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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Meridian Re agreed to supply a reinsurance quote to Orchid General by a fixed date, stated to be vital to a regulatory filing. Meridian delivered only part of the quote, saying the rest would follow, which would miss the filing date. Orchid terminated and later sued. Which factor is most relevant to whether Orchid was entitled to terminate and to the damages recoverable?

The key factors are whether the breach went to the root of the contract, justifying termination, and whether the loss claimed arose naturally from the breach or was within the parties' contemplation at contracting. Remote losses are not recoverable, and good faith or deposits do not decide the matter.

  1. AWhether the breach went to the root of the contract, and whether the loss was a natural consequence or within the parties' contemplation when contractingCorrect
  2. BOnly whether Meridian acted in good faith, regardless of the effect of the breach
  3. CWhether Orchid had already paid a deposit, which fixes damages at double the deposit
  4. DWhether the breach was committed in writing
  5. Whether Meridian is a company, since only individuals can be liable for remote loss

Explanation

Termination is justified where the breach is repudiatory, going to the root of the contract, for example where time was essential. Damages under the Indian Contract Act cover loss arising naturally from the breach, or that the parties knew likely to result when they contracted, and not remote loss. Good faith, deposits and form of breach do not decide these questions.

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