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Reinsurers Fail to Block Oil Storage Tank Liability

Reinsurers have failed in a High Court bid to avoid potential liability for a $28 million claim in respect of a crude oil storage tank in Kuwait that was damaged after settling on unsure foundations. The court rejected the reinsurers’ plea that insurers had admitted liability and negotiated a settlement of the claim without obtaining their prior approval, as required by the reinsurance contract.

The contract was subject to a claims control clause (CCC) that required the insurers, inter alia, to notify the reinsurers promptly of any potential loss, to keep them fully informed of the progress of any such claim and not to reach any settlement or compromise, or make any admission of liability, without the reinsurers’ prior approval.Gas Storage

The reinsurers argued that they had, in breach of the CCC, been excluded from the insurers’ negotiations with the ultimate insured; that liability had been admitted ‘on numerous occasions’ during such negotiations and that the claim had been settled or compromised without the reinsurers’ prior approval.

Rejecting those arguments, the court noted, inter alia, that the insurers’ negotiations with the insured had been conducted on a ‘no prejudice’ basis as to liability. On the evidence, there had been no admission of liability, nor had there been a binding settlement or compromise. There had also been no concluded agreement in respect of the quantum of the claim.

The ruling means that, if settlement terms are not agreed, the dispute will go forward to a full hearing, at which a judge will decide the extent, if any, of the reinsurers’ liability under the contract.