Reinsurance Focus

The plaintiff insurance company wanted to underwrite a commercial automobile insurance program, but lacked the ability to provide direct insurance. It obtained the services of a reinsurance broker, which set up a complicated transaction involving a fronting insurer, ceding 100% of risk to a reinsurer, which in turn retroceded a portion of the risk to the plaintiff. The dispute surrounded whether the reinsurer satisfied its obligation of paying commissions to the plaintiff by paying to the broker and fronting company the brokerage amounts owed by plaintiff. The reinsurer prevailed on summary judgment, and the plaintiff appealed, contending that the reinsurer was not authorized to offset its commission obligations with the cost of broker fees and expenses. On appeal, the court affirmed summary judgment and rejected the plaintiff’s argument, finding that each separate agreement underlying the various relationships amongst the program participants were inextricably intertwined such that the reinsurer acted properly in accounting for amounts owed by the plaintiff company to the broker and fronting company. The court further relied on industry custom and the course of dealings between the parties, including monthly bordereaux sent to the plaintiff (without protest) that disclosed all premium, commission, and expense allocations under the program. Eastern Atlantic Insurance Co. v. Swiss Reinsurance America Corp., Case No. 179 MDA 2013 (Pa. Sup. Ct. Nov. 1, 2013).

This post written by Michael Wolgin.

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