WIENER STÄDTISCHE VERSICHERUNG AG V INFRASSURE LTD

2023 ONSC 5256, Ontario Superior Court of Justice, Justice Conway, 13 October 2023

Reinsurance – Follow the settlements clause – Settlement – Whether loss arguably covered by the insurance – Whether reinsured acted in a bona fide and businesslike fashion

Vale operated two flash furnaces in Ontario, used to smelt nickel and copper ore.

On 6 February 2011 a failure occurred in a tap block of Flash Furnace 2, leading to a run-out of molten material from a tap hole. The building had to be evacuated, and the Ontario Ministry of Labour ordered all work to stop. Vale subsequently partially rebuilt the furnace, which came back into operation in June 2011. Vale was insured against material damage and business interruption by Zurich, and Zurich was in turn reinsured by VIG as a 99.89 per cent front for Swiss retrocessionaires Infrassure. The retrocession stated that "This reinsurance will follow the terms and conditions of the Original polic(ies) in all respects and will follow the settlements of the Original policy(ies), in each case save insofar as any express term on this reinsurance provides otherwise".

The loss was settled by Zurich and VIG in December 2014, but Infrassure refused to participate on the basis that there were two operative exclusions in the Zurich policy. VIG sought indemnification from Infrassure.

Judgment was given for VIG.

(1) The follow the settlements clause was unqualified.

(2) The two exclusions relied upon by Infrassure were arguably not applicable.

(3) Zurich and VIG had acted in a bona fide and businesslike fashion in settling the claim, so the follow the settlements clause was applicable.