Allocation of Risk in Voluntary Arrangements
7.1.1 Contract, insurance, and risk allocation
This chapter examines the part played by insurance arrangements in contracting. The chapter develops two important themes from the account in Chapters 1 and 2: namely, that insurance may be addressed not as an extrinsic factor but as an inherent aspect of party relationships, in which uncertainty is, as far as possible, addressed by risk allocation;1 and that obligations between parties may be better understood by expanding the frame of analysis beyond two parties to incorporate wider contractual arrangements.2 As we explain, this multi-party picture is, in practice, highly pertinent to the resolution of contractual disputes, many of which concern the question of where particular risks lie, or should be treated as lying, within the contractual relationship.
It is common ground between businessmen and economic theorists that contracts are made because each of the parties expects to derive some benefit from the arrangements. Contracting is, however, unavoidably and pervasively subject to future uncertainty both from the conduct of the parties themselves and from matters beyond their control. As we saw in Chapter 1, a continuum of arrangements has been identified where the approach to future uncertainties varies from close planning in which contractual terms are designed to be authoritative in relation to specified risks (and where those terms may be the very point of the contract), to a more flexible approach in which the ‘paper deal’ is less significant. Such arrangements have been charted from the most discrete and ‘transactional’, to the most co-operative and ‘relational’.3 At the transactional pole there is an effort to address all possible contingencies (to ‘presentiate the future’); while at the relational pole there is looser planning or ‘preparation for’ the future. Contracts may, moreover, have significantly transactional and relational aspects.4 Here we deal not with every type of contract, but with a range of commercial arrangements—not just insurance arrangements—which could be said, in Macneil’s terms, to ‘presentiate’ the future.5 Our key point is simple, namely that one of the most crucial and ubiquitous features of such forward planning—insurance arrangements—has been largely excluded from analysis. This is the omission we seek to redress.
It is not that insurance contracts themselves have been entirely neglected in theoretical debate. The contract of insurance has, with justification, been held up as the most obvious example of risk allocation between contracting parties, often with ‘adhesive’ qualities.6 Here however we go further, looking beyond the two-party insurance contract itself, to show how insurance arrangements pervasively underlie decisions by contracting parties as to the risks that they are prepared to accept. The same is also true of insurance contracts themselves: an insurer is unlikely to be willing to accept a risk if there is no available reinsurance.7
We should say a little more about our focus on party intentions. This is derived from attention to the market context in which insurance operates, and not from an exercise in neo-liberal will theory.8 As we have explained, the focus of this chapter is on transactional aspects of commercial contracting, and we suggest that, even here, party arrangements have been too narrowly read. Even as a starting point however, the notion that the law of contract reflects the decisions of the parties is itself not a given amongst theorists. While some scholars take the view that the law supports and recognizes the needs of members of the business community, others have preferred to stress the autonomy of law and its priority in creating norms around which market activity is ordered. For the latter group, law comes first in every sense. Such theorists are more likely to pay attention to principles of responsibility than to questions of intended risk allocation, for example; and the hold of this approach has implications for our analysis both here, and in subsequent chapters.
The issue can be illustrated by reference to Fuller and Purdue’s uniquely influential article on the subject of contract damages.9 The parties’ search for benefit remains the acknowledged starting point in English law when assessing such damages, which seek to place the claimant in a position which would have been reached, had the contract been performed.10 This measure has been widely associated with the ‘executory contract’.11 Fuller and Purdue nevertheless relegated protection of the ‘expectation interest’ to the bottom of their list of remedial priorities, beneath the ‘reliance’ and the ‘restitution’ interests.12 They offered (and then dismissed) a potential explanation of the protection of expectation interests:
The essence of a credit economy lies in the fact that it tends to eliminate the distinction between present and future (promised) goods. Expectations of future values become, for purposes of trade, present values. In a society in which credit has become a significant and pervasive institution, it is inevitable that the expectancy created by an enforceable promise should be regarded as a kind of property, and breach of that promise as injury to that property.
This point can be generalized and extended to many facets of market behaviour, including insurance contracts themselves, and we have seen that such issues have subsequently begun to play an important role in contract theory.13 Fuller and Purdue, however, quickly rejected the point on the basis that future values are tradable only because the law protects them: law, they alleged, has priority over practice and this can be illustrated as a matter of chronology. Considerable evidence against this chronological claim has subsequently been presented;14 but the influence of a ‘juridical’ account continues nevertheless.
