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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Resolving a dispute between a reinsured and its reinsurance broker, the UK Commercial Court has held that reinsurance brokers owe a continuing duty to remit money received from reinsurers to their reinsureds. The reinsurance broker conceded that it breached its duty, but argued that the first breach was more than six years (the limitations period) before the litigation was commenced and that the claims are time-barred. The reinsured argued, and the High Court agreed, that the reinsurance broker’s duty is continuous, such that a “fresh cause of action arose on each day when [the broker] failed to make a remittance which it ought to have made.” Equitas Ltd. v. Walsham Bros. & Co., [2013] EWHC (Comm) 3264 (Eng.).

This post written by Abigail Kortz.

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We previously reported on interlocutory decisions rendered in a lawsuit brought by Instituto Nacional de Seguros against Florida insurance broker Hemispheric Reinsurance Group, L.L.C. and London-based Howden Insurance Brokers Limited. INS alleges that HRG and Howden overcharged it on commissions in connection with its purchase of $300 million in faculty reinsurance coverage. The Florida circuit court recently allowed INS to amend its complaint to add fraud claims premised on the allegation that HRG and Howden engaged in “grossing up,” i.e., added their commissions to premium charges without informing INS. The court permitted INS’s amended complaint and ordered the pleadings closed. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, L.L.C., Case No. 10-33653 (Fla. Cir. Ct. June 12, 2013).

This post written by Ben Seessel.

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In a contract dispute between an insurer and its reinsurance broker on which we previously reported, the Eighth Circuit affirmed the district court’s dismissal of the insurer’s complaint for failure to state a claim. The brokerage sharing agreement at issue required the reinsurance broker to pay an annual fee to the insurer in exchange for status as the insurer’s exclusive broker and included a forfeiture provision which discontinued the broker’s obligation to make the annual payment upon notice of the insurer’s decision to terminate or replace the broker. The insurer replaced the reinsurance broker, the broker refused to pay the annual fee, and the insurer sued for breach of contract. On appeal, the insurer argued that the district court misconstrued several key terms in the agreement, that the terms were ambiguous, and that theories of equity therefore applied. Applying Minnesota law, the Eighth Circuit determined that an “integrated definition” of a key term and the forfeiture provision were unambiguous, the broker was no longer obligated to make annual payments after receiving notice from the insurer that the broker was being replaced, and equitable relief was not available since the contract was clear and unambiguous. Olympus Ins. Co. v. AON Benfield, Inc., No. 12-1974 (8th Cir. Ap. 1, 2013).

This post written by Abigail Kortz.

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We reported earlier on an action brought by Instituto Nacional de Seguros (“INS”), a Costa Rican state-owned insurer, against Florida insurance broker Hemispheric Reinsurance Group, L.L.C. and London-based Howden Insurance Brokers Limited. INS alleges breach of contract and tort claims based on Hemspheric’s and Howden’s alleged commission overcharge on $300 million in faculty reinsurance coverage INS obtained on a single property damage and business interruption policy. INS had retained Hemispheric as broker for its reinsurance program; Hemispheric, in turn, retained Howden as sub-broker to gain access to the London reinsurance market.

Howden moved for a determination that English law and practice should apply to INS’s tort claims. INS argued in opposition that the relationship between the parties began in Florida, and that Florida continued to be the center of the parties’ relationship. INS further argued that the funds for the reinsurance program, including the alleged overcharges, flowed through Florida. Howden argued that its conduct took place in England and, further, that there was no “center” of the parties’ relationship because there was no cognizable relationship between INS and Howden as the parties were not in privity. Agreeing with INS, the court held that Florida law applies to INS’s tort claims under Florida’s “most significant relationship” test. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, L.L.C., Case No. 10-33653 CA 04 (Fla. Cir. Ct. Apr. 10, 2013).

This post written by Ben Seessel.

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Reinsurer Homeowner’s Choice Property and Casualty Insurance Company entered into a one-year broker authorization contract with Aon Benenfield. The contract contained a revenue-sharing agreement (“RSA”) under which Aon was to pay Homeowners a portion of the commissions it earned from placing Homeowners’ reinsurance. Homeowners declined to renew the contract when the one-year term expired. Aon refused to pay Homeowners revenue-sharing, claiming that the RSA was contingent upon Homeowners renewing the contract. Homeowners sued, seeking payment under the RSA. An Illinois federal court granted summary judgment in Homeowners’ favor, awarding Homeowners what it was due under the RSA. After holding that the RSA should be construed against drafter AON under Illinois law, the court found that there was no clear intent by the parties to make revenue-sharing payments contingent upon Homeowner’s renewal. Homeowners Choice, Inc. v. AON Benfield, Inc., Case No. 10 C 7700 (USDC N.D. Ill. Mar. 29, 2013).

