Reinsurance Focus

A reinsured lost its case for reinsurance benefits because the reinsured’s settlement of an underlying claim fell outside the time limits imposed on the reinsurer’s potential liability. Arrowood Surplus Lines Insurance Company filed suit against Westport Insurance Company for amounts purportedly owed under a liability reinsurance agreement and arising from Arrowood’s settlement of a claim under an insurance policy it issued to Equity Residential. The trial court dismissed the complaint for failure to state a claim. Arrowood appealed to the Second Circuit. The appellate court held that, by its terms, the reinsurance agreement provided reinsurance coverage for policies that become effective after the agreement’s inception date of February 1, 1999 with respect to occurrences taking place before the agreement’s termination date of August 18, 2000. Insurance policies issued for multiple years “become effective” on the anniversary of their inception. An optional run-off provision provided further coverage for policies that became effective before the termination date through the anniversary of their inception. The Equity policy was issued on December 15, 1999, and Arrowood elected to maintain run-off coverage thereon through December 15, 2000. The Equity policy dispute involved coverage periods beyond December 15, 2000, so those periods were not covered by the agreement because they fell outside its time limitations. The Second Circuit declined to accept Arrowood’s argument that the agreement’s “follow the fortunes” provision expanded coverage beyond the agreement’s express time limitations. Arrowood Surplus Lines Insurance Co. v. Westport Insurance Co., No. 10-0397-CV (2d Cir. Oct. 8, 2010).

This post written by Brian Perryman.