Reinsurer’s Calculation Of “Incurred Loss” Could Lead To Finding Of Bad Faith
BJC, a network of hospitals is the sole shareholder of ATG, a captive insurance company that provides insurance for BJC. A dispute arose between ATG and its reinsurer, Columbia Casualty pertaining to the “incurred loss condition” clause in their reinsurance agreement. The incurred loss condition provided that continued coverage would be conditioned upon an incurred loss ratio of less than 75%. A few days before the end of the second policy year, Columbia terminated the agreement, claiming that BJC had exceeded the incurred loss ratio on an aggregate basis and on an individual claim.
Much of the case revolved around the actuarial work Columbia presented to BJC to justify Columbia’s determination that the incurred loss ratio had exceeded 75%. While the Eighth Circuit agreed that Columbia had broad discretion to determine the incurred loss, it held BJC presented sufficient evidence from which a reasonable jury could conclude that Columbia acted in bad faith.
The Court also agreed with the district court’s decision to strike the prayer for punitive damages because ATG’s complaint failed to allege fraud with the particularity required by Federal Rule of Civil Procedure 9(b).
Finally, the Court affirmed the district court’s finding that BCA was precluded from recovering compensatory damages resulting from Columbia’s decision to terminate the Contract because BJC failed to properly quantify its costs.
BJC v. Columbia Casualty, Case No. 06-1326 (8th Cir., February 23, 2007).
