Reinsurance Focus

We previously posted on March 17, 2008 about a bankruptcy judgment in favor of a reinsured, Acceptance Insurance Companies, Inc. (“Acceptance”), which sought to be excused from the payment of $9 million in premium owed to its reinsurer for the remaining term of a five year contract because it had ceased writing the underlying crop insurance which was the subject of the reinsurance contract. As we posted, a bankruptcy appellate panel of the US Court of Appeals for the Eighth Circuit reversed the judgment, finding that Acceptance’s failure to continue writing the underlying risk did not excuse it from its premium obligation to the reinsurer.

Separately, Acceptance had also filed suit in the Federal Court of Claims, seeking money damages against the United States on the theory that it was forced to stop writing its crop insurance business, which had become worthless due to the unwarranted regulatory action of the U.S. Department of Agriculture Risk Management Agency (“RMA”). In particular, Acceptance alleged that an RMA Administrator improperly rejected a deal requiring his regulatory approval, by which Acceptance had proposed to sell its crop insurance business to an interested third party. Acceptance alleged that the subsequent failure of the deal caused the loss of all value of its crop insurance business, which loss constituted an unwarranted governmental taking of its property under the Fifth Amendment. The United States moved to dismiss Acceptance’s claim for failure to state a legally cognizable cause of action. The court granted the government’s motion, distinguishing the taking of “property” from government action which merely has the effect of interfering with or frustrating the performance of a contract. The court found that, despite regulatory action which allegedly rendered the property worthless, Acceptance nevertheless retained possession of the business, and thus lost no “property” as that term is construed under applicable Fifth Amendment takings jurisprudence. Acceptance Insurance Companies, Inc. v. United States, No. 03-2794 (Fed. Cl. Sept. 25, 2008).

This post written by John Pitblado.