The 'follow the settlements' clause in a reinsurance contract requires the reinsurer to adhere to the insurer's claims handling as long as it acts in good faith.

[1] The defendant had through a notice of application, sought to obtain discovery of some documents from the plaintiff. The application was made pursuant to the provisions of O 24 r 3 Rules of 2012, or the inherent jurisdiction of the Court.

[2] I had dismissed the application with costs. The defendant has appealed against the decision. This judgment will be concise, to enable the defendant have its appeal heard expeditiously, as this suit has already been set down for trial.

Brief Facts

[3] The plaintiff was the lead insurer of the 'Machinery Breakdown Policy' for the Prai Power Plant. As the lead insurer, the plaintiff assumed 55% of the risk. The defendant had assumed 6% of the plaintiff's 55% risk through a reinsurance contract.

[4] An incident occurred at the Prai Power Plant on the 18 July 2015, which led to a forced outage. A claim was made on the plaintiff's policy.

[5] The plaintiff paid up RM71,500,000.00 under the policy, and had in turn sought for the defendant's 6% contribution under the reinsurance contract. The amount claimed was RM4,290,000.00.

[6] The defendant had refused to pay its share which led to this suit. In gist, the defendant was not satisfied in the manner that the plaintiff had settled the claim. The plaintiff takes a contrary view. It contends that the reinsurance contract does not entitle the defendant to pay according to their personal satisfaction.

[7] The plaintiff contends that the defendant is obliged to follow the plaintiff's settlement pursuant to the 'follow the settlements' clause in the reinsurance contract, which states:-

'The Reinsurance is subject to the same Terms, Clauses, Warranties, Exceptions, Conditions, Extensions and Endorsements as the original and follow its settlements as far as applicable as hereto (excluding rate, retention and limit).'

[8] The plaintiff contends that it has the sole discretion and control in dealing with the claim. It also contends that the defendant is obligated to pay its share, as long as the plaintiff had dealt with the claim in good faith and in a business-like manner.

[9] Conversely, the defendant took the position that the 'Claims Cooperation Clause' in the Reinsurance contract prevails over the 'follow the settlement' clause. The clause reads as follows:-

'Notwithstanding anything to the contrary contained in this Reinsurance, it is a condition of this Reinsurance that:

(a) The Reinsured shall give to the Reinsurer(s) written notice as soon as reasonably practicable of any claim made against the Reinsurer in respect of the business reinsured hereby or of its being notified of any circumstances which should give rise to such a claim.

(b) The Reinsured shall furnish the Reinsurer(s) with all information known to the Reinsured in respect of claims or possible claims notified in accordance with (a) above and shall thereafter keep the Reinsurer(s) fully informed as regards all developments relating thereto as soon as reasonably practicable.

(c) The Reinsureds shall co-operate with the Reinsurer(s) an any other person or persons designated by the Reinsurers in the investigation, adjustment and settlement of such claim notified to the Reinsurer(s) as aforesaid.'

[10] The defendant contends that the plaintiff has failed to provide it with full information, and had also failed to engage the defendant in the decision-making process. The defendant surmises that the 'Claims Cooperation Clause', takes precedence over the 'follow the settlement' clause.