Reinsurance Focus

In 2002, the Kansas City Southern Railroad (“KCSR”) paid $37.5 million dollars to settle claims arising out of a fatal automobile accident. This case sub judice involved a dispute between KCSR’s captive insurer, TransFin Insurance Limited (“TransFin”), and TransFin’s reinsurers, Columbia Casualty and American Re-Insurance Company (together “the Reinsurers”), relating to coverage for this claim.

The Reinsurers claimed that they were not liable to indemnify TransFin on this claim because the underlying insured, KCSR, failed to meet the necessary conditions precedent required under their policy. The court disagreed, concluding that while KCSR failed to submit a claim in writing within the required policy period, they could take advantage of the relation-back procedure for claims made after the expiration of policies.

Having concluded that TransFin properly provided coverage on KCSR’s claim, the court addressed whether TransFin’s notice to its Reinsurers was late or otherwise inadequate and, if late, whether the Reinsurers must prove prejudice before they can successfully invoke the defense of late notice by the reinsured. The court stated that it did not need to decide whether notice was timely because even assuming it was, without demonstrating they suffered prejudice as a matter of law, the Reinsurers could not avoid coverage for late notice. Columbia Casualty v. TransFin Ins. Ltd., Case No. 2:05-CV-199 (USDC D. Vt. Apr. 27, 2007).