Reinsurance Focus

A federal district court has awarded Munich Re $5.6 million in damages in its breach of contract action against American National Insurance Company for ANICO’s nonpayment of certain claims the court previously determined were covered by the parties’ retrocession agreements. In previous opinions, reported here on March 10 and May 29, 2014, the court concluded that ANICO breached its payment obligations to Munich Re for claims properly and timely ceded to ANICO under those agreements. In awarding damages, the court determined that Munich Re was entitled to a sum certain based on all claims previously identified and billed by Munich Re at the time of trial, along with the appropriate amount of prejudgment interest. The court also determined that ANICO was entitled to (1) offset some damages claimed by Munich Re by the amount of outstanding premium ANICO was owed and (2) “particulars and estimates” under the reporting obligations of the retrocession agreements which obligate Munich Re, when reporting claims, to provide information sufficient for ANICO to determine that the claims fall within the scope of its obligations.  The court denied ANICO’s request that the court to take judicial notice of certain alleged admissions Munich Re made in prior litigation. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. May 27, 2014).

This post written by Renee Schimkat.

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A putative class action involving force-placed home insurance and an alleged scheme for mortgage lenders to obtain kickbacks in the form of commissions, reinsurance premium, and other fees, has survived a motion to dismiss. The complaint alleged that the mortgage lender, loan servicer, and insurer participated in a scheme of entering into exclusive agreements to force place insurance at grossly excessive rates in return for the kickbacks. The loan servicer and insurer moved to dismiss two Florida law claims: unjust enrichment and tortious interference with a business relationship. Regarding the claim for unjust enrichment, the court held that the complaint sufficiently alleged that the named plaintiffs conferred a “direct benefit” on the servicer and insurer (force-placed premiums), that the servicer and insurer retained the benefit, and that the benefit would be inequitable for them to retain. With respect to tortious interference, the court held that the complaint sufficiently alleged that the servicer and insurer intentionally interfered with the lender’s and plaintiffs’ business relationship in bad faith, which resulted in damages to the plaintiffs. The court held that the complaint adequately alleged the causes of action. Hamilton v. SunTrust Mortgage, Inc., Case No. 13-60749-CIV (USDC S.D. Fla. March 28, 2014).

This post written by Michael Wolgin.

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The Third Circuit recently vacated a lower court’s decision granting a motion to compel arbitration of (1) direct claims by certain cardiac services health providers against CIGNA and (2) claims by those providers on behalf of employee benefit plan participants who were initially denied coverage of the cardiac services by CIGNA but subsequently provided such services by the providers in exchange for assignment of their rights and claims under ERISA against CIGNA to the providers. After observing that the plain language of an arbitration agreement controls and that the presumption of arbitrability applies only where an arbitration provision is ambiguous, the Court of Appeals first held that the alleged facts underlying the direct claims unambiguously did not concern “the performance or interpretation” of the administrative agreement between CIGNA and the providers, as required by the arbitration clause, because the claims involved a CIGNA policy update document distinct from, and sent years after, the administrative agreement. As for the derivative claims, which related to CIGNA’s decision to deny coverage of the cardiac services to the participants, the court concluded that such coverage decision was subject to the terms or conditions of the applicable benefit plan and governed by ERISA, not the administrative agreement. The participants’ rights to pursue their ERISA claims in court could not be diluted through compelled arbitration just because the providers, as assignees, had promised to arbitrate certain of the direct claims they might bring against CIGNA. CardioNet, Inc. v. CIGNA Health Corp., No. 13-2496 (3d Cir. May 6, 2014).

This post written by Kyle Whitehead.

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A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).

In a summary order, the Second Circuit Court of Appeals has affirmed a federal district court’s interpretation of certain reinsurance contracts in favor of AIOI Nissay Dowa Insurance Company. The central issue in dispute was the scope of AIOI Nissay’s obligations to a group of insurers under contracts that those insurers had purchased from a reinsurance pool, of which AIOI Nissay was a member. The contracts were triggered in the wake of the aviation losses associated with the September 11, 2001 terrorist attacks. The Second Circuit rejected all of the arguments raised by the group of insurers on appeal, recognizing that the primary objective in contract interpretation is to give effect to the intent of the parties. While short on facts, the summary order stated that the “more natural reading” of contractual terms controlled, which was the interpretation advanced by AIOI Nissay, and the court therefore affirmed judgment in favor of AIOI Nissay on its breach of contract claim. AIOI Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., No. 13-2689 (2d Cir. Apr. 22, 2014).

The dispute involved a claim for benefits under a policy insuring a marine construction site damaged in 2008 by Hurricane Ike. The insured contended that the policy did not provide for arbitration, but instead provided only for appraisal to set an amount of loss. The court disagreed, finding that the policy contained a clause entitled “Arbitration” and contained “multiple references to arbitration,” although that clause was ambiguous because the policy was silent as to “what precisely triggers arbitration.” The court then analyzed extrinsic evidence, including the language of a “draft” of the arbitration clause, and compelled arbitration, finding “ample evidence in the record to demonstrate [the parties’] intent to arbitrate any and all disputes under the policy.” Aker Kvaerner/IHI v. National Union Fire Insurance Co. of Louisiana, et al., Case No. 2:10-cv-00278 (USDC W.D. La. Feb. 10, 2014).

This post written by Michael Wolgin.

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Sometimes a reinsurance program will not operate as intended due to the unintended consequences of conflicting reinsurance contract provisions. In this Treaty Tip, Roland Goss reviews one such instance found in a recently reported case.

This post written by Rollie Goss.

