August 08 2006
An insured may seek to hold a co-insurer liable not only for its own share of a loss, but also for the share of a defaulting co-insurer. The insolvency of insurance company Independent Insurance has given the Supreme Court the opportunity to reiterate the rules that apply in this respect in two recent rulings.
Under French law, co-debtors cannot be held jointly and severally liable (unless expressly agreed otherwise) except in commercial matters, where there is a presumption of joint and several liability.
How do these principles apply to co-(re)insurers?
In two rulings dated October 22 2005 and January 18 2006 the Supreme Court reaffirmed that a co-insurer cannot be held liable for the share of risks assumed by another co-insurer, unless the co-insurers have expressly agreed to be jointly and severally liable. Failing such agreement, each co-insurer is liable only for its own share.
In its January 2006 ruling the court held that a co-insurance situation is not in itself sufficient to warrant a finding of joint and several liability among the co-insurers, provided that the insurance policy clearly specified the share of risks assumed by each of the co-insurers.
Co-insurers are not joint debtors of the insured. Each co-insurer makes a separate commitment to the insured in respect of a specified share of the risks; the individual commitments of the co-insurers are then collectively reduced to writing in one document (ie, the insurance policy).
In its October 2005 ruling the court held that the fact that a leading insurer handled the policy was insufficient to warrant a finding of joint and several liability among the co-insurers.
In its January 2006 ruling the court highlighted certain circumstances that could lead to a finding of joint and several liability among co-insurers
One such circumstance is where one of the co-insurers (usually the leading insurer) has been appointed to act as agent for the other co-insurers, not only with regard to their rights, but also with regard to their obligations (including the obligation to pay losses).
The grant of authority to the leading insurer must be clear from the policy or other evidence. For instance, the policy may contain clauses authorizing the leading insurer to collect insurance premiums on behalf of all the co-insurers and to represent the co-insurers as plaintiffs or defendants in any legal action between them and the insured (especially in an action for compensation of a loss).
This exception will apply on a case-by-case basis depending on the policy wording.
Even in commercial matters, co-insurers cannot be held jointly and severally liable to the insured unless otherwise provided in the policy or unless the leading insurer acts as agent for the co-insurers with respect to the insured.
The same rules should apply to co-reinsurers. The wording of the reinsurance treaties will be critical in determining whether co-reinsurers may be held liable for the quota shares of defaulting co-reinsurers.
Consequently, provided that the reinsurance treaty clearly specifies the quota share of the risks assumed by each co-reinsurer and does not name the leading reinsurer as agent for the other co-reinsurers, each co-reinsurer should be liable to the ceding company only for its own share of the risks.
For further information on this topic please contact Rémi Passemard at BOPS (SCP Bouckaert Ormen Passemard Sportes) by telephone (+33 1 70 37 39 00) or by fax (+33 1 70 37 39 01) or by email (firstname.lastname@example.org).
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