Australian court orders Gen Re to pay HIH's claim plus interest

General Reinsurance Australia Ltd (Gen Re) has been ordered to pay more than $A2.36m to the liquidators of HIH Casualty & General Insurance Ltd after a New South Wales Supreme Court judge rejected the reinsurer’s arguments that questioned the validity of a policy HIH issued in 1999.

In a 2 June judgement, Justice Robert McDougall said the dispute centred on a policy for trade-credit insurance taken out with HIH in April 1999 by financial services group Suncorp Metway Ltd, covering dealings the group had with Daewoo Australia to allow Daewoo to purchase goods from overseas using letters of credit supplied by Suncorp.

In January 2000, HIH met a claim by Suncorp on the policy and sought indemnity from its reinsurers under a quota share reinsurance treaty for trade and export credit, concluded in December 1998.

“Most [of HIH’s reinsurers] have paid. Gen Re has not,” Justice McDougall said.

HIH sought what it said was Gen Re’s share of the claim, $A2.36m plus interest. Gen Re had subscribed to 30.5% of the treaty. The policy’s sum insured was $A11.11m.

“Most [of HIH's reinsurers] have paid. Gen Re has not

Justice McDougall

Justice McDougall said two questions needed to be answered in the affirmative for the claim to succeed. The first was whether the Suncorp policy fell within the class of business ceded by the treaty.

The second was whether, “on proper construction of the policy and in the events that happened, HIH had been obliged to indemnify Suncorp for the claim that was made”.

Gen Re argued that the HIH policy was not activated because Suncorp had a financing agreement with Daewoo and had not provided trade credit. But Justice McDougall said the answer to both his questions was affirmative. He found the goods subject to Suncorp’s arrangement with Daewoo were “insurable turnover” and each of the debts Daewoo owed to Suncorp was an insured debt.

He ordered Gen Re to pay HIH’s claim plus an unspecified amount for interest, calculated from 1 November 2000, which was “a date which would appear to have allowed a reasonable time for Gen Re to have investigated the claim”, plus HIH’s court costs.

The HIH liquidators have an ongoing case in the NSW Supreme Court, seeking $A529m in damages and interest over HIH’s failed purchase of FAI Insurance in 1998.