Baker v Black Sea & Baltic General Insurance Co Ltd – Case Summary

Baker v Black Sea & Baltic General Insurance Co Ltd

House of Lords

Citations: [1998] 1 WLR 974; [1998] 2 All ER 833; [1998] CLC 820; [1998] Lloyd’s Rep IR 327; (1998) 142 SJLB 171; [1998] CLY 3407.


An insurance syndicate had a contractual right to cede part of the risks they insured within certain kinds of business. The reinsurers (the other party to the contract) would then be liable for 50% of that risk. The reinsurers stopped making payments under the contract. The syndicate sued for the losses relating to the ceded risks, including a proportionate amount of consequential losses such as the cost of investigating, settling and defending those claims.

The judge at first instance declined to award these consequential losses. This was because there was no express term in the contract mentioning these losses, and such a term could not be implied in fact or law. The judge also rejected the syndicate’s argument that a term could be implied based on a custom or practice in London insurance markets to pay these costs. The syndicate appealed.

  1. Did the contract contain an implied term permitting the syndicate to recover their consequential losses?

The House of Lords agreed with the judge that the relevant term could not be implied into the contract as a matter of fact or law. However, they held that the judge had misconstrued the evidence on whether there was a relevant custom or practice within London insurance markets which might allow the court to imply the relevant term. The Lords remitted the case back to the Commercial Court for a rehearing on this point.

This Case is Authority For…

A term will only be implied in fact if it is necessary to give business efficacy to the contract, or if ‘it is what the parties to the contract must, as reasonable men, have intended’. Lord Lloyd characterised all the different ways of wording the implication in fact test as being ‘test of necessity’.


It is only possible to apply a term by custom if there is evidence of ‘universal and acknowledged’ practice.