The significance of this is that the emphasis on doctrine removes the focus from what the parties have (or are taken by rules of construction to have) intended in making their contract, including their attempts to deal with uncertainty and allocate risk. Instead, attention has been directed to the development of counter-currents in the law such as those relating to substantive fairness, protectionism including consumer protection, and the imposition of duties bringing contract closer to the law of tort:15 contextual approaches became welfarist in orientation. Analysis of party intentions including risk allocation was cast as an emanation of liberal individualism which would play a reduced role in light of these developments. Patrick Atiyah, writing in the late 1970s,16 specifically predicted that the role of party intentions, and in particular the role of contract in securing expectations and allocating risk, would be further diminished over time. He later freely admitted that the immediate rise of neo-liberalism proved that prediction wrong.17 In particular, his argument that party expectations would not be so fully protected by contract, and that at the same time expectations of, for example, future employment and other forms of security would be increasingly provided by social measures and not by private law, has been largely demolished by the rise of market measures.18 The important point is that this does not prove that Atiyah’s focus on the social and economic context of the law of contract was misguided. Rather, it suggests that context must always be carefully assessed and is subject to reversal. Atiyah was correct in anticipating the ever-increasing legislative regulation of contracts to which there is an appreciably weaker party, of which employment contracts, consumer sales, and consumer services are paradigm examples. As we have seen, there are tribunals and ombudsmen to deal with those disputes, in the latter case by the rejection of strict principles of law. But, as regards commercial contracts—and it is those where risk allocation is to the fore—we suggest the law’s desire to give effect to the intentions of the parties has been and remains the starting point. Footnoting judicial support for this proposition would require us to list virtually every commercial case decided in England.
7.1.2 Contract law and market context
Here we make two points: that the common law was fashioned to meet the needs of commerce; and that the modern approach to contractual interpretation involves an analysis of the context in which the contract was made. Experienced commercial judges are rarely unaware of the context or implications of what they are deciding.
Turning to the first point, the origins of modern English commercial law are often traced back to the appointment of Lord Mansfield to the King’s Bench in 1756. Lord Mansfield sat with merchant advisers, and the legal principles developed in the eighteenth century were, to a significant extent, an endorsement of market practices. Obvious examples are the recognition of the principles applicable to bills of lading, bills of exchange, sale agreements, marine insurance, and agency.19 The later root doctrinal cases on matters which today form the headings of chapters in textbooks on contract arose to a large extent out of discrete (often non-commercial) disputes or novel situations, and many of the exceptions to doctrine enumerated in current texts predate what is stated to be the general rule and far outweigh its practical relevance. To take two illustrations, the doctrine of privity of contract, before its modification by the Contracts (Rights of Third Parties) Act 1999, never played much part in the operation of market practices involving shipping, agency, or negotiable instruments, even though its emergence later disrupted attempts to confer benefits upon family members, and want of consideration has rarely defeated a commercial transaction. Thus, subject to overriding matters of policy, such as misrepresentation,20 illegality, and duress, the common law reflects market practice, and contract rules are essentially default provisions which come into play in the absence of agreement or in case of the unforeseen. The law reports for the past 250 years are replete with cases in which the courts have recognized market practice as law. An extreme and very recent illustration is Hobbins v Royal Skandia Life Assurance Ltd,21 in which Reyes J gave effect to two centuries of decisions recognizing the market practice that an insurance broker, while the agent of the assured, is remunerated by the insurers, even though in any other context such an arrangement would infringe basic fiduciary principles.
Turning next to the question of interpretation, one of the last acts of the House of Lords before its conversion to the Supreme Court, in Chartbrook Ltd v Persimmon Homes Ltd,22 was to confirm that the process of interpretation is objective23 and that the test is ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’.24 The ‘factual matrix’ focuses not on the reasonable person but on the reasonable market participant.25
The outcome is that the law is analysed as responding to the context in which it operates,26 even though it also regulates the activities that make up that context. This does not suggest that law is subordinate to the market and cannot seek to guide it. But it does indicate that law is responsive to the market; and the law of contract would cease to be fit for purpose if it were not. We endorse the need to analyse law in relation to its context but we argue that in the context of law’s relationship with market activity, the activity of insuring the risks associated with contracting is not sufficiently explored. Any form of contextual response to market arrangements can, we suggest, benefit from an appreciation of this, even if the core role of insurance appears to be a traditional one: permitting the parties to anticipate and allocate risks.