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A federal district court in Arkansas recently examined provisions of a Broker Authorization Agreement between a reinsurance broker (Global Risk) and a ceding insurer (Aetna). In denying cross-motions for summary judgment on the broker’s breach of contract claim, the court concluded that the agreement contained arguably contradictory provisions regarding who was responsible for paying the broker. One provision expressly placed the responsibility for payment of the broker’s services with the reinsurer (not a party to the Broker Authorization Agreement), while a separate provision addressed Global Risk’s entitlement to be compensated in the event that the agreement was terminated or the reinsurance portfolio was transferred. The court concluded that the agreement was ambiguous because “[i]f [the ceding insurer] had no responsibility to compensate [the reinsurance broker], then these latter provisions would be meaningless. That they are included in the contract between [the reinsurance broker] and [the ceding insurer] suggests that [the ceding insurer] has an obligation to compensate [the reinsurance broker].” Global Risk Intermediary, LLC v. Aetna Global Benefits Ltd., Case No. 4:13-CV-0133 (USDC W.D. Ark. Mar. 12, 2014).

This post written by Catherine Acree.

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Plaintiff Georgia Casualty & Surety Company entered into two reinsurance contracts with Defendant Excalibur Reinsurance Corporation, formerly known as PMA Capital Insurance Company. Both reinsurance contracts contained arbitration clauses. The First Excess Reinsurance Contract contained a choice of law provision but no forum selection clause, and the Second Excess Reinsurance Contract contained a forum selection clause but no choice of law provision. In 2006, Douglas Asphalt Company sued Applied Technical Services, Inc., a Georgia Casualty insured. Applied was found liable. While that judgment was on appeal, a high-low agreement was entered, which guaranteed that Georgia Casualty would pay Applied no less than $3 million and no more than $12 million. Thereafter, the Eleventh Circuit vacated the judgment against Applied. Georgia Casualty claimed that it was owed $1,418,708 under the two reinsurance contracts. In response, Excalibur argued that Georgia Casualty promised to seek malpractice damages against defense counsel for Applied and that this lawsuit would be a prerequisite to determining Excalibur’s liability. Additionally, Excalibur claimed that it did not consent to the high-low agreement. Georgia Casualty demanded arbitration of Excalibur’s alleged breach of the reinsurance contracts. Excalibur demanded arbitration on a counterclaim for unpaid premiums. Excalibur refused to consolidate the arbitration of all claims under both reinsurance contracts and requested that the arbitrators stay the arbitration pending the resolution of the malpractice claims. Georgia Casualty claimed this was a delay tactic and sued Excalibur.

The court found that if the Federal Arbitration Act or a state arbitration act lacking a statutory consolidation provision applied, then a court may consolidate arbitration only if the contracts expressly permit. Alternatively, if a state arbitration act that allows courts to impose consolidation regardless of the contracts’ terms governs the contracts, then a court may order consolidation where the statutory requirements are satisfied. Because the Second Excess Reinsurance Contract lacked a choice of law provision, it was governed by the FAA. Thus, the court could not order consolidation. Because the court could not order consolidation, it also could not designate a forum for that consolidated arbitration. With respect to a potential stay, the court believed it had to tread carefully to not violate the principle that, in determining whether a dispute is arbitrable, a court should not rule on the merits of the underlying claims. The court could not order the arbitrators not to stay the arbitration pending any potential malpractice recovery. The court also could not delve into the contract to determine if the contract required Excalibur to post security (in response to Georgia Casualty’s claim that Excalibur was delaying the proceedings). Georgia Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 1:13-CV-00456-JEC (USDC N.D. Ga. Mar. 13, 2014).

On their third attempt to state a claim for mortgage services fraud pursuant to the Real Estate Services Settlement and Procedures Act (“RESPA”), Plaintiffs in a putative class action overcame defendants’ motion to dismiss on the grounds that plaintiffs claims were untimely because they were brought outside of RESPA’s one-year statute of limitation. Linda Menichino, on behalf of herself and others similarly situated (“Plaintiffs”), sued various primary mortgage insurers (“PMI’s”) for mortgage fraud arising from alleged unlawful fee-splitting and kickback arrangements in connection with their mortgages. Specifically, Plaintiffs alleged that the portions of their monthly mortgage premiums that were supposed to pay for reinsurance services were actually disguised kickbacks remitted by the captive PMI’s to the mortgagees in exchange for the mortgagees’ continual flow of business back to the PMI’s. In an earlier opinion the court dismissed the case, holding that Plaintiff had not adequately alleged the basis for tolling the running of the limitation period, but permitted Plaintiff to amend to attempt to cure that deficiency. Conceding that the suit fell outside RESPA’s one year statute of limitation, Plaintiffs argued their factual allegations sufficiently alleged grounds for equitable tolling by showing how Plaintiffs were prevented from learning of the existence of their claims as a result of the PMI’s fraudulent concealment of the true purpose of their arrangement with the mortgagees. This decision follows a line of other decisions earlier reported in Reinsurance Focus on the recent developments in the cases involving RESPA violations and its one-year statute of limitations.

The Menichino Court agreed, further finding that Plaintiffs had now sufficiently alleged (1) they were not on inquiry notice of the possible existence of the claim during the limitations period; and (2) their ignorance of the true facts was not due to lack of reasonable due diligence. The Court also refused to dismiss Plaintiffs’ substantive claims of illegal kickbacks under RESPA as well as Plaintiffs’ claims for unjust enrichment under the laws of the six states where the Plaintiffs reside. Linda Menichino v. Citibank, N.A., et. al., Civil Action No. 2:12-cv-00058 (USDC W.D. Pa. Feb. 5, 2014).

This post written by Leonor Lagomasino.

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