Reinsurance Focus

When plaintiff, in a case submitted to arbitration, issued a third party subpoena using the court’s caption and case number, without advising the opposing party, the arbitrator, or the court, the court granted defendant's motion for sanctions, awarding him attorney's fees associated with filing the motion. The court found that the subpoena issued by plaintiff's counsel to a third party was blatantly improper because: (1) the court had fully stayed the case pending arbitration and placed the case on the suspense calendar; (2) only arbitrators, and not parties, have authority to issue subpoenas; (3) plaintiff failed to give proper notice as required by Rule 45(b)(1); and (4) the subpoena sought documents that the arbitrator had already ruled were not discoverable. The court declined to enjoin plaintiff from issuing additional subpoenas. Kenney, Becker LLP v. Kenney, Case No. 06-2975 (USDC S.D. N.Y. Mar. 6, 2008).

This post written by John Black.

This case arises out of a state court lawsuit asserting claims from a motor vehicle accident, in which Bituminous Casualty sought a declaratory judgment that it did not owe its insured, the defendant in the state court action, a defense under its policy. The plaintiff in the state court action, which was not insured by Bituminous, sought the production of Bituminous’ reinsurance agreements and correspondence with its reinsurers. Although the court compelled the production of other documents, it denied the motion to compel to the extent that it sought information about Bituminous’ reserves, reinsurance agreements and other documents relating to reinsurance. Bituminous Cas. Corp. v. Smith Bros., Inc., Case No. 2:07-cv-354-KS-MTP (USDC S.D. Miss. Sept. 22, 2008).

This post written by Dan Crisp.

A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

This post written by John Pitblado.

The plaintiff, Bunge North America, sought liability insurance coverage related to its environmental liabilities from, among others, Travelers Casualty. Bunge moved to compel certain documents from Travelers, which motion was granted by a magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. June 4, 2008) (magistrate’s order). Travelers sought review of the magistrate judge’s order with the district judge. The motion for review was denied in its entirety. The district court made three rulings affirming the reasoning used by the magistrate judge. First, Bunge was entitled to agreements Travelers had with a broker, and the date and amount of payments made to the broker, relating to Bunge insurance policies. These documents were found to be relevant to the issue of whether Bunge properly notified Travelers of its claims via the broker, Travelers’ putative agent. Second, Bunge was entitled to documents relating to a similar claim paid to a different Travelers insured on the same environmental liability issue. This information was relevant to Travelers’ knowledge of the issues and the consistency of its positions, as well as Bunge’s bad faith claim. Finally, the district judge refused to disallow the possibility that Bunge could collected its fees and costs associated with the motion to compel. Although the magistrate judge had found that the relevance of the requests were not apparent on their face, the district judge stated that relevance can be clarified by a party after the fact, so the issue of whether the opposing party’s objections are “substantially justified” (the standard to avoid the payment of fees and costs) was subject to further litigation before the magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. July 3, 2008) (district judge’s order).

This post written by Brian Perryman.

Plaintiff, Cameron Parish School Board (“the School Board”) filed a complaint against RSUI Indemnity Company for breach of contract for failure to timely and properly adjust covered losses, and for bad faith in violation of several Louisiana statutes. The School Board filed three separate motions to compel against the defendant, one of which was a motion to compel the production of reinsurance information. Following in camera review of certain documents withheld by the defendant on privilege grounds, as well as a review of three separate privilege logs, the court concluded that even though the reinsurance information was not relevant to plaintiff’s breach of contract claim, the information might be probative of bad faith, and therefore relevant to plaintiffs’ statutory claims. As such, the court ordered the Defendant to produce items listed on their Underwriting Log. Cameron Parish School Bd. v. RSUI Indem. Co., Case No. 2:06-cv-1970 (W.D.La. July 23, 2008).

This post written by Lynn Hawkins.

Argonaut Insurance Company reinsured Hartford Accident and Indemnity Company under a facultative certificate which covered a $1 million general liability policy, which was subject to the terms, conditions, and limits of liability set forth in the facultative certificate. Hartford retained $250,000 under the facultative certificate, and Argonaut reinsured 50%, or $375,000, of the $750,000 above Hartford’s retention. Hartford issued three primary policies over a number of years and paid $5 million to settle products liability claims, allocating the amount equally to the three primary policies. Hartford later agreed to pay $54 million to buy back its primary policies and some excess policies it had issued. The issue with respect to the reinsurance became how the losses were allocated by year.

