Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Will Reinsurers Still 'Follow-the- Settlements'?

By John M. Nonna
September 01, 2003

In the insurance arena, allocations of claims amounts are frequently the subject of litigation among policyholders and insurers. Courts seek to fashion allocation formulas based upon a number of factors including policy language, legal principles and equitable considerations. In the reinsurance context, allocation questions are generally resolved in arbitration. A number of courts, however, have recently addressed the allocation of claims settlements in the reinsurance context. The issue in reinsurance is whether the reinsurer is bound by the cedents' allocation of a loss or settlement amount to the cedents' policies at issue in the underlying claim. Reinsurers are generally bound to “follow-the-fortunes” or “follow-the-settlements” of a cedent provided the cedent has acted reasonably and in good faith and in accordance with the terms of the reinsurance contracts. Aetna Cas. & Sur. Co. v. Home Ins. Co., 882 F. Supp. 1328, 1346 (S.D.N.Y. 1995). This article surveys recent case law that has addressed the question of whether the “follow-the-settlements” or “follow-the-fortunes” doctrine applies to allocation of claims payments or settlements to reinsured policies.

The 'Follow-the-Settlements' Doctrine

The “follow-the-settlements” or “follow-the-fortunes” doctrine requires a reinsurer to cover settlements made by the reinsured, as long as they are not fraudulent, collusive, or made in bad faith. Aetna Cas. & Sur., 882 F. Supp. at 1346. The doctrine obligates the reinsurer to indemnify a cedent for good faith payment of claims that arguably fall within the scope of the underlying policy that was reinsured. Mentor Ins. Co. (U.K.) Ltd. v. Brankasse, 996 F.2d 506, 517 (2d Cir. 1993). The term “follow-the-fortunes” describes the reinsurer's obligation to follow the ceding insurer's underwriting fortunes, whereas “follow-the-settlements” refers to the duty to follow the actions of the cedent adjusting and settling claims. Aetna Cas. & Sur., 882 F. Supp. at 1346 n.9. However, most commentators and courts use the two terms interchangeably.

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Removing Restrictive Covenants In New York Image

In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?

The Benefits of Blockchain for e-Discovery and Data Preservation Image

As businesses across various industries increasingly adopt blockchain, it will become a critical source of discoverable electronically stored information. The potential benefits of blockchain for e-discovery and data preservation are substantial, making it an area of growing interest and importance.