Privilege in the Cedent-Reinsurer Relationship

The relationship between an insurance carrier and its reinsurer has regularly been described as one based on the principle of uberrima fides, or utmost good faith. Under this doctrine, the reinsurer and the reinsured are “partners” who owe each other candor in the assessment and payment of claims. Courts have recognized that, due to the cedent's front-line role in receiving, analyzing and responding to direct claims from its insureds, reinsurers rely heavily on the cedent's judgment in determining coverage for a given claim, and that the cedent must exercise that judgment in good faith. Utmost good faith also imposes obligations on the reinsurer, requiring the reinsurer “to indemnify its cedent for losses that are even arguably within the scope of the coverage reinsured, and not to refuse to pay merely because there may be another reasonable interpretation of the parties' obligations under which the reinsurer could avoid payment.” Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 43 (1st Cir. 2000). It is from this doctrine that the principles of follow-the-fortunes and follow-the-settlements arise, where a reinsurer is ordinarily prevented from second-guessing the claim determinations of its cedent, subject to certain exceptions.