Reinsurance Focus

Argonaut Insurance Company reinsured Hartford Accident and Indemnity Company under a facultative certificate which covered a $1 million general liability policy, which was subject to the terms, conditions, and limits of liability set forth in the facultative certificate. Hartford retained $250,000 under the facultative certificate, and Argonaut reinsured 50%, or $375,000, of the $750,000 above Hartford’s retention. Hartford issued three primary policies over a number of years and paid $5 million to settle products liability claims, allocating the amount equally to the three primary policies. Hartford later agreed to pay $54 million to buy back its primary policies and some excess policies it had issued. The issue with respect to the reinsurance became how the losses were allocated by year.

Argonaut sought documents to explore potential inconsistencies in allocations over the years, but Hartford contended, and the district court agreed, that a follow the fortunes clause made such an argument irrelevant, since the allocation had been made in good faith, was reasonable and was within the terms of the applicable policies. Hartford represented that it had issued over 175 policies to this insured over 30 years time, that many were totally unrelated to the single policy that Argonaut reinsured, and that it would take more than 12,000 hours to collect and conduct a preliminary review of the documents sought by Argonaut. At the same time, the court granted a motion to compel by Hartford seeking documents relating to Argonaut’s reinsurance and knowledge of the underlying claims, finding that Argonaut had put such documents at issue in one of its defenses to Hartford’s Complaint. Hartford Accident and Indemnity Co. v. Argonaut Insurance Co., Case No. 06-1813 (USDC D. Conn. Apr. 25, 2008). The court denied a motion for reconsideration, finding that requiring that Hartford provide all of the underlying insurance policies to its reinsurer would undermine the follow the fortunes doctrine.

This post written by Rollie Goss.