A “follow the fortunes” clause is an agreement within a reinsurance contract that imposes a duty on the reinsurer to honor and reimburse good-faith payouts by the insurer to the underlying claimant. In Public Risk Mgmt, of Fla. v. Munich Reinsurance Am., Inc., Munich refused reinsurance coverage on the grounds that the loss occurred before the term of the reinsurance contract began. PRM argued that even in the absence of an express follow the fortunes clause, the doctrine should be inferred from the contract, and they were thus entitled to coverage.
The Eleventh Circuit (applying Florida law) rejected PRM’s argument and refused to infer a follow the fortunes clause. The court held that the agreement between PRM and Munich “contains terms that are plainly and unambiguously inconsistent with the follow the fortunes doctrine.” For example, the express language of the contract called for Munich to indemnify PRM for “ultimate net loss…as a result of occurrences…during the term of this Agreement.”
Because the agreement between PRM and Munich explicitly limited Munich’s liability to those losses occurring during the coverage period, and the loss for which PRM was seeking reimbursement occurred prior to the agreement, the Eleventh Circuit refused to infer a follow the fortunes clause. In the face of language to the contrary, the court declined to read into the contract terms that were not included. Importantly, however, the court did not address whether an inference would be warranted in other contexts, such as where the express language of the reinsurance contract does not conflict with the doctrine.