Reinsurance – at least when it comes to the Serbian law – is an area of the Insurance Law about which there is presently insufficient knowledge. This applies in particular to a feature of contractual insurance relationship which is of greatest importance in terms of comparative law: follow the fortunes principle. This paper seeks to explain at the outset the concept of the follow the fortunes principle and its purpose. The author highlights that the follow the fortunes principle may not be formulated in abstract terms, but rather depends on the clauses contained in the reinsurance contract. Its application is linked to the final stage, i.e. claim settlement and payment process. The essence of this principle is that the insurer’s decisions about the assured’s claims under the insurance contract bind the reinsurer within the constraints of the contractual clauses and subject to certain exceptions.
Furthermore, the author draws attention to the differences in understanding this principle in comparative law, which certainly may affect the position of the contractual parties, depending on the law provided in the reinsurance contract to be the governing law. The author has not neglected contentious issues, such as whether or not the follow the fortunes principle covers the so-called ex gratia payments. This term encompasses all situations of reimbursement by the insurer which he, in strict legal terms, was not obliged to make. The author adopts the position that the reinsurer is not under the obligation to pay reimbursement under reinsurance even where the reinsurance contract contains a general follow the fortunes clause, which does not expressly provide for this particular case.
The author also examines the relation between the claims cooperation clause and the follow the fortunes principle. Whilst the follow the fortunes principle allows for insurer’s autonomy in claim settlement process (within constraints of the contract), the claims cooperation clause binds him to consult with the reinsurer in the course of such process. In circumstances where both clauses are provided in a reinsurance contract, the follow the fortunes clause applies only to the claim settlements which have been approved by the reinsurer.
Finally, the author wraps up her examination with the issue of the limitations on the reinsurer’s right to challenge the assured’s obligations.
Bearing in mind that most large transport risks are reinsured, a large number of precedents has been analysed. An analysis of the available court and arbitral practice of foreign courts has pointed to a significant regulatory effect of reinsurance on transport insurance.
The author concludes that a reinsurance contract is a typical commercial law contract, edited by an expert in (re)insurance, which is based on respecting the union of interests of the insurer and the reinsurer. It may serve its purpose only if both parties act in accordance with the rules on risk management, responsibly and in good faith, whilst observing the clauses embodying the follow the fortunes principle.
