Reinsurance Focus

A lawsuit filed in the United States Court for the District of Connecticut between Odyssey Reinsurance Company and Cal-Regent Insurance Services Corporation involves a dispute over commission payments in a reinsurance scheme with State National Insurance Company, Inc. According to Odyssey, Cal-Regent has not made the appropriate commission payments for 2003 to 2007. According to Cal-Regent, however, Odyssey failed to perform the contracts and Cal-Regent is entitled to a set-off. In its complaint, Odyssey alleged that it “has performed all of its obligations under the Reinsurance Agreement” and had performed all conditions precedent to bringing suit. Odyssey moved for summary judgment, and Cal-Regent argued that Odyssey was not entitled to summary judgment, among other reasons, because of the dispute over whether the Odyssey had first breached the reinsurance contracts. However, in its answer to Odyssey’s complaint, Cal-Regent had the burden “to deny Odyssey’s performance with particularity, which Cal-Regent failed to do.” Rather than granting summary judgment to Odyssey on this issue, the court issued a decision allowing Cal-Regent to amend its answer and affirmative defenses, including granting leave to add an affirmative defense of material breach.

In another decision issued on the same day, however, the court dismissed Cal-Regent’s counterclaim for a setoff, finding that it had been brought under Connecticut law, rather than Texas law, when the parties had agreed to Texas law in the reinsurance agreement. Odyssey Reinsurance Co. v. Cal-Regent Insurance Services Corp., No. 3:14-cv-00458-VAB (USDC D. Conn. Aug. 20, 2015).

This post written by Zach Ludens.

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We previously reported on Old Republic National Title Insurance Co. v. First American Title Insurance Co., in which the court partially dismissed First American’s claim for breach of good faith and fair dealing to the extent the predicate breach of reinsurance contract claim alleged by First American failed to state a claim. The court has now denied First American’s motion to amend its answer. In the motion, First American attempted to demonstrate the predicate breach of reinsurance contract by contending that Old Republic failed to make payment under the contract based on false accusations and improper document requests. But the court agreed with Old Republic that the claims as pled did not support First American’s new allegations, and could not serve as a basis for a claim for the breach of the utmost duty of good faith. Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ (USDC M.D. Fla. July 17, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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In a case on which we previously reported, a federal court in New York recently denied plaintiff insurer’s motion to reconsider the court’s order granting defendant reinsurer’s motion for partial summary judgment. In that order, the court granted defendant Clearwater Insurance Company’s (Clearwater) motion for partial summary judgment because it found that the Liability Clauses in the facultative reinsurance certificates that Clearwater issued to plaintiff Utica Mutual Insurance Company (Utica) established limits on Clearwater’s liability. Specifically, these clauses capped Clearwater’s overall liability for losses (amounts an insurer pays to indemnify its policyholder) and expenses (amounts an insurer pays to defend its policyholder). Applying New York law, the court concluded that the contract was unambiguous and that the caps should be honored.

In its motion for reconsideration, Utica asked the court to deny Clearwater’s motion for partial summary judgment, arguing that a recent Second Circuit order represented an intervening change in controlling law. The court, however, denied Utica’s motion for three reasons: (1) because it was untimely; (2) because the order cited in Utica’s motion did not constitute an intervening change in controlling law; and (3) because even if the order were such an intervening change, it was distinguishable from the case at bar. Utica Mutual Ins. Co. v. Clearwater Ins. Co., No. 6:13-cv-01178 (USDC N.D.N.Y. July 23, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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A reinsurer filed a complaint in the Eastern District of Pennsylvania seeking declaratory relief regarding its obligations under a reinsurance contract on May 7, 2015. The defendants filed an action concerning the same parties, facts, and issues in the District of Connecticut on May 12, 2015. Despite the fact that the Pennsylvania action was filed first, the court declined to exercise jurisdiction under the Declaratory Judgment Act.

