Follow the fortunes and follow the settlements
A clause obliging the reinsurer to follow the cedant's fortunes and to honor the settlements it has made in good faith, without re-examining each file.
The clause known in London market practice as follow the fortunes and follow the settlements expresses one of the founding principles of trust in reinsurance. It obliges the reinsurer to share the cedant's fortunes on the risks covered, by accepting the claims decisions and settlements the cedant has made in good faith and in a reasonable manner, without re-examining the merits of each file case by case. This community of fate is the logical counterpart of a relationship in which the reinsurer does not directly control claims handling, entrusted to the cedant that is in contact with the insured. Without it, reinsurance would lose fluidity: the reinsurer could contest settlements indefinitely, and each loss would become a negotiation. The clause nonetheless has limits, the reinsurer being bound to follow only those settlements that actually fall within the treaty's cover and are made without manifest fault or collusion. The exact reach of these limits, in particular the boundary between a reasonable settlement and a gift the reinsurer would not have to fund, feeds a large body of case law and remains a classic ground of dispute between cedants and reinsurers.
Textbook case: a cedant settles a complex claim in good faith after analysis. The reinsurer, under the follow the settlements clause, must bear its share without reopening the file, unless it can show that the settlement manifestly fell outside the treaty's cover.
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