37. Common dispute issues
What are the most common issues that arise in reinsurance disputes?
One controversial issue relates to payments after expiry of the reinsurance agreement but under claims that occurred within its validity. This issue is connected with the interpretation of an insured accident under reinsurance agreements. In several cases, the commercial courts interpreted an insured accident under reinsurance agreements as payment of insurance compensation to original assureds and, based on that, refused claims of re-assureds (insurers in underlying contracts), arguing that compensation on underlying insurance was made when the reinsurance agreements had terminated. This approach of the court infringes the interests of both the primary assureds and the insurers. In fact, under Russian law, reinsurance is qualified as the insurance of the risk of an obligation to pay insurance compensation.
Other important issues in reinsurance disputes are discrepancies between insurance and reinsurance cover (gap in cover), that is, cases when reinsurance agreements are not made in accordance with the underlying contracts (regarding validity of compensation under underlying contracts, etc). Difficulties can also arise in connection with a 'follow the leader' clause (if any in the reinsurance contract), and this is caused by lack of regulation of this concept in the law and insufficient contractual definition.
Several years ago there was a dispute where a court – upon application of the reinsurer – determined that a contract of reinsurance was unconcluded. The judgment was argued by reference to a reinsurance slip that was issued and signed by the reinsurance broker, but that was not signed or stamped by the reinsurer. The higher courts upheld this judgment. Although this case has not become a common issue of disputes yet, it exposes a risk to the general practice of concluding reinsurance contracts, and we remind parties to reinsurance contracts of the specificities of Russian regulation in this area.