Buying English Law When You Place London Market Reinsurance?

Cedents based in the United States should be aware that they may be buying (or, indeed, have already bought years ago) English law to govern interpretation of their reinsurance contracts placed in the London market.

In a US court presiding over a lawsuit involving reinsurance placed in London, English law can apply despite the American forum. In any given case, whether the reinsurer is found to owe indemnification to its cedent – or not – can be the immediate result of whether English law applies rather than the contract law of any of the 50 US states. English and US law can vary on a number of issues relevant to a reinsurance lawsuit, including for example: allocation of loss; follow the fortunes; the timeliness of notice; or the statute of limitations. English law also varies from most US laws on how pre-judgment interest is calculated. The application of English law also might preclude an action based on an American statute.

In a very recent case, a US federal court decided that English law would apply in a dispute between a US cedent and its London reinsurers. See Certain London Market Co. Reinsurers v. Lamorak Insurance Co., 2022 WL 194998 (D. Mass. Jan. 20, 2022). The court applied the “most significant relationship” (or “center of gravity” or “grouping of contacts”) test, which considers the place of the contracting, the place of negotiating, the place of performance, the location of the contract’s subject matter, the locations of the parties, and the parties’ justified or reasonable expectations. In Lamorak, the ceding company was originally based in Massachusetts. But the slip agreements were placed in England through London brokers, they were signed by reinsurer representatives in England, the documents were issued in England, and the cedent presented its demands for payment to reinsurers in England. Those facts gave England the predominant relationship with the reinsurance contract in light of the parties’ differing locations. Similarly, it determined that the US location of the cedent was not controlling, because the cedent would issue its billings to London and performance under the slip contracts – i.e., payment of the billings – would come from London.