7.1.3 The relevance of insurance
It will be obvious that our approach rejects the suggestion that insurance arrangements should be disregarded in the interpretation of contracts. That suggestion is an extension of the argument that the law should disregard insurance arrangements in determining the existence and scope of tortious liability.27 The reasoning behind this is that a court has little or no knowledge of the private insurance arrangements adopted by the parties, or indeed of the potential insurability of a first-party loss or third-party liability for that loss, so assumed insurance arrangements cannot provide accurate guidance as to the practical implications of a judicial ruling. If insurance is not to influence tort, then by analogy it should not influence contract either, so whether one or other party is insured against the loss that has occurred is not a valid inquiry in the determination of the incidence or amount of liability.28 In Chapter 8 we express reservations about the denial of the relevance of insurance to tort but, those reservations aside, that analysis cannot be extended to contract disputes where there is a pre-existing relationship between the parties and they have had the opportunity to stipulate which of them is to bear loss in given circumstances. The court will have access to the arrangements and can ascertain from them what was intended. Key to those arrangements will be insurance provisions.
As we have said, contracting is a purposive activity in which parties seek to gain a benefit. Nevertheless, these benefits are uncertain, and contracting creates more or less identifiable risks of loss. We identify three common concerns of contracting parties here. The first concern could be said to have determined the development of many of the mechanisms used by commercial lawyers, namely, how is a contracting party to protect itself against the risk of the other’s insolvency? An obligation on the supplier of goods or services to put defects right, or to indemnify the purchaser if liability to a third party is incurred, is only worth having if the supplier is good for the money; the same point arises where goods are supplied to a customer who subsequently proves unable to pay for them. The second concern is, which of the parties bears responsibility to make good losses if something goes wrong? Risk-allocation clauses, which may be used to supplement the basic obligations undertaken by the parties,29 are central to commercial contracting. A contract improperly performed may have direct and indirect effects on a variety of the claimant’s interests, including damage to property, loss of business, and damage to customers’ goodwill, and it will be sensible to determine from the outset to what extent the defendant is liable to make good such losses rather than to rely upon rules of remoteness. Equally, improper performance may cause physical damage to third parties or their property, as where employer A’s employee is loaned to employer B and injures one of employer B’s own workmen; it is a common arrangement that employer B is to answer for any liability without recourse to employer A. The third concern is that external events may render performance of the contract uneconomic for one of the parties or pointless for the other: the law of frustration does not provide any relief as long as performance remains physically possible, but a force majeure clause may excuse performance or a refusal of the tender of performance.
In each of these areas, insurance has a key part to play. As regards insolvency, a variety of contractual mechanisms may be used to protect the parties, including reservation of title in sale contracts and the demand for guarantees and other forms of security in others, but insurance features high on the list. The contract may require one or other party to insure; in other cases insurance is taken out as a unilateral safeguard. Insofar as the risks of loss arising from defective performance are foreseeable, the contract will make provision for their allocation either expressly or not, and such allocation is again usually supported by an insurance arrangement of one or other type. Again, insurance may be secured against the ‘frustration’ (in the widest sense) of contractual obligations.
The cost of insurance is crucial here. To take an obvious situation, if employer A and contractor B enter into an agreement under which contractor B is to bear the risks of liability for defective performance and injury to third parties, contractor B will build into the price the cost of insurance that he has to take out in order to allow him to bear that risk. Conversely, if all is at the risk of employer A, then A will wish to insure and the price paid to contractor B will be reduced accordingly. To insure the risk is to make it proportionate to the benefit gained from the contract. The same process operates less obviously but with equal force in other contexts. All of this is reflected in the statutory and judicial approach to exclusion clauses in commercial contracts. It may be perfectly reasonable for a supplier to exclude liability if the price charged for performance reflects the fact that the customer will bear, and insure against, loss. Equally it is unreasonable for a supplier to use comprehensive exclusion clauses where the price reflects an assumption of risk on his part.
