Reinsurance Focus

Lincoln General Insurance Company and U.S. Auto Insurance Services, Inc., as managing general agent for State and County Mutual Fire Insurance Company, entered into general agency agreements and reinsurance agreements. Disputes arose as to the amount due to Lincoln under the agreements, and litigation ensued. Lincoln brought a variety of claims, including breach of contract, misappropriation and conversion, breach of trust and/or fiduciary duties, aiding and abetting breach of trust and/or fiduciary duties and tortious interference with contract. The court found that there was no fiduciary duty involved in these relationships, and essentially found that the relationship was governed by the terms of the written agreements, without any implied torts. It dismissed all of the claims except for the breach of contract and tortious interference with contract claims. Lincoln General Insurance Company v. U.S. Auto Insurance Services, Inc., Case No. 10-2307 (USDC N.D. Tex. Aug. 30, 2012).

This post written by Rollie Goss.

See our disclaimer.

In a bankruptcy adversary proceeding arising out of claims made by an insurer against the debtor insurance agency/reinsurer, a court dismissed the debtor’s counterclaims for breach of fiduciary duty and fraud. The agency contended that the insurer, which itself was in rehabilitation, concealed and misrepresented its poor financial condition and austerity measures that it was taking to address it, which the agency claimed caused it to suffer financial harm and loss of good will. The court held that the agency failed to state claims beyond breach of contract because (1) the insurer was not in a “superior position” of a fiduciary simply by possessing greater knowledge of its internal operations and financial status, and (2) the agency failed to allege facts demonstrating that the insurer owed a separate legal duty to it beyond the obligations of the agency agreement. In re Black, Davis, & Shue Agency, Inc., Case No. 11-00160 (USDC Bankr. M.D. Pa. June 28, 2012).

This post written by Michael Wolgin.

See our disclaimer.

In 2006, the Plaintiff, Tethys Health Ventures, LLC (“Tethys”), an administrator of organ transplant risk management services, entered into an agreement with the defendant, Zurich, which provided that Zurich would pay Tethys commissions for producing insurance business. During the course of the agreement, Tethys earned commissions for its part in producing new excess insurance and reinsurance business for Zurich. In 2011, Zurich gave notice that it was terminating the agreement. Tethys sued, on a contract theory, as well as on an unjust enrichment theory. Zurich moved to dismiss the claims. The court denied Zurich’s motion, finding that the agreement was ambiguous as to the definition of “produce” and left unclear what the parties’ intent was with respect to the classification of Tethys’s producer commissions. For similar reasons, the court also declined to dismiss the unjust enrichment count. Tethys Health Ventures, LLC v. Zurich American Ins. Co., No. WDQ-11-2761 (USDC D. Md. May 31, 2012).

This post written by John Pitblado.

See our disclaimer.

Arch Reinsurance Company entered into a three-party agreement with a homeowners insurer and insurance agent, Underwriters Service Agency, under which Arch agreed to reinsure all of the risk associated with the underlying insurance policies, and Underwriters agreed to accept commissions based on the extent of the losses taken on the policies. During the agreement’s term, an Arch representative, who subsequently resigned, agreed with Underwriters to amend the reinsurance agreement to raise the minimum commission available to Underwriters by “capping” Arch’s reinsurance at a specified amount of loss.

When Arch’s chairman belatedly learned of the amendment, he unsuccessfully attempted to revoke it, and then sued Underwriters, contending that the amendment was void for want of the cedent insurer’s consent. After a jury verdict was entered in Underwriters’s favor, the appellate court affirmed, holding the reinsurance agreement could be amended even without the consent of the cedent insurer. Despite language in the agreement and state law requiring the insurer’s consent, the court held that a modification could stand if it did not materially affect the cedent insurer. Arch’s apparent agreement to “cap” the insurer’s reinsurance coverage notwithstanding, an indemnity provision in Underwriters’s agency agreement could be construed to permit the insurer to continue to seek unlimited reinsurance coverage from Arch, who could then, in turn, seek indemnity from Underwriters for losses above the cap. The insurer’s status quo was preserved, the amendment would not shift any risk back to the insurer, and the modification would stand. Arch Reinsurance Co. v. Underwriters Service Agency, Inc., Case No. 02-10-00365-CV (Tex. Ct. App. Apr. 26, 2012).

