Important legal cases

Legal firm DAC Beachcroft has released a summary of what it considers the important legal cases for the marine insurance industry in the past 12 months.

In AXA Versicherung AG v Arab Insurance Group (B.S.C.) it was decided by the court that the reinsurer must prove inducement to avoid for non-disclosure.

Despite a cedant’s failure to disclose loss statistics relating to its inward book of marine energy construction risks, its facultative obligatory first loss reinsurer was not entitled to avoid reinsurance treaties covering two years of account.

While the cedant accepted that loss statistics relating to the insurance being written would generally be material, in this case it stated that disclosure of the statistics

would not have affected the reinsurer’s decision to write the treaties. This was because the historical poor loss results were not indicative of likely future results as the cedant had adopted a fundamentally more conservative underwriting strategy following the appointment of a new underwriter.

The reinsurer’s underwriter could not recall the transaction being carried out and therefore the court considered that a “healthy scepticism” was appropriate in considering any evidence given as to what the underwriter would have done had the loss statistics been presented.

The court concluded that the underwriter would have been willing to listen to justifications the cedant would have given regarding the previously poor results. Therefore, the non-disclosure had not influenced the decision of the reinsurer’s underwriter and, in this case, the treaties could not be avoided.