Follow the fortunes clauses in reinsurance law – Practical problems in ensuring their effectiveness


Follow the fortunes or follow the settlements clauses are included in reinsurance contracts by reinsureds wishing to limit their exposure to claims. They are intended to operate by ceding a proportion of claims to other reinsurers further up the chain. This paper examines the practical problems encountered when a $1.2 bn property damage settlement relating to the destruction of the world trade centre passed through various large chains of reinsurance. It highlights the difficulties inherent in long chains of reinsurance which can cause them to break down when follow the fortunes clauses fail to respond as intended and leave reinsureds exposed to losses which they had thought they were protected from.