On May 1, 2015, the defendants requested payment by May 15th from the reinsurer under the parties’ reinsurance contract and indicated that they would file suit in the District of Connecticut if payment was not timely received. Instead of either paying or responding, the reinsurer filed its complaint for declaratory judgment, preemptively, in the Eastern District of Pennsylvania. The defendants moved to dismiss. Noting that the timing of these events suggested an improper first filing, the Pennsylvania court dismissed the reinsurer’s complaint. Fatal to the reinsurer’s action were the court’s finding that the Pennsylvania filing “was filed in bad faith, as it was improperly anticipatory and solely for declaratory relief.” Additionally, the court found that the reinsurer’s first filed action was merely an “attempt to secure better procedural law by rushing to the [Pennsylvania] courthouse ahead of [the defendants].” Finally, because the defendants were able to establish a nexus between Connecticut and the dispute, and because the plaintiff had improperly “fired the first shot” while the defendants’ pre-litigation demand was pending, the court held that the reinsurer was not entitled to the benefits of the equitable “first-filed” rule. Excalibur Reinsurance Corp v. Select Ins. Co., et al., Case No. 15-2522 (USDC E.D. Pa. July 7, 2015)

This post written by John A. Camp.

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We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. In this ruling, the court granted defendant’s partial motion to dismiss the plaintiff-intervenor’s amended complaint with prejudice and to strike certain allegations from the remaining pleading.

Previously, the court granted the plaintiff-intervenor leave to file an amended complaint to cure deficiencies identified in the court’s order for partial judgment on the pleadings against the plaintiff-intervenor for failure to plead sufficient facts. In that August 2014 order, the court found that PHH’s loan disclosure documents had adequately placed the tolling subclass on notice of their claims, and that no extraordinary circumstances justified the late filing. The court also found that the plaintiff-intervenor failed to sufficiently plead a claim of fraudulent concealment apart from the underlying RESPA claim.

The court found that the allegations in the amended complaint would involve the re-litigation of these previously resolved issues. It reasoned that the amended complaint’s equitable estoppel and tolling claims “merely cloak[ed] the same facts or irrelevant facts in new legal theory, one amenable to the same defenses that have already prevailed” and were therefore barred under the law of the case doctrine. The court dismissed with prejudice because its previous order granted the intervenor one opportunity to amend, and the intervenor failed to cure the complaint’s deficiencies. Because the court had dismissed the claims with prejudice, it struck certain pleadings filed after the date of the order permitting the filing of an amended complaint as immaterial. Munoz v. PHH Corp., Case No. 08-00759 (USDC E.D. Cal. May 21, 2015).

This post written by Brian Perryman.

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Gardner Denver, Inc. (“Gardner”), had entered into a settlement agreement with its liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“NUF”) to resolve a dispute over Gardner’s coverage under various indemnity agreements. NUF honored the settlement agreement for several years, paying Gardner’s claims. However, once NUF entered into a “retroactive reinsurance” agreement with National Indemnity Company (“NICO”), in which NICO assumed NUF’s obligations and liabilities, NICO delegated the claims handling to another entity, which asserted a coverage defense and ceased paying Gardner’s claims under the settlement agreement. Gardner sued NICO and the claims administrator for tortious interference with a contract, and NICO countered with a motion to dismiss. NICO contended that the tortious interference claim failed because NICO had a qualified privilege as NUF’s agent (similar to the protection afforded to corporate officers under the “business judgment” rule) to handle claims on behalf of NUF. The trial court agreed with NICO and found that the complaint failed to overcome the privilege by sufficiently alleging that NICO acted without justification and with malice, and dismissed the case.

The appellate court, however, reversed the dismissal, holding that it was a factual question whether NICO’s actions were in fact unjustified or malicious, based on interpretation of the underlying insurance and settlement agreements and other evidence not before court, and thus it was not a decision for the court to resolve on a motion to dismiss. “Until the court answers whether NICO’s defense was frivolous, it could not determine whether NICO acted in good faith or, alternatively, acted without justification or malice, in its failure to pay claims pursuant to the settlement agreement.” Gardner Denver, Inc. v. National Indemnity Co., et al., Case No. 4-14-0713 (Ill. App. Ct. May 21, 2015).

This post written by Barry Weissman.

