Legal Definitions - honorable-engagement clause

Definition: An honorable-engagement clause is a provision in a reinsurance contract that allows arbitrators to interpret the agreement reasonably, in line with its general purposes, rather than strictly following the rules of law or an overly technical interpretation of contract language.

Example: Suppose an insurance company enters into a reinsurance agreement with a reinsurer to cover losses from natural disasters. If a hurricane hits a particular region, causing widespread damage, the insurance company may file a claim with the reinsurer to recover some of the losses. However, if the reinsurer disputes the claim, the honorable-engagement clause would allow the arbitrators to consider the intent of the reinsurance agreement and the parties' expectations, rather than just the strict wording of the contract.

Explanation: The example illustrates how an honorable-engagement clause can provide flexibility in interpreting a reinsurance agreement. Instead of relying solely on legal technicalities, the arbitrators can take into account the broader context of the agreement and the parties' intentions. This can help ensure a fair and equitable resolution of disputes between the insurer and reinsurer.