Reinsurance Focus

A federal court in Pennsylvania denied defendants’ motion to dismiss in a putative class action based on purported mortgage services fraud. Defendants Fifth Third Bank, Fifth Third Mortgage Company, Fifth Third Mortgage Insurance Reinsurance Company, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation argued that plaintiffs’ claims were untimely because they were brought outside the Real Estate Settlement and Procedures Act’s one-year limitations period. Plaintiffs sufficiently pled facts to equitably toll the statute of limitations. The operative complaint, for instance, alleged that none of the disclosures, correspondence, or monthly billing statements that plaintiffs received from either their mortgagee or their primary mortgage insurers advised plaintiffs that a portion of their monthly mortgage payments were financing reinsurance premiums or indicated that mortgages were actually reinsured. The court further found that the complaint pled a RESPA violation plausible on its face. The allegations described that the primary mortgage insurers purportedly remitted kickbacks, dressed up as reinsurance premiums, in exchange for a steady stream of primary mortgage insurance business. In support of their allegation that no real risk was transferred between the primary mortgage insurers and the captive reinsurers, plaintiffs pointed to the terms of the reinsurance contracts, which they argued provided no recourse to the primary mortgage insurers in the event that the reinsurers did not maintain adequate reserves to pay claims. Plaintiffs also argued that the claims paid by the reinsurers were low dollar amounts compared to the premiums. Manners v. Fifth Third Bank, Case No. 2:12-cv-00442 (USDC W.D. Pa. Feb. 5, 2014).

This post written by Samantha Lemery.

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Insurers sued their reinsurer for breach of certain facultative reinsurance certificates when the reinsurer ceased paying claims made for underlying losses under excess liability coverage for asbestos-related personal injuries. The reinsurer defended its decision to stop paying claims by contending that the insurers violated the reinsurance certificates when they transferred losses to another company; warranties in the reinsurance certificates provided that the insurers would “retain for [their] own account, subject to treaty reinsurance only, if any, the amount specified on the face of” the certificates. The insurers moved to dismiss this defense, arguing that they did not breach the certificates because their transfer of liability constituted a purchase of “treaty reinsurance,” and thus met the stated exception in the warranties. The court rejected the insurers’ argument, holding that “treaty reinsurance is obtained in advance of actual coverage,” and here, it was undisputed that the transfer took place “some 30 years” after the insurer wrote the policies and after the losses occurred. The court also rejected a number of other arguments made by the insurers with respect to other defenses, with two exceptions: (1) that the insurers were correct that the defense of failure to settle promptly was without merit in light of the reinsurer’s duty to follow the settlements of the insurers, and (2) that the reinsurer’s uberrima fides defense was duplicative of the reinsurer’s breach of contract defense, and was therefore due to be dismissed. The court also denied a motion for summary judgment filed by one insurer, which attempted to argue that the reinsurer was liable as a matter of law under the doctrines of waiver and account stated. Granite State Insurance Co. v. Transatlantic Reinsurance Co., Case No. 652506/2012 (N.Y. Sup. Ct. Dec. 23, 2013).

This post written by Michael Wolgin.

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The Eastern District of New York recently adopted the recommendation of a magistrate judge to grant a defendant-insurer’s motion to stay adjudication and compel arbitration, whilst also providing a refresher course in arbitration clause interpretation principles. First, the court dissected the arbitration clause’s condition precedent, holding that a provision requiring arbitration following the request of either party is a mandatory arbitration clause. The requirement that a dispute be submitted to arbitration within thirty days of such request “merely sets a time limit for commencement of an arbitration proceeding.” Moreover, whether a condition precedent has been satisfied is a procedural question presumptively for an arbitrator to decide, not a substantive question, such as whether the clause applies to a particular type of controversy, for a judge. Second, the court held that whether the motion to compel complied with applicable arbitration rules was inapplicable because those rules “do not come into play until an order is entered compelling arbitration or the parties agree to do so.” Third, noting the presumption of arbitrability, the court distinguished Second Circuit case law addressing an instance where a subsequent agreement to adjudicate created ambiguity in the parties’ intentions, and held that, here, “there is no subsequent agreement that abrogates th[e] agreement to arbitrate.” Lastly, the court analyzed a New York choice-of-law provision to determine the arbitrability of a punitive damages claim, holding that the provision should be read to encompass substantive principles that New York would apply, not special rules in New York that may limit the authority of arbitrators with respect to claims such as punitive damages. MQDC, Inc. v. Steadfast Ins. Co., Case No. 12-CV-1424 (ERK) (MDG) (E.D.N.Y. Dec. 6, 2013).

This post written by Kyle Whitehead.

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On September 11, 2013, the Southern District of New York approved the final settlement in the protracted class litigation regarding allegedly artificially inflated prices for AIG securities. This final settlement resolves all claims against defendant Gen Re with a settlement fund of $72 million for a class of persons and entities who purchased AIG securities from October 28, 1999 through April 1, 2005. Lead counsel was awarded $6.5 million in attorneys’ fees (9.09% of the settlement fund) and $525k in expenses. Any funds not claimed by class members will be distributed to a 501(c)(3) not-for-profit rather than returned to the defendant. The three previous settlements resolved claims against PwC, AIG, and Starr International Company. In re American International Group, Inc. Securities Litigation, 04 Civ. 8141 (DAB) (S.D.N.Y. Sept. 11, 2013).

