DMC/INS/05/02
Gan Insurance Company Limited v The Tai Ping Insurance Company Limited 
English Court of Appeal: Brooke, Mance and Park LJJ.: March 2002 
Colin Edelman QC and Colin Wynter, instructed by Elborne Mitchell, for Gan 
David Railton QC and John Lockey, instructed by Stephenson Harwood, for Tai Ping
REINSURANCE: CLAIMS COOPERATION CLAUSE: "investigation and assessment of any loss": FAILURE TO act in a "proper and business-like manner": relevance and purpose of enquiries: SUFFICIENCY OF INFORMATION SUPPLIED IN ANSWER: investigation of all matters relevant to a claim IncludES coverage issues: conduct over settlement unbusinesslike: AMENDMENT OF PLEADINGS
Summary 
In the latest decision in the Gan v Tai Ping saga, the Court of Appeal has held that, although reinsurers were entitled to ask insurers the questions they did, they had no prospect of showing that the information provided was in breach of Tai Ping’s obligations under the claims cooperation clause. Gan has, however, been given a chance to pursue its claim that Tai Ping failed to act in proper and business-like manner in settling the claim under the underlying cover.

On 14 October 1996 the factory was severely damaged by fire. Tai Ping originally sought to avoid the policy but subsequently settled the claim for TN$2.65 billion on 30 July 1997.

As between Gan and Tai Ping, allegations of misrepresentation and non-disclosure arose because Gan said that, during the pre-contract negotiations, its underwriter had been shown drawings showing six fire-fighting systems, which he was led to believe had been installed. In fact, they had not, although temporary fire protection equipment was in place. The presence of this temporary equipment had been disclosed by the insured to Tai Ping in a questionnaire, but not by Tai Ping to Gan.

Tai Ping obtained reports on the fire from forensic investigators and provided Gan with copies. In a letter dated 28 April 1997, however, Gan asked Tai Ping to obtain a further report reviewing the adequacy of the fire-fighting systems. Tai Ping failed to respond, but later sent Gan a copy of a legal opinion which stated there was only a 30% chance of avoiding liability under the terms of the original cover.

On the basis of this opinion, Tai Ping settled the claim with the insured. A number of reinsurers involved under different contracts of reinsurance said they were very surprised and disappointed at the NT$2.65 billion figure, which was higher than the upper limit for settlement that had been discussed.

The claims cooperation clause
The slip policy included a claims cooperation clause in the standard SCOR (UK) Clause 012 4/83 wording as follows:- "Notwithstanding anything contained in the Reinsurance Agreement and/or Policy wording to the contrary, it is a condition precedent to any liability under this Policy that: - 

(a) The Reinsured shall, upon knowledge of any circumstances which may give rise to a claim against them, advise the Reinsurers immediately and in any event not later than 30 days;
(b) The Reinsured shall cooperate with Reinsurers and/or their Appointed Representatives subscribing to this Policy in the investigation and assessment of any loss and/or circumstances giving rise to a loss; 
(c) No settlement and/or compromise shall be made and liability admitted without the prior approval of Reinsurers. All other terms and conditions of this Policy remain unchanged".

Construction of the clause
In July 2001, the Court of Appeal held that the proper construction of sub-clause (c) was that a condition precedent would be breached either if Tai Ping made a settlement without Gan's prior consent or if Tai Ping made an admission of liability ([2001] EWCA Civ 1047). Consequently Tai Ping (who settled without consent) was in breach.

The Court of Appeal drew back from making a declaration that there was an implied term that reinsurers could withhold their consent to a settlement on reasonable grounds, but accepted that there was a general duty on reinsurers to make their decisions objectively and in good faith after consideration of and on the basis of the facts of the particular claim, and not with reference to considerations wholly extraneous to the subject-matter of the particular reinsurance.

Earlier in 2001, Longmore J decided that there had been no misrepresentation or non-disclosure to Gan.

(1) Failure to cooperate
Gan's pleaded case was based on Tai Ping's failure to respond to the letter of 28 April 1997. Andrew Smith J held that there had not been any failure to cooperate since Gan was not entitled to the information sought. The clause did not require Tai Ping to carry out pointless investigations and, since there had been no misrepresentation or non-disclosure, the further investigations were pointless. In addition, paragraph (b) of the claims cooperation clause did not require Tai Ping to carry out an investigation into whether it could avoid the underlying policy or whether it was itself in breach of a duty of utmost good faith to Gan.

The terms of the letter of 28 April, were, however, slightly wider than indicated by Gan’s pleaded case. It asked (amongst other things) whether the fire precautions were "in place and serviceable as required by Endorsement 206" and whether the installation was in accordance with competent engineering standards. Endorsement 206 was a special condition in the policy requiring that "sufficient and effective fire-extinguishing facilities should be installed at the place of work".

On appeal, Gan now argued that the requests were material because they went to issues arising under the underlying cover, such as whether the original insured had complied with Endorsement 206.

(2) Failure to act in proper and business-like manner 
Gan's case was based on documentation that had only recently come to light, which showed that other reinsurers had complained that Tai Ping had failed to keep them informed and had agreed a settlement (despite differing legal opinions) for a higher figure than had been discussed. The suggestion was that Tai Ping had capitulated in the light of its own commercial interests rather than on the basis of legal merits.

Nor were the investigations pointless. What is pointless cannot be decided with hindsight, and Gan’s requests related to matters which appeared to it to be relevant when requested. In any event, as the Court of Appeal had found, the requests did not merely concern avoidance but were relevant to Tai Ping's liability to the underlying insured.

But did the information supplied by Tai Ping properly answer all Gan's queries? The Court of Appeal said "Yes". The judge had been right to conclude that Gan had no real prospect of showing that the reports it had seen did not adequately cover all the facts relevant to the issue of compliance with the terms of the original insurance.

Given the above, it was not strictly necessary to look further at the scope of paragraph (b) of the claims cooperation clause, but the point was of some general interest. The Court of Appeal held that the words "investigation…of any loss" included investigation of all matters relevant to a claim, including coverage issues. It would be quite unrealistic, for instance, to treat investigation of a potential breach of a policy term or warranty directly related to the loss as outside the scope of "investigation…of any loss".

So, while Gan was entitled to ask the questions it did, Tai Ping was not in breach of its obligations to cooperate and Gan’s claim on this head failed.

(2) Gan had not yet amended its pleadings to include these allegations, but since this was still only an interim application (for summary judgment under Order 24), the court felt it should not set too high a barrier to further investigation and held that Gan ought to be allowed to pursue a case that Tai Ping's conduct over the settlement was unbusinesslike.