An August 2025 judgment of a US Appeals Court held that an obligation in a quota share reinsurance treaty for the reinsured to give prompt notice to the reinsurer of any claims which, “in the opinion of” the reinsured, may result in a claim required an objective standard as to the obligation, despite that phrase.
The court held that but for the phrase “in the opinion of”, this would have been a straightforward case. Courts have long construed provisions requiring an insured to give prompt notice of events that “may result in a claim” to require objective reasonableness both as to when the duty arises and how soon to notify the insurer.
The court rejected a subjective standard in favour of an objective one for three reasons. First, an objective reading best interpreted the treaty as a whole and in the light of background principles of quota share treaty reinsurance. The other two reasons related to precedents in the State and other jurisdictions. The treaty entitled the reinsurer to participate in the defence or settlement of claims. The failure to give notice had prejudiced its right to do so when notice was given two and a half years after the original summons by the medical malpractice claimants and after the litigation had already run to a stage where intervention by the reinsured was too late. Using a purely subjective standard would mean that, by the re/insured pleading ignorance or error about whether a claim “may have resulted”, the insured who fails to give notice in time could nullify the notice requirement.
In South Africa the more likely finding would be to interpret the phrase as “in the reasonable opinion” of the insured and to examine the facts against such a standard.