Waiver Of Breach Of Condition Precedent - A Victory For Reinsurers

Lexington concerned a reinsurance of

Multinacional, one of Venezuela's largest insurers, which

provided property and business interruption cover to a local

insured. The insured suffered a loss in April 1998. The

reinsurance contracts contained a claims co-operation clause

which made it a condition precedent to liability that the

reinsured would advise the reinsurers of any claim and

co-operate with its settlement.

In early 2000, reinsurers informed Multinacional that its

failure to cooperate discharged reinsurers from any liability

under the reinsurance. At the same time, reinsurers continued

to co-operate with Multinacional on a without prejudice basis

to reach a negotiated settlement of the claim. No settlement

was reached and then, in May 2001, reinsurers informed

Multinacional that the three-year limitation period for a claim

by the Venezuelan insured against Multinacional had expired.

Reinsurers and Multinacional agreed that Multinacional would

invoke the time-bar against the insured in accordance with a

strategy to be agreed. Reinsurers then contended that in

subsequent communications with the insured, Multinacional had

waived the timebar defence and thereby (again) breached the

claims co-operation obligations. The case came before the

Commercial Court in the form of preliminary issues: (1) had

reinsurers prospectively waived any future breach of condition

precedent by repudiating liability for the claim in early 2000?

(2) was renunciation of the time bar defence a breach of

condition precedent?

The Commercial Court decision

The Court found in favour of reinsurers. The findings of

most interest were:

If reinsurers were right to contend that Multinacional

was in breach of condition precedent they were automatically

discharged from liability. If they were wrong, they were not.

It followed that the reinsurers had not, by their letter in

early 2000, elected not to rely on any future breach of the

claims co-operation obligations - they had not made any

choice between mutually inconsistent rights. Raising a

defence, although it might involve a choice, was not a

contractual election which amounted to a waiver of any breach

of condition precedent. On this point, the Court followed the

decision in Kosmar Villa Holidays.

It was acceptable for the reinsurers to maintain a

position that they had been discharged from liability, while

also actively co-operating with the adjustment and settlement

of the claim on a without prejudice basis. The judge

...