Given that the risks of insolvency, defective performance, and the occurrence of external events are crucial to commercial contracting, many (regrettably, far from all) agreements are drafted with care—and often with lengthy negotiation—to ensure as far as possible that there is consensus and understanding as to where risks and losses should fall. Some contracts are standard form, promulgated by trade organizations or other institutions,30 others are individually negotiated either afresh or on the basis of standard terms by the parties or their lawyers.31 The allocation of risks by contract imposes a cost on one or other of the parties, not only a possible future cost, but more immediately an insurance cost. Thus, insurance affects the price of the contract as a whole. Accordingly, contracts are frequently designed to ensure that the cost of insurance is not duplicated. This would raise the overall cost of contracting and reduce the benefit to both parties. To revert to the above example, if the risks flowing from a construction contract are borne by contractor B so that the cost of B’s insurance is reflected in the price paid by employer A, the arrangements must be such that A does not feel the need to take out his own insurance to counter the possibility of a court ruling that B is not liable to A for a particular form of loss. If there is a danger that the courts will not give effect to the contractual allocation of risk as reflected in the insurance arrangements, A may feel the need to pay twice, once in the price charged by B and once for his own cover in the event that B’s insurance fails. It is for that reason that the manner in which the courts construe contracts has to reflect agreed risk allocation. This is not necessarily a product of philosophical commitment to free will, but recognizes the importance of anticipating risks.32
Atiyah has argued that ‘in contracts which really are risk-allocation arrangements’ (a category in which he included certain forms of insurance contract), ‘to hold the contract binding must, in general, favour the party who has the better skill and knowledge for assessing future risks’ so that inequalities are sustained.33 Some care should be taken before using this as the basis for viewing risk-allocation provisions with scepticism when construing contract terms. Many ‘pure’ risk-allocation arrangements of this sort are the result of careful negotiation between the parties, and commercial insurance contracts in particular tend to follow a lengthy period of proposal and counter-proposal from the insurers on one side and the assured’s broker on the other. Consumer contracts, where there is a palpably weaker party, are these days subject to statutory regulation to ensure that the customer does not bear the risk of payment for goods and services which are dangerous or worthless. We have already suggested that the point about rising consumerism is well made. But the wider point is that most commercial contracts have at their core a central element of risk allocation in the broader senses that we have just described even though they are not—as with insurance contracts—solely or primarily about transferring particular risks. Rather they specify how losses, if they occur, should be allocated. Disregarding pricing for the risks assumed is a potential distortion of the assumptions of the parties. Any suggestion that risk allocation should be overturned because the parties may have different degrees of expertise would require courts to rewrite commercial contracts to take account of what has actually happened even though the contractual risk-pricing will have taken into account a variety of things that might have, but did not, happen.
In this and the following section, we outline a range of possible party arrangements dealing with key concerns of contracting parties, and highlight the role of insurance in those arrangements. We also begin to identify the part played by insurance arrangements in the response of the courts when faced with relevant disputes. This section incorporates discussion of insolvency risks; the next focuses on the risk of loss caused by non-performance, or defective performance.
7.3.1 Insurance and lending
Unsecured creditors must be treated equally, and contract clauses which seek to confer priority on an unsecured creditor in the event of the debtor’s insolvency are void in that they offend the pari passu34 and ‘non-deprivation’35 principles. The common law has nevertheless been generous in recognizing a range of securities in favour of a creditor. A distinction may be drawn between general loans and purchase money loans.36 A general loan permits the borrower to use the money for general purposes, and security will be found in a charge on the debtor’s assets or in the form of a personal guarantee provided by, for example, the directors of a company to which sums have been loaned. A purchase money loan is designed to allow the borrower to obtain real or personal property, typical securities consisting of the mortgage and, where the purchaser is obtaining the subject matter from the seller, a retention of title provision whereby the buyer gets title when the seller is paid37 or the use of hire-purchase terms whereby the seller retains ownership of the subject matter until full payment has been made. Equipment leases based on a rental which reflects the useful life of the machinery in question38 fulfil the same function.
The creditor’s ability to recover a loan in the event of default is, however, as strong as his security. A mortgaged house may catch fire and a mortgaged vessel may sink, and it is likely that the house or ship is the debtor’s only significant asset, so it is a standard term of any mortgage that the borrower takes out insurance against the risk of damage and the borrower may also be required to obtain life cover with the lender as nominated payee or even assignee. A guarantee given to a bank by the directors of a debtor company is of no value if the directors are as insolvent as their company, and so there may be an obligation on the directors to provide additional security for the guarantee, possibly in the form of insurance coverage. Goods transferred under a hire-purchase or equipment lease may be damaged or destroyed, and so equipment leases impose an obligation on the lessee to insure the equipment. In short, even secured lenders need to have recourse to the insurance market.