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We previously posted on a district court’s dismissal, with prejudice, of an Amended Complaint challenging the propriety of payments to the ceding insurer of the Mariah Re catastrophe bond which exhausted the cat bond’s trust account.  The Amended Complaint contended that the payment amount had not been calculated in accordance with the provisions of the cat bond’s documents, and that a lesser amount, which would not have exhausted the trust account, should have been paid instead.  The district court found that the documents clearly set forth the process for calculating the payment amount, and that the payment amount had been calculated in accordance with the contractual agreements.  It therefore dismissed the case with prejudice.  The Court of Appeal, after briefly describing the contractual relationships, simply stated that “[w]e AFFIRM the judgment of the district court for substantially the reasons stated by Judge Sullivan in his opinion of September 30, 2013.”  This result demonstrates the importance of clarity in the drafting of cat bond documents, and may help to reduce whatever uncertainty this lawsuit engendered in the cat bond market.  Mariah Re Limited v. American Family Mutual Insurance Company, No. 14-4062 (2nd Cir. June 30, 2015).

This post written by Rollie Goss.

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The Middle District of Florida recently granted in part and denied in part plaintiff Stewart Title Guaranty Company’s (“Stewart Title”) motion to dismiss defendant First American Title Insurance Company’s (“First American”) counterclaim for breach of the utmost duty of good faith. As noted in a prior post, this case involves disputes regarding reinsurance agreements that First American entered into with Old Republic National Title Insurance Company (“Old Republic”) and Stewart Title. In these agreements, Old Republic and Stewart Title agreed to assume part of First American’s contractual liability under a title insurance policy.

When mechanic’s liens were discovered on the property at issue, First American negotiated a $41 million settlement of the claim before turning to Old Republic and Stewart Title to pay their proportionate share of that sum. While Old Republic paid under its reservation of rights, Stewart Title chose not to pay, and instead, sued First American for rescission, reformation, declaratory judgment, and negligence. First American countersued Stewart Title for breach of contract, breach of the utmost duty of good faith, and declaratory judgment.

Stewart Title moved to dismiss First American’s counterclaim for breach of the utmost duty of good faith on the same bases as a prior dismissal granted in favor of Old Republic. First American contended that Stewart Title’s breach of the reinsurance agreement differed from Old Republic’s alleged breach in that Stewart Title did not pay under its reservation of rights. First American’s counterclaim alleged that Stewart Title breached the utmost duty of good faith in the following four ways: (1) failing to pay the claim as required under the insurance contract; (2) engaging in delay tactics; (3) using First American’s documents against it in support of its allegations and preemptively filing suit against First American; and (4) accusing First American of making misrepresentations and omissions. While the district court held that the first two claims necessarily could be tied to breach of the reinsurance contract, the latter two claims could not and, consequently, the latter two were dismissed.

Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ, 2015 WL 1530611 (USDC M.D. Fla. June 8, 2015)

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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A Special Focus article by Rollie Goss discusses a Court of Appeals opinion which gives practical effect to the honorable engagement provision of a reinsurance agreement.

This post written by Rollie Goss.

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This case involved a FINRA arbitration held to resolve a dispute over money allegedly owed to Ameriprise Financial Services by a former financial adviser. The financial adviser appealed the district court’s confirmation of the award favoring Ameriprise, contending that the award was procured by fraud and that the arbitrator committed a manifest disregard of the law. On appeal, the financial adviser first contended that the award should be reviewed under the Wisconsin Arbitration Act instead of the FAA. The Seventh Circuit, however, disagreed, holding that the parties’ arbitration agreement expressly selected the FAA, and that the FAA was applicable notwithstanding potential application of other Wisconsin law on the merits of the dispute. Regarding “manifest disregard,” the Seventh Circuit rejected the financial adviser’s contention that the panel inappropriately applied federal securities laws instead of certain states’ laws. The court explained that it “is not manifest disregard of a law to consider [the state law] and its relation to [federal law] and then conclude that the law does not apply in the specific factual situation at issue.” The court also noted that the panel had not issued a written opinion, and that the court would not “second-guess the arbitrators’ decision based on speculation when it is possible for the panel to have reached the decision it did based on the evidence presented to it.” As to fraud, the Seventh Circuit held that Ameriprise’s counsel’s closing argument, in which counsel asserted that the financial adviser “violated” certain laws and characterized certain cases as “on point,” did not misrepresent the record or the law. Renard v. Ameriprise Financial Services, Inc., No. 14-1730 (7th Cir. Jan. 30, 2015).

This post written by Michael Wolgin.

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