Understanding the Follow-the-Fortunes Doctrine in Insurance Law
Definition & Meaning
The follow-the-fortunes doctrine is a principle in insurance law that holds a reinsurer accountable for the decisions made by the reinsured regarding the payment of claims. This doctrine applies as long as the reinsured's decisions are made in good faith and are reasonable. Essentially, it allows the reinsured to manage claims without the risk of having to defend their decisions against the reinsurer, thereby fostering a collaborative relationship in the claims process.
Legal Use & context
This doctrine is primarily used in the context of reinsurance agreements within the broader field of insurance law. It is particularly relevant when discussing the obligations of reinsurers to honor the claims decisions made by the primary insurer. Legal practitioners often encounter this doctrine in civil cases involving insurance disputes. Users can manage related forms and agreements using legal templates provided by services like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A primary insurer pays a claim for damages that it believes are covered, even though the reinsurer argues otherwise. Under the follow-the-fortunes doctrine, the reinsurer must honor this decision as long as it was made in good faith.
Example 2: A reinsurer challenges a claim payment made by the reinsured. However, if the reinsured can demonstrate that their decision was reasonable and in good faith, the reinsurer cannot contest the payment. (hypothetical example)