Service of suit clause

A service of suit clause commits the reinsurer, in the event of default on its obligations, to submit to the jurisdiction of a court chosen by the cedant and to appoint an agent there to accept service of process. It is American in origin and answers a very concrete practical difficulty: getting a foreign-domiciled reinsurer to appear, and then enforcing a judgment against it, can take years and cost more than the debt. By naming a forum and an agent in advance, the clause removes most of that obstacle. It is commonly required by US regulators as a condition of the reinsurance credit granted to local cedants on treaties written outside the United States. Its interaction with an arbitration clause requires care: well drafted, the two coexist, with arbitration deciding the merits and service of suit used to compel arbitration and then to enforce the award; badly drafted, they cancel each other and open a preliminary fight over forum.

A New York cedant places a layer in 2026 with Bermudian and European reinsurers. Its regulator conditions reinsurance credit on a service of suit clause naming the New York courts and a local agent. Two reinsurers decline the clause: the cedant must then post collateral for 100 percent of their share, that is 21 million dollars by letter of credit, to obtain the same balance sheet treatment.

Service of suit, Clause d'élection de for, Clause de soumission juridictionnelle