Follow the Fortunes Clause
The follow-the-fortunes clause binds the reinsurer to the cedent's fortunes: it must accept the cedent's good-faith, businesslike claims settlements without reopening them.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Market standard
Purpose
The follow-the-fortunes clause binds the reinsurer to the cedent’s fortunes: reinsurance is meant to put the cedent economically in the position it would hold without the cession. If the cedent had to re-prove every settlement towards the reinsurer, the risk transfer would lose its value. The clause therefore creates binding effect for good-faith, contract-compliant decisions.
Effect and limits
There is no binding effect for payments outside the coverage of the original or the reinsurance contract (ex gratia without agreement), for fraud, or for gross disregard of proper claims practice. The exact scope differs between jurisdictions and clause wordings; follow-the-fortunes (risk determination) and follow-the-settlements (loss settlement) are used interchangeably in some markets and distinguished in others.
Negotiation and practice
Combined with claims cooperation clauses, the rule of thumb is: the more control rights the reinsurer stipulates, the narrower the scope of follow the fortunes becomes.