A lender who has loaned money in return for a mortgage on land or an equivalent security on goods, and who has required the borrower to insure the secured property, is still far from safe. The assured person under the policy is the borrower. If the property is destroyed and the policy for whatever reason does not respond, for example because the assured borrower is in breach of his pre-contractual duties to answer questions accurately or—in the commercial market—to disclose material facts, is in breach of policy conditions, or is guilty of arson, the lender will lose out. Some lenders may seek letters of undertaking from the insurers, requiring notification if the insurance is cancelled,39 so that at the very least the lender can refrain from making future advances which are effectively unsecured, but that does not protect the lender in respect of sums previously loaned. For this reason lenders adopt a variety of techniques, with varying degrees of safety.
First, the lender may require the borrower to inform the insurers of the lender’s interest in the property, or the lender may do so itself. A creditor who insists that his interest is ‘noted’ on the policy probably gains nothing by it. Noting does not make the lender a party to the policy nor confer any rights on him in the event of a loss.40 The practice is nevertheless widespread.
Second, the policy may contain a provision whereby the lender, although not a party to the insurance, is deemed to be the loss payee under the policy, so that the proceeds are to be paid not to the borrower but directly to the lender. Such clauses have been used for many years, and insurers have generally complied with them, although it is only since the implementation of the Contracts (Rights of Third Parties) Act 1999 that the clause became enforceable by the lender. The clause protects the lender against the risk that the borrower will obtain payment and then disappear, leaving the debt unpaid, but it does not overcome the problem that if the insurers are under no obligation to pay under the policy for any of the reasons given above then there are no proceeds to be paid to the lender. Some policies contain extended loss-payee clauses under which the insurer agrees to pay the lender free of all defences under the policy, and in such a case the insurers may reserve to themselves a right of recourse against the borrower (for what that may be worth).
The third insurance device to guard against insolvency is mortgagees’ interest insurance (MII). This form of cover is of particular significance in shipping cases, and there are standard London Market clauses for the purpose.41 The essence of MII is that it provides fallback insurance in the event that there is non-payment or partial payment under the shipowner’s own policy where an insured peril has occurred. The sum payable to the mortgagee is the amount irrecoverable from the primary insurers.42 MII insurers have express subrogation rights, so in the event of a payment to the mortgagee, the insurers have the right to attempt to recoup their payment from the mortgagor’s own insurers and, ultimately, from the mortgagor himself in those rare cases where the mortgagor possesses any other assets.
The final device, and perhaps the most important in practice, is co-insurance. Under this approach the lender and borrower are both named as assureds under the policy for their respective rights and interests. The law accepts that it is perfectly possible for two or more persons who have an interest in the insured subject matter to be co-assureds. A distinction is to be drawn between joint insurance, which arises where the parties have the same indivisible interest in the insured subject matter, and composite insurance, which arises where the parties have distinct interests in the insured subject matter.43 The best (and possibly only) example of the former is jointly owned property, typically by husband and wife or other cohabitees. Because the interest is the same, any defence open to the insurers against one joint assured is equally available against the other: thus, if the husband is guilty of fraud, his wife has no claim in her own right.44
However, in the case of composite insurance the rule is different. Each party is treated as having a separate contract with the insurers for their respective insurable interests. Thus a borrower has an insurable interest in the value of the mortgaged property, by virtue of his ownership, and the lender has an insurable interest in the mortgaged property to the value of the debt, and each may insure his own interest.45 The same principle applies to hire purchase.46 The benefit to the lender is that, because he has a separate contract with the insurers quite distinct from that between the borrower and the insurers, defences which the insurers may have against the lender will not prevail against the borrower. Thus, if there has been non-disclosure,47 breach of condition,48 or fraud49 by one co-assured, the rights of the other are unaffected.
