A recent decision of the Commercial Court in London has resolved a significant reinsurance dispute involving Royal & Sun Alliance (RSA) and Equitas Insurance Ltd. The case, which centres on claims related to decades-old US product liability lawsuits, offers valuable guidance on how defence costs interact with reinsurance excesses and the role of reinsurers in claim settlements.
The dispute arose from RSA’s attempt to recover losses under five reinsurance policies issued between 1981 and 1985. These policies covered RSA’s share of liability for claims made against a major client, BOC Group Plc, over asbestos and welding-related injuries in the United States.
RSA had settled those claims years earlier under a major agreement known as the Toxic Torts Settlement Agreement (TTSA), and now sought approximately £3.76 million from Equitas, which had inherited the liabilities of the Lloyd’s syndicates that originally wrote the reinsurance.
The main issue concerned whether the £4 million excess in the reinsurance policies had to be used up solely through indemnity payments (i.e., compensation to claimants) or whether defence costs (legal and related expenses) could also count toward that figure.
RSA argued that since it had to pay defence costs under the original insurance policies, those costs should count toward the £4 million threshold. However, Judge Keyser KC disagreed. He concluded that defence costs and indemnity payments were treated separately in both the original insurance and the reinsurance contracts.
The £20 million cover provided by RSA to BOC was made up of indemnity payments up to that limit, with defence costs paid in addition. The reinsurance reflected this structure: the £16 million of reinsurance cover sat above a £4 million excess, and both figures referred solely to indemnity payments.
Judge Keyser found that the wording and structure of the contracts made it clear that only indemnity payments could erode the £4 million excess. Defence costs might eventually be reimbursed by reinsurers, but only once the indemnity excess had been met.
The second issue involved whether Equitas had to accept RSA’s settlement with BOC, which allocated 47% of the total claims to the 1981–1985 policies. Reinsurance contracts often contain “follow settlements” clauses, requiring reinsurers to accept reasonable settlements made by insurers.
Equitas argued that a separate clause - the “claims co-operation” clause - limited RSA’s ability to make such settlements without reinsurer consent. But the judge found that this clause only restricted RSA from litigating claims without agreement from the reinsurers. It did not prevent RSA from settling claims.
Unlike previous cases where insurers needed reinsurer approval before any settlement could be binding, here the wording was different. As a result, the judge concluded that Equitas was fully bound by RSA’s settlement, provided it had been made honestly and with due care.
Equitas also argued that RSA had not taken proper steps in reaching the TTSA. They said RSA had failed to obtain key information about BOC’s other insurance policies and had accepted an unfairly high allocation of the claims to the policy years that were reinsured.
The court rejected these criticisms. It found that RSA had received legal advice from experienced New Jersey coverage counsel, who considered relevant case law and the likelihood that the US court would include certain “Global Excess” policies in its allocation calculations. RSA’s decision to accept the 47% allocation was based on that advice and reflected the legal environment at the time.
Importantly, the reinsurers were kept informed of the negotiations and did not object. In fact, they expressed support for RSA’s approach during the settlement process. As such, Judge Keyser found that RSA had taken proper and businesslike steps, and that Equitas was bound by the settlement.
Finally, the court considered whether RSA was entitled to interest on the unpaid sums, and from when.
Equitas objected to any interest before RSA had fully particularised its losses. It pointed to long periods of inactivity, including a 20-year standstill agreement and gaps in communication after it ended.
The judge, however, found that interest should run from the date of loss. He held that RSA had consistently informed reinsurers of the claim, that the standstill was agreed by both parties, and that Equitas had denied liability from the outset. He awarded compound interest - rather than simple interest - recognising that in commercial contexts, delayed payments create real financial losses.
This judgment brings welcome clarity on several aspects of reinsurance law. It confirms that unless clearly stated otherwise, defence costs do not reduce an excess in an excess-of-loss reinsurance contract. It also affirms that reinsurers must follow honest and reasonable settlements, even where claim co-operation clauses exist, provided they do not expressly override settlement powers.
For insurers and reinsurers alike, the decision underlines the importance of precise policy wording, timely communication, and maintaining proper documentation when dealing with complex, long-tail liabilities.
Royal & Sun Alliance Insurance Ltd & Ors v Equitas Insurance Ltd
[2025] EWHC 2704 (Comm)
High Court, Commercial Court, 21 October 2025
Judge: His Honour Judge Keyser KC
Parties
Claimants:
Defendant:
Legal representation
For the claimants: Sushma Ananda and Joseph Rich (Bryan Cave Leighton Paisner LLP)
For the defendant: David Scorey KC and Sarah Cowey (Norton Rose Fulbright LLP).
