A decision by Narinder Hargun, the Chief Justice, has settled a four-year-old dispute in the island’s collateralised insurance sector with a first-of-its-kind determination.

Mr Justice Hargun’s decision, delivered in the matter of Bermudian-based Aeolus Re Ltd v CS (Credit Suisse) ILS SICAV-SIF, is said to be the only one of its kind in Bermuda or international jurisprudence addressing the issue of how and when to determine whether a reporting disruption has taken place in respect of a free report publisher such as Munich Re’s NatCat Service.

The case involved an industry loss warranty in ISDA swaps format.

Mr Justice Hargun said such ILW swaps “are financial instruments which enable parties in effect to speculate on the occurrence and outcome of future natural catastrophe events including in order to hedge their underlying exposure(s)”.

The dispute concerned whether NCS, as the reporting entity chosen by the parties to determine whether a triggering event had transpired, had altered its reporting criteria and the frequency of its loss event updates following the swap being agreed.

Aeolus sued in Bermuda for the payment of $20 million in collateral.

If the $12.5 billion industry loss trigger agreed by the parties was exceeded, Aeolus would receive the $20 million. If not, Credit Suisse ILS would.

Typhoon Jebi hit Japan in September 2018 and NCS reported an industry loss estimate of $9 billion.

The issue in dispute at trial in March was whether CSILS as calculation agent under the swap had exercised its duties in good faith and commercially reasonably.

Aeolus argued that CSILS did not because a reporting disruption had occurred.

CSILS countered that it had exercised its duties and that no reporting disruption had taken place.

The court heard from representatives of the parties, as well as hearing evidence from experts in the area.

In addition to finding on the issues, the Chief Justice wrote in his decision: “Notably, at no stage prior to the termination of the swaps, did the plaintiff suggest to the defendants that there was a reporting disruption or, indeed, that there were matters which meant that the defendants should consider whether there was such a reporting disruption, in respect of NCS…”

Delivering judgment, the Chief Justice wrote: “Having regard to the findings made by the court, the court concludes that, in the circumstances under consideration, NCS, as the report publisher, did not cease to provide any loss reports or materially change its methodology.

“In the circumstances, the calculation agent was entitled, in good faith and a commercially reasonable manner, to take the view that NCS, as the report publisher, had not ceased to provide any loss reports or materially changed its methodology.

“Accordingly, the plaintiff’s claim for damages and/or a declaration that the plaintiff is entitled to be paid the sum held in the trust accounts in the total sum of US$20 million is hereby dismissed.

“The court grants the defendants the relief sought in the counterclaim, namely, a declaration that each of the defendants is entitled to receive from the plaintiff the collateral which they have deposited in the trust accounts.”

CSILS was represented by Peter Dunlop and Izabella Arnold of Walkers Bermuda Limited, and by Timothy Howe QC.

Aeolus was represented by Mark Chudleigh and Laura Williamson of Kennedys Chudleigh Ltd, and by Peter MacDonald Eggers QC.

Mr Dunlop, a partner and co-lead of the insurance and reinsurance team at Walkers Bermuda, said: “We welcome the Supreme Court of Bermuda’s ruling which dismisses Aeolus’s claim in favour of our clients.”