Honorable engagement clause
A reinsurance arbitration clause that allows arbitrators to interpret the treaty as an honorable engagement, according to market practice rather than the strict letter of the law.
The honorable engagement clause, found in many reinsurance arbitration clauses, invites arbitrators to treat the treaty as an honorable engagement rather than merely a legal obligation, and to decide with regard to the parties' intent and reinsurance custom, without being bound by a literal interpretation or strict rules of evidence. It reflects an older conception of the business, based on trust and the long-term relationship between cedent and reinsurer, where arbitration among market practitioners was preferred to a lawsuit. Its legal reach is debated. English courts accept it as authorizing a reasonable commercial interpretation, but refuse to let it permit arbitrators to ignore the contract or rewrite its terms. In French law it resembles amiable composition, which must be expressly conferred. For the parties, the clause changes the nature of litigation risk: it makes the outcome less predictable from the text alone, and more dependent on the composition of the tribunal and its knowledge of the market.
Textbook case: a reinsurer disputes the aggregation of several losses into a single event, relying on the letter of the hours clause. The arbitral tribunal, empowered by an honorable engagement clause and composed of two former underwriters and a lawyer, adopts the interpretation consistent with market practice when the treaty was concluded, which a literal reading would have rejected.
honourable engagement clause, honorable engagement, arbitration ex aequo et bono
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