ABSTRACT
This chapter analyses there is a longstanding practice of reinsuring D&O insurance in London and the reinsurance of so-called “foreign direct risks” in the London market gives rise to a series of complex legal problems. A facultative reinsurance contract involves the reinsurance of a single direct risk previously accepted by the insurer. There are two main classes of reinsurance contract, facultative and treaty. The presumption of back-to-back cover is the result of a simple interpretation of the nature of a reinsurance contract that is written on a proportional basis. The advantages of proceeding by treaty may be seen by considering briefly the processes commonly involved in arranging facultative reinsurance. Facultative reinsurance was the earliest form of reinsurance known to English law, and in legal terms consists of an individual—one-off—contract between reinsurer and reinsured; to this extent it differs little from an ordinary contract of original insurance. Facultative reinsurances have generally been referred to by the courts as “policies”.