For these reasons, co-insurance is perhaps the most secure form of contractual arrangement between borrower and lender, but it is not free from difficulty. There is some doubt about whether a breach of warranty by one co-assured leaves the rights of other co-assureds intact, in that a warranty is regarded as a statement of the circumstances in which the insurer faces liability, and if those circumstances have ceased to exist then there can be no liability.50 Further, in the context of ship mortgages,51 the deliberate grounding or sinking of the vessel by the borrower will defeat any claim under the policy by the lender. In such a case there is simply no insured peril and thus there are no recoverable policy moneys52: the definition of perils of the sea requires a fortuitous loss and not a deliberate one.53 The lender can only hope that, if the borrower is intent upon destroying his own ship, he has the decency to do so by setting fire to it, as fortuity is not a part of the definition of fire.54 The insurers would of course have a right of recourse against the borrower in those circumstances, but they and not the lender bear the risk of his insolvency. The practical difficulty with co-insurance is that the parties’ interests are not just different, but may be competing, in that one co-assured may cause the insured loss suffered by the other, and the insurers may then wish to exercise subrogation rights. Subrogation is excluded against a co-assured who, while responsible for the loss, could have recovered in respect of it (typically where there has been negligence), but subrogation actions against co-assureds regularly reach the courts.
7.3.2 Credit insurance
The risk of bad trade debts is the most consistent fear of businesses. Credit factoring, whereby a trader sells future debts to a credit factor at a discount (generally between 75 per cent and 90 per cent of the value of the debt), is a useful way of ensuring cash flow and guaranteeing that at least some money is received.55 This illustrates the prevalent use of risk allocation, employing trade-offs between present and future value, in market activity of many sorts. Once a debt has fallen due and is not paid, many businesses either assign their debts at a discount or appoint debt recovery agencies. However, private credit insurance is a regularly used alternative. Various forms of credit insurance are available in the market. Policies may cover the creditor’s whole account, in which case premiums will be based upon trading figures,56 or they may be confined to specific customers or to a number of key customers.57 Insurers may impose requirements as to the assured’s lending criteria or may require that the assured does not act inconsistently with its ordinary lending criteria,58 particularly where the assured has advanced credit to ‘subprime’ debtors.59 Policies may be confined to domestic transactions, they may extend to international transactions, or they may include both domestic and export transactions. As an illustration of the points made in Chapter 2 about the necessity of insurance for commerce, insurance may have an impact on the market itself; if insurers take the view that trading with a particular customer is too risky to underwrite, that may well have the effect of precipitating the financial demise of that customer.60
The risks insured vary from case to case. Where whole account insurance is provided, the risk insured is generally non-payment by the due date or some other specified date, depending upon the nature of the underlying transaction,61 and generally the reason for non-payment is irrelevant.62 Policies insuring against non-payment by individual customers often rest upon the occurrence of one or more trigger events, most importantly the commencement of an insolvency procedure against the customer.63
The role played by insurance here is not merely passive; it may facilitate commercial transactions which would not otherwise have taken place. The film finance story is illustrative here. In the 1980s and 1990s film production companies wished to find a means of financing the making of films. A scheme was developed with the assistance of London Market insurance brokers under which banks and other institutions would advance the necessary funds to the film production companies, and the banks would be repaid out of the revenues earned by the films. If, however, the revenues failed to meet the sums repayable on a given date, the lenders would be covered by insurance issued by a number of underwriters including Australian insurers HIH.64 The insurance policies covered the difference between the revenues and the sums repayable. HIH was reinsured by major London Market reinsurers. Although the contracts were described as being of insurance, in fact they bore little resemblance to traditional contracts, in that HIH waived, by express clauses,65 the lenders’ ordinary duty of disclosure.66 The lenders incurred substantial losses and HIH made payment67 even though it was aware that the warranties in the insurance contracts had been broken because the production companies had not made the promised number of films and revenue losses were almost inevitable. In a series of sequel decisions, HIH was held to be unable to recover from its reinsurers68 because it had in effect paid the lenders on an ex gratia basis: the reinsurers were held not to have waived HIH’s disclosure obligations even though HIH had waived the lenders’ disclosure obligations;69 and the reinsurers were also held not to have waived the underlying breaches of warranty.70 A claim by HIH against the brokers, for failing to keep HIH informed of the problems relating to the making of the films and thereby prejudicing HIH’s ability to recover from its reinsurers, was rejected on the grounds that HIH was fully aware of those problems when it chose to make payment so that it had caused its own loss.