Reinsurance Focus

The Oklahoma Insurance Commissioner, in her capacity as the court-appointed receiver of Hospital Casualty Company (“HCC”), brought this action against Employers Reinsurance Corporation (“ERC”) contending that HCC was entitled to recover from ERC for certain claims under reinsurance policies issued by ERC in HCC’s favor. The court recently ruled upon cross motions for summary judgment.

The Mulberry Claim: HCC issued a $1 million primary policy and a $5 million excess policy to Amity Care Corp., a nursing home company. ERC reinsured the excess policy. Amity was sued by the estate of Bonnie Mulberry, a nursing home resident. The case settled for over $1 million dollars. HCC sought indemnity from ERC, but ERC denied the claim asserting that public policy prohibited insurance coverage for punitive damages. The court ruled that the ERC was liable for the excess insurer’s entire share of the settlement because it was unclear which claims the jury relied upon in its determination that punitive damages should be awarded.

The Hepatitis Claim: HCC issued primary and excess general liability policies to Norman Regional Hospital over several years. HCC reinsured the excess policies with ERC. A number of lawsuits including a class action were filed against the hospital by patients exposed to or infected by hepatitis between 1999 and 2002. To settle the claims, NRH agreed to pay $11 million dollars, with HCC providing $8 million. The issue raised in this case was the proper allocation of the $8 million between the relevant policy years. ERC argued that the parties intended to allocate $3 million to the 2000-2001 policy year and $5 million to the 2001-2002 policy years, thereby exhausting both the primary and excess coverage in the 2001-2002 year. The judge agreed, pointing to the undisputed fact that this is what HCC intended.

Claims Expenses: The court further ruled that the reinsurer, ERC, was not obligated to pay additional costs because the excess insurer did not pay or incur any claim expenses in its capacity as the excess insurer. State of Oklahoma ex rel. Kim Holland v. Employers Reinsurance Corp., No. Civ-06-0426-HE (W.D. Okla. Sept. 13, 2007). A prior post dealing with the relationship between this case and the liquidation proceeding appear in this blog on September 20, 2006.