It’s a perennial issue that has plagued the market, particularly those in the legacy arena. How do you prove the existence of a reinsurance contract when you can’t find the paperwork? That was the issue for the Commercial Court in R&Q Insurance (Malta) Ltd v Continental Insurance Company, whose December 2017 decision has only recently been made publicly available.
The three claimant insurance companies were all members of the AIM pool in the 1980s. They brought a claim for payment and declaratory relief against Continental Insurance Company in respect of four reinsurance contracts they said were made with Continental’s predecessor, F&C. Although the reinsurance was allegedly written some 35 years ago, between 1981 and 1983, the claimants were still making claims in respect of it because the underlying risk was liability on the part of an Australian building company. As a result of asbestos used in its building materials it became subject to an increasing number of very substantial mesothelioma claims which are still continuing but the insurance years 1981 to 1983 are relevant because that is when many of the underlying claimants were first exposed to the asbestos.
The problem for the claimants was that they were unable to produce the original slip, cover note or other equivalent document which would have directly evidenced or contained the reinsurance in question. Continental/F&C denied that it was party to any reinsurance in the relevant years in favour of the claimants covering this particular risk.
The judge accepted that extensive efforts had been made by both parties to find the relevant documents but that they could not be tracked down and, he held, the claimants’ explanation for their absence was reasonable. He considered a number of judicial authorities on the so-called ‘best evidence’ rule (i.e. that evidence should be the best that the nature of the case will allow) and concluded that, assuming the documentation was genuinely unavailable, it then becomes a matter of weight for the court when assessing the secondary evidence adduced in its place. In this case, the secondary evidence included items from the reinsurance brokers’ files, extracts from the claimants’ computer records and written and oral evidence from various witnesses, including the broker. On the basis of that evidence, the judge concluded that Continental/F&C was a party to the reinsurance. He also held that it had agreed to front a pool of reinsurers for the material years. The broker’s evidence was that fronting was a commercially necessary feature of Continental/F&C’s business and that its fronting role was well known in the market. In the absence of any evidence from Continental/F&C that it would or could not have acted as a front in the years 1981 to 1983 there was no reason to disbelieve the broker’s evidence, which was supported by other material.
The judge then went on to consider whether the claimants’ claims were now time-barred. The claimants accepted that most of them were but sought to rely on two alleged acknowledgements of liability. The judge agreed that certain communications from Continental/F&C, after reimbursement was sought, amounted to acknowledgements (subject to finalisation of the figures).
The case will be welcome to those cedants seeking to make collections, where the primary evidence has been difficult to ascertain. As highlighted above, this is particularly acute in the legacy market, where the wave of M&A activity (including within the broking community) has made the retrieval of records difficult (putting aside the occasional warehouse fire that has seemingly destroyed many records). That said, it cannot be taken for granted that the court will automatically find the existence and terms of any contract if the primary evidence is no longer available. The secondary evidence must be admissible and sufficient to prove the case, and backed up by witness evidence where available.