Introduction

In today’s Nuts & Bolts post we take a brief look at honorable engagement clauses, which are sometimes referred to as “honorable undertaking” clauses.  Honorable engagement clauses are, for practical purposes, a species of choice of law clause.   Generally, they confer upon arbitration panels a degree of freedom to depart from the strict rules of law and evidence, and to interpret the contract as an honorable engagement rather than literally according to its terms.  They are premised on the now arguably outmoded historical concept that a reinsurance contract is more than a contract, but an honorable undertaking, a deal that  is closed when the parties shake hands over a cocktail (or three), and one by which the parties are honor-bound to abide.  They also recognize that reinsurance is an arcane business with its own peculiar set of customs, practices and norms, and that, if the parties so agree, arbitrators should be reasonably free to apply these norms in deciding a case, even if a court faced with the same facts would or could not. 

Honorable engagement clauses are more common in older reinsurance contracts than in those written today.  But many reinsurance disputes arise out of long-tail asbestos or environmental claims arising out of decades-old contracts, a great many of which contain these clauses.  And the clauses can have some significant implications in those disputes. Continue Reading »