Insurance And Reinsurance Update - UK Supreme Court upholds general rule on prioritisation of claims in liability insurance

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In Teal Assurance Company Ltd v WR Berkley Insurance (Europe) Ltd the Supreme Court considered whether an insured and its captive insurer were entitled to choose the order in which claims were paid under a tower of insurance contracts, in order to maximise the insured's recovery under its professional indemnity insurance programme.

BACKGROUND -

Black and Veatch Corp ("BV"), an engineering company incorporated in Delaware, purchased a professional indemnity insurance programme which included a tower of insurance contracts. Its primary insurance layer was with Lexington Insurance Co. Above that and forming the "PI tower" were three successive excess layers with BV's captive insurer, Teal Assurance Co Ltd ("Teal"). Teal also underwrote "top and drop" insurance, which it reinsured 50% each with WR Berkley Insurance (Europe) Ltd and Aspen Insurance UK Ltd. The top and drop cover sat above the excess layers. It excluded claims brought in the US and Canada, while the layers underneath provided worldwide cover.

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