Reinsurance Focus

Seaton Insurance Company sued its reinsurer, Yosemite Insurance Company, for breach of contract. Seaton alleged that Yosemite breached two facultative reinsurance agreements the parties entered into in the 1970s. Yosemite paid claims under the agreements until 2008, when it notified Seaton of its belief that the agreements were void because Seaton had violated the agreements’ retention warranties. When Seaton sued, Yosemite counterclaimed, seeking repayment of funds paid since inception. Both parties moved for summary judgment. The court agreed with Yosemite as to one of the facultative agreements, finding that Seaton breached the retention warranty, voiding that agreement and precluding any future payments due. Disputed factual questions, however, impacted proper interpretation of the other agreement, so summary judgment was improper. However, citing California’s “account stated” doctrine – a waiver principle applied to certain contractual arrangements – the court denied that aspect of Yosemite’s counterclaim seeking repayment of past amounts paid under both agreements, noting that “acquiescence to the debt arises from a failure to object within a reasonable time such that the law implies an agreement that the account is correct as rendered.” Yosemite did not identify any issue with its liability until 2007, and thus could not recoup payments made under either agreement before that time. Seaton Ins. Co. v. Yosemite Ins. Co., No. 08-542-S (USDC D.R.I. Nov. 4, 2010).

This post written by John Pitblado.