In an English decision the court had to interpret a follow clause in these terms: “Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments”. It was held that the following underwriter was bound by the settlement reached by the lead underwriters.
The following underwriter was bound to pay its share.
The commercial purpose, said the court, of a follow the settlements clause is that from the insurers’ point of view it saves time and costs and also makes co-insurance more marketable to attract those seeking insurance. It also simplifies claims settlement.
The following underwriter’s argument that the clause merely amounted to the following underwriter appointing the lead underwriter to act as its agent was rejected. The following underwriter was bound to pay its share of the settled amount.