Category: Insurance case law · Reviewed by Taylor Watts, Broker · New Business · Last reviewed June 2026
A Court of Appeal decision on the operation of a “claims made and reported” reinsurance contract, holding that the reinsured was not entitled to indemnity unless it could establish that it had been legally liable to indemnify the underlying insured.
[verify reported citations][verify exact date]AstraZeneca Insurance Co Ltd (“AZICL”) was the Isle of Man-incorporated captive insurance vehicle of the AstraZeneca pharmaceutical group. AZICL provided insurance to AstraZeneca group companies in respect of a wide range of risks, including product liability claims arising from the pharmaceutical products manufactured and marketed by the group. AZICL in turn purchased reinsurance from XL Insurance (Bermuda) Ltd (“XLIB”) and other reinsurers in respect of part of its book. The reinsurance was written on a “claims made and reported” basis. The underlying insurance claims in dispute arose from product liability litigation in the United States and elsewhere in respect of the drug Seroquel and other AstraZeneca pharmaceutical products, where claimants alleged that the drugs had caused various adverse health effects. AstraZeneca settled the underlying claims and AZICL paid out under the underlying insurance. AZICL then sought to recover from XLIB under the reinsurance. XLIB resisted the claim on a number of grounds, including that AZICL had not been legally liable under the underlying insurance to make the payments it had made — because, for example, the underlying insurance did not in fact cover the relevant losses, or because AZICL had paid out without establishing legal liability — and that AZICL had not given valid notification of the claims and circumstances under the reinsurance. The case proceeded through the Commercial Court to the Court of Appeal, which was required to construe the reinsurance wording and to determine whether AZICL’s claim for indemnity could succeed.
The principal issue was whether AZICL was entitled to indemnity from XLIB under the reinsurance contract without proving that it had been legally liable to indemnify AstraZeneca under the underlying insurance — in other words, whether the reinsurance was a “liability” cover that responded to AZICL’s legal liability under the underlying insurance, or a “payment” cover that responded to amounts AZICL had actually paid. Subsidiary issues included: (i) the construction of the “claims made and reported” notification provisions; (ii) the requirements of valid notification under the reinsurance; (iii) the proper allocation of the burden of proof in coverage disputes between reinsured captives and their reinsurers; and (iv) the relationship between the underlying insurance and the reinsurance, and the extent to which the reinsurer could re-open issues already addressed at the underlying level.
The Court of Appeal (Christopher Clarke LJ giving the leading judgment) held that AZICL was not entitled to indemnity from XLIB unless it could establish that it had been legally liable to indemnify AstraZeneca under the underlying insurance. The court rejected AZICL’s argument that the reinsurance responded to amounts paid by AZICL without proof of legal liability at the underlying level. The court held that the reinsurance wording, properly construed, required AZICL to show legal liability under the underlying insurance as a precondition to indemnity under the reinsurance, and that AZICL could not simply rely on the fact that it had made payments to AstraZeneca. The decision is widely cited as a significant authority on the construction of captive reinsurance arrangements and on the relationship between underlying insurance and reinsurance contracts. The notification points were also addressed, and the court applied the established principles on notification of claims and circumstances under claims-made and reported wordings. [verify precise outcome on notification issues and identity of leading judge]
A reinsurance contract is to be construed in accordance with its own terms, and a reinsurer is not generally obliged to indemnify a reinsured merely because the reinsured has paid the underlying insured. Where the reinsurance is written as an indemnity in respect of the reinsured’s legal liability under the underlying insurance, the reinsured must prove that legal liability as a precondition to recovery. A “claims made and reported” notification provision operates according to its terms and requires both the making of the claim and the reporting of it within the relevant period. The court will give effect to the contractual allocation of risk between captive reinsured and reinsurer.
AstraZeneca v XL Insurance is a significant authority on the construction of captive reinsurance arrangements and on “claims made and reported” wordings. For captives and their parent group risk managers, the decision is a strong warning of the importance of careful drafting of reinsurance contracts and of meticulous record-keeping at the underlying level: a captive cannot assume that its reinsurance will respond simply because the captive has paid the parent. For brokers placing captive reinsurance, the case emphasises the importance of aligning the wordings of the underlying insurance and the reinsurance, and of advising captives on the practical steps required to preserve their indemnity rights against reinsurers. For reinsurers, the decision supports the legitimacy of requiring proof of legal liability at the underlying level and of strict compliance with notification requirements. For claims handlers, the case provides guidance on the conduct of reinsurance recovery actions and on the evidential burden borne by the reinsured. Apex Insurance Brokers references AstraZeneca v XL Insurance in client guidance for captive owners and in advice on the alignment of underlying and reinsurance covers.
[verify reported citation]By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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