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THE SCOPE OF THE FOLLOW THE SETTLEMENTS CLAUSE
ENGLISH LAW: THE REINSURED’S COSTS IN DEFENDING THE ASSURED’S CLAIM
The reinsured is under a duty to take all proper and businesslike steps to ascertain that there is a serious possibility that the loss fell within the contract of insurance. However if there are arguable defences available against the assured, the reinsured might have to incur expense in defending the assured’s claim. If the reinsured’s defence is successful, this would necessarily be to the reinsurer’s benefit and therefore one may argue that the reinsurer should share the relevant costs with the reinsured. This may be on the basis of relying on a sue and labour clause or alternatively, especially in proportional reinsurance contracts, the suggestion that the reinsurer and the reinsured are in a partnership relationship and they should share the costs of defending the assureds claim as well as sharing the risk and the premium. 1 These propositions are analysed below.
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