The construction of terms of facultative reinsurance contracts: Is Wasa v Lexington the exception or the rule?

Do reinsurers insure the liability faced by the reinsured under its original insurance contract? Where the reinsurance and direct insurance policies are written in identical terms, is it enough for the reinsured to prove its liability under the original insurance policy in order to make a successful claim against its reinsurers? These questions are crucial, because they determine whether the terms of the reinsurance are to be construed identically to those of the direct policy even though they have different governing laws. The issues came before the House of Lords in Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] UKHL 40 and the answers were provided in a judgment delivered on 30 July 2009, the last day of the operation of the House of Lords as a court. This note discusses the nature of facultative reinsurance contracts in the light of their Lordships' ruling.