This post written by Michael Wolgin.

See our disclaimer.

Olympus Insurance Company entered into a contract with reinsurance broker Aon Benfeld, Inc. The contract required Aon to pay Olympus an “Annual Fee” (essentially defined as a rebate) under a so-called “evergreen” clause, based on the amount of commissions Aon received pursuant to reinsurance contracts it placed on Olympus’s behalf. The parties’ contract also contained a forfeiture clause, which stated that “No Annual Fee shall be payable subsequent to any decision by [Olympus] to terminate or replace Benfield.” Olympus terminated the parties’ contract by notice, and thereafter sought the Annual Fee. Aon refused to pay based on the loss forfeiture clause, and Olympus sued. Aon moved to dismiss for failure to state a claim. In an animated opinion, the Court found Olympus’s contract claim to be a “strained construction” of the parties’ agreement and dismissed it along with Olympus’s remaining quasi-contract claims “with prejudice and on the merits.” Olympus Insurance Co. v. Aon Benfeld, Inc., No. 11-CV-2607 (USDC D. Minn. March 30, 2012).

This post written by John Pitblado.

See our disclaimer.

On December 18, 2007, we reported on Gamma Group, Inc. v. Transatlantic Reinsurance Co., in which a reinsurer and its cedent prevailed in a case involving their agent’s failure to deduct run-off payments from its commissions. In that decision, the appellate court reversed a damages award in favor of the reinsurer and cedent because the award was incorrectly based on “reasonable” run-off payments, as opposed to actual “incurred” payments. After the trial court re-determined damages on remand, the agent appealed, arguing that the trial court (1) went “outside the mandate” by considering various types of evidence, including evidence of run-off payments made subsequent to the first trial, (2) improperly considered untimely evidence, and (3) erroneously calculated post-judgment interest from the date of the original judgment in 2005, rather than the date of the second judgment in 2010. The appellate court rejected these arguments, holding that the trial court properly considered all evidence of incurred run-off payments, acted in its discretion in considering untimely (but cumulative) evidence, and appropriately calculated post-judgment interest from the date of the original judgment, which was “still in full force and effect as to liability issues.” Gamma Group, Inc. v. Transatlantic Reinsurance Co., Case No. 05-10-00705 (Tex. Ct. App. March 28, 2012).

This post written by Michael Wolgin.

See our disclaimer.

Reinsurance broker Guy Carpenter placed a “finite quota share reinsurance agreement” for Workmen’s Auto Insurance Company with PMA Capital Insurance Company. After dispute arose over the terms of the agreement, Workmen’s brought suit against Guy Carpenter, alleging, among other things, that Guy Carpenter failed to obtain the “best terms” it could have in the reinsurance market. The court granted summary judgment on the failure-to-secure-best-terms claim. After losing at trial on breach of fiduciary duty and price-fixing claims, Workmen’s appealed, arguing that summary judgment was inappropriate because the quota share agreement did not qualify as “reinsurance” at all. The appellate court affirmed, however, finding that Workmen’s improperly raised the issue on appeal, and improperly relied on trial evidence on appeal of a summary judgment ruling. It also affirmed defense verdicts for Guy Carpenter on the breach of fiduciary duty and price-fixing claims. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., Inc., No. B211660 (Cal. Ct. App. Mar. 1, 2012).

This post written by John Pitblado.

See our disclaimer.

