Executive Summary: Key Legal and Evidentiary Issues

• The Follow Settlements Clause in the Retrocession Agreement was found to be unambiguous and enforceable.

• No express limitation in the agreement exempted Infrassure from following Zurich’s settlement decision.

• Zurich acted in a proper and businesslike manner during the investigation and settlement of the claim.

• The $140 million settlement was considered “arguably within” the scope of the primary insurance policy.

• VIG was entitled to reimbursement for both its indemnity payment and related loss adjustment expenses.

• The appeal was dismissed, confirming Infrassure’s liability for $8.97 million and costs of $150,000.

Facts and outcome of the case

Background and the insurance chain

In 2011, a significant incident at Vale Canada’s smelting facility triggered a business interruption claim under its insurance coverage. Zurich Insurance Company, the primary insurer, ultimately settled the claim for $140 million. Vienna Insurance Group (VIG), acting as a reinsurer, had contractually agreed to indemnify Zurich for a portion of such losses. VIG then sought reimbursement from Infrassure Ltd., a retrocessionaire, under a Retrocession Agreement that included a Follow Settlements Clause.

Dispute over follow settlements obligation

Infrassure denied its obligation to reimburse VIG, challenging the applicability of the Follow Settlements Clause. It argued that it was not bound to follow Zurich’s settlement because the settlement was not demonstrably within the coverage of the primary policy and that Zurich’s conduct in settling the claim lacked sufficient scrutiny.

Trial court findings

The trial court rejected Infrassure’s position. It held that the Follow Settlements Clause in the Retrocession Agreement was clearly binding and placed a duty on Infrassure to follow Zurich’s settlement, unless explicitly excluded by the contract terms—which it was not. The court found that Zurich had conducted a proper and businesslike investigation before settling, including obtaining expert reports and undergoing internal analysis.

The court further concluded that the settlement fell within the range of what was “arguably” covered by the underlying insurance policy, which met the established standard in reinsurance law. It also found that VIG was entitled to claim reimbursement not only for its share of the settlement but also for loss adjustment expenses it incurred in connection with the claim.

Appeal decision

Infrassure appealed the trial court’s ruling, but the Ontario Court of Appeal upheld the decision. It reaffirmed that the Follow Settlements Clause bound Infrassure to follow VIG’s indemnity of Zurich, provided Zurich’s settlement was made in a reasonable and businesslike manner, and that the loss was arguably within policy coverage.

The appellate court confirmed that no clause in the Retrocession Agreement expressly exempted Infrassure from this obligation. It also accepted the lower court’s findings regarding Zurich’s proper conduct in evaluating and settling the claim.

Final outcome

The Ontario Court of Appeal dismissed the appeal. Infrassure was held liable to pay VIG $8.97 million as its share of the indemnity, in addition to $150,000 in legal costs.