In the House of Lords case of Lexington Insurance Co Ltd v Wasa
International Insurance Co Ltd [2009] UKHL 40, it was
held by the Law Lords that even when a reinsurance policy incorporates
the terms of the underlying insurance policy they could risk of not being
held “back to back” when both insurers and reinsurers have not agreed a
common governing law over the policies or at least when the insurance
policy is not subject to an identifiable governing law.
This is because such legal oversight could leave either the insurance or
reinsurance policy exposed to a takeover by different jurisdictions that
could interpret the terms of the insurance policy differently than the
governing law of the reinsurance policy.
It is very important to make the contracts subject to the same governing
law since this shortfall could be the difference between being reinsured
for the insured amount or reinsured for a substantially lesser amount or
even nothing!
IF THE LOSS IS IN TERMS OF THOUSANDS THE INSURERS COULD INCUR
SUBSTANTIAL LOSSES OVER A SMALL LEGAL BLUNDER.
