COURT DISMISSES MUNICH RE’S CLAIM FOR BREACH OF THE DUTY OF UTMOST GOOD FAITH
In a suit regarding a health insurer’s alleged over-billing of its reinsurer, Munich Re, the federal district court for the Northern District of Illinois dismissed Munich Re’s counterclaim for breach of the duty of utmost good faith. The court based the dismissal on the fact that, under Illinois law, the duty of utmost good faith is simply a “tool of construction in deciding whether a party has breached the governing reinsurance treaties,” and not a basis for an independent cause of action. The court further explained that Illinois has recognized an independent cause of action for breach of the duty of utmost good faith only in cases involving an insurer’s obligations to settle with a third-party who has sued the policyholder. Under that scenario, an independent bad faith cause of action is needed because an insurance policy does not sufficiently govern the insurer’s duty to settle. That is not the case in other insurance contexts, such as reinsurance, where the reinsurance treaty sufficiently governs the parties’ relationship. Guarantee Trust Life Ins. Co. v. Insurers Administrative Corp., Case No. 09-5129 (USDC N.D. Ill. Sept. 24, 2010).
This post written by Michael Wolgin.