Argonaut sought documents to explore potential inconsistencies in allocations over the years, but Hartford contended, and the district court agreed, that a follow the fortunes clause made such an argument irrelevant, since the allocation had been made in good faith, was reasonable and was within the terms of the applicable policies. Hartford represented that it had issued over 175 policies to this insured over 30 years time, that many were totally unrelated to the single policy that Argonaut reinsured, and that it would take more than 12,000 hours to collect and conduct a preliminary review of the documents sought by Argonaut. At the same time, the court granted a motion to compel by Hartford seeking documents relating to Argonaut’s reinsurance and knowledge of the underlying claims, finding that Argonaut had put such documents at issue in one of its defenses to Hartford’s Complaint. Hartford Accident and Indemnity Co. v. Argonaut Insurance Co., Case No. 06-1813 (USDC D. Conn. Apr. 25, 2008). The court denied a motion for reconsideration, finding that requiring that Hartford provide all of the underlying insurance policies to its reinsurer would undermine the follow the fortunes doctrine.

This post written by Rollie Goss.

On November 19, 2007, we reported on the denial of a motion to dismiss an action seeking to bar the arbitration of disputes under 43 reinsurance contracts. A district judge has now compelled the production of documents in five categories, finding them relevant to both the claims alleged by Midwest Employers Casualty Company (“MECC”) and the defenses of Legion Insurance Company (“Legion”). The dispute is whether the reinsurance contracts provide for coverage on a “risk attaching” basis (Legion’s contention) or a “loss occurring” basis (MECC’s contention). The court compelled Legion to produce:

• Contracts evidencing reinsurance purchased by Legion for program business on a “loss occurring” basis;
• Documents evidencing the attachment basis of the reinsurance that Legion purchased from MECC;
• Documents showing Legion’s booking of or accounting for reinsurance purchased from MECC;
• Documents showing actuarial support for Legion’s last Schedule F statutory filing relating to its projection of MECC’s ultimate liability and any subsequent projection of MECC’s ultimate liability; and
• Documents showing case reserves and reinsurance receivables by claim, program and/or year relating to Legion’s policies or accounts reinsured by MECC or that otherwise show reinsurance payments that Legion estimated or expected to receive from MECC.

Further detail regarding the dispute is set forth in the memoranda in support of and in opposition to the Motion to Compel. Midwest Employers Casualty Company v. Legion Insurance Company, Case No. 07-870 (USDC E.D. Mo. June 4, 2008).

This post written by Rollie Goss.

In a recent decision, the Fifth Circuit touched on the collateral source rule, which generally prohibits parties from introducing evidence of reinsurance. The plaintiff medical center and its insurer (Western Professional Insurance) alleged that the defendant medical center and other defendants supplied misleading letters recommending a physician the defendants had fired just two months earlier for on-duty use of narcotics. While in the plaintiff medical center’s employ and under the influence of narcotics, the physician sent a patient into a permanent vegetative state. A judgment was rendered against the medical center and in favor of the patient. The plaintiffs sued for misrepresentation and negligence and, in turn, a judgment was rendered against the defendants.

On appeal, the court reversed the judgment against the defendant medical center for insufficiency of evidence, but remanded the case for further proceedings. The court rejected the defendants’ argument that the district court erred in excluding evidence of Western’s reinsurance. The Fifth Circuit noted that, under governing Louisiana law, the collateral source rule provides that payments made to, or benefits conferred on, an injured party from sources other than the tortfeasor, notwithstanding that such payments or benefits cover all or part of the harm for which the tortfeasor is liable, are not credited against the tortfeasor’s liability. The defendants’ attempt to introduce evidence of reinsurance at trial was “nothing more than a classic argument against the collateral source rule.” Kadlec Medical Center v. Lakeview Anesthesia Associates, No. 06-30745 (5th Cir. May 8, 2008).

This post written by Brian Perryman.

The defendant municipality requested an order compelling further responses to requests for production of documents relating to reserves set by the plaintiff insurer on the defendant’s claims, and documents relating to reinsurance of the plaintiff’s policies. The court granted the request, finding that while setting reserves does not constitute an admission of liability, it may be relevant as to plaintiff’s state of mind for the potential for coverage and, therefore, duty to defend. Similarly, non-privileged communications with reinsurers may be relevant for the same reason. The court denied as irrelevant, however, a request for an order compelling further responses to requests for admission concerning hourly rates paid to a law firm in connection with matters not related to the litigation. Insurance Co. of the State of Pennsylvania v. City of San Diego, Case No. 02-CV-693 (USDC S.D. Cal. Apr. 4, 2008).

This post written by Brian Perryman.