This post written by Abigail Kortz.

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Aon Benfield was the reinsurance broker of record for Homeowners Choice, Inc. The parties executed a “revenue sharing agreement” whereby a portion of the commission Aon made in placing Homeowners’s reinsurance policies would be rebated to Homeowners. During the 2010 contract year, Homeowners notified Aon that it was replacing it as broker of record. Homeowners requested $659,943 from Aon as payment due under the parties’ revenue sharing agreement. Aon refused, claiming that the revenue sharing payment clause was superseded by the clause allowing Aon to keep commissions made after termination of the contract. The district court found the clauses Aon relied on to be ambiguous, and because Aon drafted the agreement, it awarded damages to Homeowners under the doctrine of contra proferentem. Aon appealed, but the Seventh Circuit Court of Appeals agreed with the district court and affirmed. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 13-1846 (7th Cir. Dec. 29, 2013).

This post written by John Pitblado.

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Faced with a question of first impression, the Ninth Circuit recently held that a clause in an arbitration agreement that eliminates any and all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is unenforeceable. The Court reasoned that allowing parties to “contractually eliminate all judicial review of arbitration awards . . . run[s] counter to the text of the FAA,” and “would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In re Wal-Mart Wage and Hour Employment Practices Litigation, No. 11-17718 (9th Cir. Dec. 17, 2013).

This post written by Abigail Kortz.

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We have previously reported on a case styled Munoz v. PHH Corp., No. 1:08-CV-0759 (E.D. Cal.), and other similar suits alleging putative class actions under the Real Estate Settlement Procedures Act (“RESPA”), arising from purported “sham” reinsurance transfers covering private mortgage insurance. In Munoz, where a class of consumers was certified, an intervening plaintiff sought intervention in order to certify a sub-class of consumers whose claims would be time-barred under the statute of limitations, but who sought to create a “tolling sub-class” of similarly situated claimants. The court granted the motion for intervention, and the defendants sought reconsideration. Finding the prior order not “clearly erroneous or contrary to law,” the court denied the motion for reconsideration. Munoz v. PHH Corp., No. 1:08-CV-0759 (USDC E.D. Cal. Oct. 29, 2013)

This post written by John Pitblado.

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The claimant, the Insurance Company of the State of Pennsylvania, sued Equitas under certain reinsurance contracts that provided cover of $15 million, excess of $5 million in underlying insurance for ICP-issued policies covering the Dole Food Co. Dole faced more than $30 million in liabilities arising from alleged personal injuries caused by its use of certain pesticides in its fruit farming operations. Equitas claimed that ICP failed to timely notify Equitas of the claims, barring coverage under the reinsurance contracts. ICP brought suit first in New York, and Equitas filed its own later action in London, arguing that venue in the U.S. was improper, and seeking to enjoin the U.S. action. The English court declined to enjoin the U.S. action. However, it also denied ICP’s motion to stay the English proceeding, leaving the litigation proceeding on parallel tracks in New York and London. Insurance Co. of Pa. v. Equitas, [2013] EWHC 3713 (U.K. High Court of Justice, Comm. Div. Nov. 29, 2013)

This post written by John Pitblado.

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In a case we have posted on before, plaintiffs lost the battle over whether their RESPA claims alleging a kickback scheme against private mortgage insurers and mortgage lenders’ captive insurers were equitably tolled. The court concluded, in a summary judgment setting, that plaintiffs did not diligently pursue their claims because they did not decide to engage in litigation until they were approached by attorneys who believed they had claims. Additionally, there was no reason plaintiffs could not have earlier discovered their claims because there were a number of cases alleging identical schemes filed years prior to plaintiffs’ closings. The court also concluded that defendants did not actively mislead plaintiffs because “[p]laintiffs’ argument – that the statute of limitations should be equitably tolled because Defendants failed to disclose they were violating RESPA – is unpersuasive” and “circular.” Riddle v. Bank of America Corporation, Case No. 12-1740 (E.D. Pa. Nov. 18, 2013).

This post written by Abigail Kortz.

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In Virginia, defendant’s employment of plaintiff for house cleaning services became messy when plaintiff sued her employer for numerous torts, statutory violations and breach of contract. With foresight, defendant had required plaintiff to sign a one-page Arbitration Agreement requiring resolution of “any and all claims, disputes, or controversies arising out of” plaintiff’s employment exclusively by the National Arbitration Forum (“NAF”) and sought to enforce that Agreement. The NAF was no longer available to administer the arbitration. Plaintiff argued that designation of the NAF as exclusive arbitrator was integral to the Agreement and the NAF’s unavailability rendered the Agreement unenforceable. The lower court agreed, but the matter was ultimately tidied up in defendant’s favor. On appeal, the supreme court found the NAF designation was not integral to the agreement because: (1) the Agreement included a severability provision, (2) the sole object of the Agreement was to require arbitration, (3) the parties were presumed to know the courts are directed by statute to appoint an arbitrator when an arbitration agreement fails to appoint one, and (4) nothing indicated that the parties considered the contingency that the NAF might not be available. Schuiling v. Harris, slip op (Va. Sept. 12, 2013).

This post written by Abigail Kortz.

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