Alabama Municipal Insurance Corporation (“AMIC”) purchased reinsurance though broker Alliant Insurance Services (“Alliant”) that was underwritten by various reinsurers including Lloyd’s of London (“Lloyds”). According to AMIC, its contract with Alliant required Alliant to timely transmit claims to Lloyds and other reinsurers. AMIC alleged that Alliant breached the contract by failing to timely transmit claims to Lloyds for an 18-month period in 2000-2001. AMIC, however, had agreed with Alliant in an unwritten “gentlemen’s agreement” that it would not submit notices of loss for this period; AMIC thus did not submit notices of loss for 2000-2001 to Alliant until 2005, after the parties’ relationship had soured. Lloyds denied AMIC’s claims for the 2000-2001 period, not because they were untimely, but because of unreported growth of total insured values during the period.

A jury concluded that AMIC and Alliant had entered into a contract whereby Alliant agreed to serve as AMIC’s Managing General Agent (“MGA”) and that Alliant had breached its contract. The district court vacated the jury’s verdict on Alliant’s post trial motion on several bases. First, the court found that Alliant never agreed to serve as AMIC’s MGA and, furthermore, that there was no definite contractual term requiring Alliant to timely submit claims to Lloyds. The court also cited AMIC’s failure to perform under the contract by not timely submitting notices of loss to Alliant, and AMIC’s failure to prove damages because Lloyds denied the claims for reasons entirely unrelated to timeliness. It further held that AMIC was estopped from arguing that Alliant untimely submitted claims because Alliant was acting in reliance on representations AMIC made in the “gentlemen’s agreement” regarding not submitting claims for the 2000-2001 time period. Alabama Municipal Ins. Corp. v. Alliant Ins. Servs., Case No. 2:09-928 (USDC M.D. Ala. Jan. 10, 2012).

This post written by Ben Seessel.

See our disclaimer.

A court recently found in a pair of cases that an insurance agent’s receipt of emails containing hyperlinks and boilerplate footers referencing contractual terms, including a forum selection clause, did not provide adequate notice to qualify as a binding agreement. The underlying dispute was filed in federal court between two Lloyd’s syndicates and their insurance agent, Walnut Advisory Corporation, which, in turn, sought indemnification from Miller Insurance Services Limited, the insurance intermediary between Walnut and the syndicates. Miller responded by seeking dismissal on the basis that the business relationship between Walnut and Miller was governed solely by separate agreements providing for jurisdiction in English courts. The court denied Miller’s motions, finding an implied-in-fact contract governed the parties’ relationship and that the terms of the Miller agreements were not part of that contract. The court refused to apply the Miller agreements because (1) there was no evidence Walnut received mailed copies of the agreements; and (2) hyperlinks and email footer references to the agreements in electronic correspondence with Walnut were not “immediately visible” and therefore did not qualify as adequate notice to Walnut to constitute binding terms. The court also found that Miller’s client website, which referenced the Miller agreements in a manner that could qualify as “immediately visible,” was still insufficient notice because Walnut had access to the website only after the business relationship between it and Miller had been established. Liberty Syndicates at Lloyd’s v. Walnut Advisory Corp., Case No. 3:09-cv-01343 (USDC D.N.J. Nov. 16, 2011); Syndicate 1245 at Lloyd’s v. Walnut Advisory Corp., Case No. 3:09-cv-01697 (USDC D.N.J. Nov. 16, 2011).

This post written by Michael Wolgin.

Approved by Governor Jerry Brown on July 13, 2011, California Assembly Bill 315 significantly changes provisions of the California Insurance Code governing surplus lines coverage to make them consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Certain of the Bill’s provisions became operative on July 21, 2011. The Bill sets forth detailed legislation altering the manner in which surplus lines brokers and non-admitted insurers are governed. Among other provisions, the Bill creates rules regulating the advertising, marketing, and sales of surplus lines coverage, capital requirements for non-admitted insurers, and the taxation of surplus line insurance. The Bill also gives the Commissioner of Insurance the authority to create an advisory organization to monitor surplus lines activity. Assembly Bill No. 315, Ch. 83 (Cal. 2011).

This post written by Ben Seessel.