow” or “be subject” to the “terms and conditions” of Commercial Union's policies. In addition, the Swiss Re certificates contained “follow- the-fortunes” provisions

13. Settlement Commercial Union settled with Grace (1) that the hazardous waste liability at each site should be allocated pro rata across the years of relevant insurance coverage at each site and (2) that the $5 million per-occurrence limit in each policy should be viewed as applying separately to each policy year, i.e., $15 million for a three-year policy.

14. Swiss Re challenged the notion that the per-occurrence limit applied separately to each Commercial Union policy year (as opposed to the entire multi-year policy period). District court found for Swiss Re on the annualization issue

15. First circuit Each Commercial Union policy as a whole includes not only its own anti-annualization language but its own follow-the-form clause, seemingly invoking the pro- annualization language of the underlying Maryland policy. Further, the insured would benefit from the usual canons of interpretation favoring the policy holder.

16. The Swiss Re certificates could have contained a definition of “occurrence” in relation to continuing leaks, expressly negating annualization, but Swiss Re chose to provide no definition at all for this malleable word. One could read the Swiss Re policy as adopting the Commercial Union definition of the term via Swiss Re's follow-the-form clauses-but which Commercial Union definition?

17. Commercial Union Ins. Co. v. Swiss Reinsurance America Corp. was distinguished in Travelers Cas. and Sur. Co. v. Insurance Co. of North America, 609 F.3d 143 (3rd Cir.(Pa.) Jun 09, 2010)