Reinsurance Focus

The Illinois Appellate Court affirmed a ruling vacating a reinsurance arbitration award as having been procured by fraud. Virginia Surety and Lloyds entered into two motor vehicle warranty contractual liability reinsurance agreements, one covering a period starting in 1996 and one in 1998. Virginia Surety demanded arbitration, contending that Lloyds wrongly refused to pay amounts owed on both treaties. The parties arbitrated, and, at the end of the proceeding, but prior to submission, the parties announced they had settled all disputes arising from the 1996 Treaty, each party to bear its own costs, and that they only needed a decision as to the dispute under the 1998 Treaty. The panel thereafter found in favor of Lloyds, relieving it of payment obligations, and directing it to return premiums under the 1998 Treaty. The panel also made an award of costs and expenses due to its finding of material misrepresentations on the part of Virginia Surety, and ordered Lloyds to submit billings for costs and fees. Lloyds submitted billings, under condition of confidentiality, and the panel enforced confidentiality against Virginia Surety, despite its attempts to seek to review the billings. The panel awarded Lloyds $2 million in costs and fees. Virginia Surety moved to vacate, arguing that the size of the costs and fees award indicated that Lloyds submitted billings relating to both the 1996 Treaty dispute and the 1998 Treaty dispute, which was a fraud perpetrated on the panel, because the parties had agreed that each would bear its own costs for the 1996 Treaty dispute. The court agreed, finding that Virginia Surety made the required showing for vacatur due to fraud, as Lloyds had in fact submitted billings pertaining to both disputes. Virginia Surety Co., Inc. v. Certain Underwriters at Lloyd’s, No. 09-CH-45355 (Ill. App. Ct. April 20, 2011).

This post written by John Pitblado.