Cedents advised to get reinsurers’ blessing when settling class action claims

Primary insurers should make sure they get the blessing of their reinsurers when attempting to resolve class action claims, according to Mark Lichty, partner at Blaney McMurtry LLP.
Lichty was speaking at the Canadian Defence Lawyers Annual Meeting & Conference, The Alchemy of Advocacy, in Toronto.
This issue is now arising with much greater frequency, Lichty said.
One Canadian insurer learned this lesson recently, after making a very substantial contribution to a U.S. class action settlement, without the blessing of reinsurers.
The reinsurance marketplace said it was not prepared to reimburse the insurance company because it did not agree with the assessment of liability or the damage payout, Lichty noted. More importantly, however, the underlying layers from the direct policy had not been exhausted, according to the reinsurers.
Previously, it has been said that the relationship between the cedents and reinsurers was one of trust, custom and good faith. Therefore, if the cedent decided to pay $25 million in settlement, the reinsurers accepted it.