A clerical error dragged a major brokerage house into a complicated court battle between global reinsurer Swiss Reinsurance Company and the incorporated reinsurer of MacMillan Bloedel Limited, a major forestry giant in Canada.
Camarin Limited was incorporated by MacMillan Bloedel and used to insure part of the company’s 1999 casualty insurance program.
Aon acted as the insurance brokerage for MacMillan Bloedel and its affiliates, including Camarin.
Under the terms of the insurance program, Aon provided $2 million in primary policy coverage to MacMillan Bloedel in 1993 and $5 million thereafter.
Beyond the $5-million limit, AON provided excess layers of coverage with limits $23 million in 1992 and 1993 and a $20 million limit in 1995-1998. For these excess layers, 50% was reinsured by Camarin; and then 100% of that was then reinsured by
Swiss Re in 1993 and 1995-1998.
The 1992 Swiss Reinsurance Policy contained a “follow the settlements clause,” which required Swiss Re to be bound by any settlements reached by Camarin arising out of any litigation related to the underlying policies.
MacMillan Bloedel and Camarin instructed Aon to renew the 1993 Swiss Re Policy “as is,” including the “follow the settlements” clause. But when Aon renewed the 1993 policy, a clerical error resulted in Aon London not including the “follow the settlements” clause in the Swiss Re Policies issued for 1993 and the subsequent years.
The flaw in the agreement was exposed when a subsidiary of MacMillan Bloedel, American Cemwood in Oregon, faced a series of lawsuits based on faulty roofing tiles dating between 1993 and 1997.
In a coverage action launched in B.C., the primary insurer,
AIG, said it was not bound to indemnify MacMIllan Bloedel or Cemwood and that the Swiss Re coverage was void because it did not contain the “follow the settlements cause.”
AIG ulitmately settled two class actions, one in California and one in B.C., for a total of more than $140 million, of which approximately half was covered by
AIG's excess policies.
Swiss Re launched a claim against Camarin, saying its policies did not apply to the Cemwood settlements because Camarin had misrepresented to Swiss Re the liability exposure related to the Cemwood product.
Camarin then launched a lawsuit against Aon for failing to include the “follow the settlements” clause, as instructed. Camarin’s claim depended on the court finding that Swiss Re did not have an obligation to pay the reinsurance.
Ultimately, the courts concluded that Aon was in fact negligent by not including the clause. But it also found that Aon did not have to pay Camarin’s costs, since Swiss Re’s lawsuit against Camarin was unsuccessful.
Camarin's counterclaim for indemnification under the Swiss Re Policies was allowed. Swiss Re was ordered to indemnify Camarin for more than $25 million, being the total indemnity that Camarin is obliged to pay AIG under its reinsured policies issued to AIG.
The decision indicates that Swiss Re has appealed.