This post written by Ben Seessel.

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Two borrowers filed a putative class action complaint in Pennsylvania federal court alleging that mortgage lender, First Horizon Home Loan Corporation, private mortgage insurers First Horizon had selected, and FT Reinsurance Company had engaged in a “captive reinsurance scheme” whereby illegal referral payments in the form of reinsurance premiums had been paid by the private mortgage insurers to FT Reinsurance, a wholly-owned subsidiary of First Horizon. Plaintiffs alleged that the reinsurance premiums violated the anti-kickback provisions of the Real Estate Settlement Procedures Act and that little or no risk was actually transferred from the mortgage insurers to FT Reinsurance. The court granted motions to dismiss filed by mortgage insurers Genworth Mortgage Insurance Corporation, Republic Mortgage Insurance Company, and Radian Guaranty, Inc., finding that plaintiffs did not have standing to sue because these insurers had not issued them policies. The court denied motions to dismiss filed by the other defendants, however, holding that plaintiffs had sufficiently alleged that the statute of limitations on their claims was equitably tolled and, moreover, that plaintiffs could proceed on their unjust enrichment theory because it was not clear whether plaintiffs’ mortgage contracts cover the same subject as their lawsuit. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. Feb. 27, 2013).

This post written by Ben Seessel.

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Operators of vehicle dealerships filed suit alleging breach of contract, conversion, breach of fiduciary duty, and money had and received against an administrator of vehicle service contracts that the plaintiff dealerships had sold to customers in connection with vehicle sales. Plaintiffs complained that defendants had improperly retroceded funds that had been reserved as reinsurance for payments to be made under the vehicle services contracts. The court denied defendant’s motion to dismiss, holding that plaintiffs had stated a plausible claim for relief that the administrator had breached reinsurance agreements that were neither attached to the complaint nor to defendant’s motion to dismiss. The court also held that the economic loss rule did not bar plaintiffs’ conversion and breach of fiduciary duty claim because there was a possibility that plaintiffs could establish with certain (undescribed) facts that a fiduciary relationship existed between the parties. Hoffpauir v. Interstate National Dealer Services, Inc., Case No. A-12-CA-263 LY (USDC W.D. Tex. Jan. 24, 2013).

This post written by Ben Seessel.

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Homeowners Choice, Inc. entered into a brokerage relationship with Aon Benfield, whereby Aon agreed to place reinsurance for Homeowners, as the broker of record, and that Aon would receive a commission from premium written. The parties later amended the agreement to include a revenue sharing provision, whereby Aon agreed to perform claim services for an annual fee. Homeowners then notified Aon that it was changing its broker of record, effective approximately one year from the notice. At the end of the notice period, Homeowners then demanded from Aon approximately $660,000 in revenue sharing fees it claimed were owed under the service agreement aspect of the contract. Aon disputed the claim, and Homeowner’s brought suit. The parties filed cross-motions for summary judgment, both making claims as to the correct interpretation of the contract. The court denied both motions, finding relevant provisions of the contract to be ambiguous, and that issues of fact remained pertaining to resolution of the ambiguities. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 10 C 7700 (N.D. Ill. Sept. 10, 2012).

This post written by John Pitblado.

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Everest Reinsurance Company entered into an agreement with International Aerospace Insurance Services, Inc. (“Inter-Aero”) whereby Inter-Aero would underwrite space and aviation risks, submit premium to Everest, less commission, and, in addition, share in a percentage of Everest’s profit from the business Inter-Aero generated. A dispute arose regarding Inter-Aero’s entitlement to profit sharing. Inter-Aero responded by withholding a substantial purported “profit share payment” from premiums due to Everest. Everest filed an action in federal court claiming conversion and breach of fiduciary duty. The court granted Everest’s motion for summary judgment, holding that Inter-Aero converted the portion of premiums that it withheld and that it must remit them to Everest. It denied Everest’s motion on its breach of fiduciary duty claim as duplicative of the conversion count. Everest Reinsurance Co. v. International Aerospace Insurance Services, Inc., Case No. 3:11-cv-05332 (USDC D.N.J. Aug. 22, 2012).

This post written by Ben Seessel.

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