Swiss Reinsurance Co. v Camarin Ltd.

Issue Discussed: Third Party Issues

Submitted by Paul Bates

Date Promulgated: August 10, 2007

Issues: Common Mistake and Rectification of Reinsurance Contracts

In Swiss Reinsurance Co. v. Camarin Ltd., Burnyeat J. of the British Columbia Supreme Court ruled that a reinsurance contract would not be rectified where the parties had included a “follow the settlements” clause in previous agreements, but which clauses were not included in the years in question. Camarin was bound by the wording prepared by the primary insurer on their behalf.

The defendant, Camarin Limited (“Camarin”) was a “captive” insurer of Weyerhaeuser Company Limited (“Weyerhaeuser”). Weyerhaeuser had three layers of insurance: a primary layer, an umbrella layer, and an excess of loss layer. Camarin was responsible for 50% of the umbrella layer of insurance. Camarin then reinsured the 50% liability with Swiss Reinsurance Company (“Swiss Re”). A class action was commenced against Weyerhaeuser with respect to a roofing product which was alleged to be defective. The primary insurer agreed to make payment to the class in the amount of $70 million CAD.

Swiss Re sued, seeking an order rescinding the reinsurance policies for the years 1993 and 1995 through 1998, alleging that Camarin and Weyerhaeuser failed to disclose and/or misrepresented their exposure to the claims. Camarin counterclaimed, seeking a declaration that the Swiss Re policies were enforceable and that Swiss Re would be obliged to “follow the settlements” of the underlying insurer.

The problem resided in the fact that although the 1991 and 1992 versions of the Swiss Re policy included a “follow the settlements” clause, the 1993 and 1995 through 1998 versions of the Swiss Re policy did not. The policy was negotiated every year and offered to Swiss Re. In the years in question, the “follow the settlements” clauses were not included for some reason. Camarin claimed that the parties intended that those policies were to include a “follow the settlements clause” and that the clause was not included through a mutual mistake. As a result, Camarin sought rectification of the policies. Burnyeat J. found it compelling that, in connection with the negotiation of an aggregate excess of loss reinsurance policy in 1997, Swiss Re specifically rejected the inclusion of a “follow the settlements” clause in that policy.

On August 10, 2007, based on the facts therein, Burnyeat J. held that there was no mutual intent to included a “follow the settlements clause” in either of the policies in 1993 or 1995 through 1998. Based on the evidence before the Court, there was no “compelling evidence” to suggest an intent to include the clause in the policies. Burnyeat J. noted that once Swiss Re agreed to the Offer to Reinsure by the other insurers, Swiss Re was bound to the terms agreed to. Those were the terms agreed to by Swiss Re. This signed acceptance by Swiss Re is then proof that the parties were in“consensus ad idem”.

Lastly, Burnyeat J. noted also that the doctrine of contra proferentem would apply. The slip was prepared by the primary insurer and the terms were “checked carefully” by both Camarin and Weyerhaeuser with no mistake or omissions being noted then, before being presented to Swiss Re. As such, Camarin was bound by the wording prepared by the primary insurer on their behalf.