Reinsurance Focus

We previously reported (April 7, 2008) on a federal district court’s interpretation of the liability limit of an employers’ liability reinsurance agreement in a summary judgment setting, finding in favor of the position advanced by the reinsured. We subsequently noted (August 6, 2008) the district court’s entry of judgment in the total amount of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. It appears, however, that the district court was in error, as the Third Circuit vacated the judgment, and remanded the case for further proceedings. The central issue was whether the warranty provision in the agreement limited the reinsurer’s liability for EL claims. The district court held that the contract was unambiguous and contained no such limitation. The Third Circuit held the problem with this conclusion was that it fails to account for the phrase “or so deemed” in the warranty provision. The existence of this “deemer clause” meant the warranty provision could not be interpreted as the district court saw it, solely as a promise or guarantee. The consequence of the reinsured’s failure to comply with the warranty is that, at least in some circumstances, the reinsured was deemed to have complied, so the deemer clause effectively redefined the EL limits in the underlying policies in a way that limited the reinsurer’s liability. Princeton Insurance Co. v. Converium Reinsurance (North America) Inc., No. 08-2136 (3d Cir. Sept. 14, 2009).

This post written by Brian Perryman.