Reinsurance Focus

The Commercial Court (a subdivision of the Queen’s Bench Division of the U.K.’s High Court of Justice), recently held that an underwriter could not avoid the reinsurance contracts it had underwritten because it failed to convince the court that it would not have underwritten those contracts. In a case involving nondisclosure of loss statistics, the court determined that plaintiff reinsurer, Axa, could not avoid two reinsurance agreements that it had entered into with defendant insured, Arab Insurance Group (ARIG). The court made this finding even though ARIG failed to disclose – and perhaps even misrepresented – the loss statistics associated with its existing book of internal risk that was subject to the reinsurance. The court agreed with Axa that the misrepresentation of ARIG’s loss statistics was a material fact that should have been disclosed. However, even if ARIG had disclosed this information prior to the completion of the underwriting process, Axa would still have entered into the reinsurance agreements. Axa failed to prove they were induced by ARIG’s misrepresentation into the reinsurance contracts; they were therefore bound to those contracts. Axa Versicherung AG v. Arab Insurance Group [2015] EWHC 1939 (Comm).

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

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The First Circuit recently examined, in the admiralty context, the doctrine of uberrimae fidei, a legal doctrine requiring that all parties to an insurance contract deal in good faith and fully disclose all material facts. The case involved a maritime insurance policy in which the insured failed to disclose that its dry dock had substantial, preexisting damage and failed to disclose the dry dock’s actual value. When the insured later made a claim and the facts were revealed, the insurer denied the claim. In subsequent coverage litigation, the district court decided in favor of the insurer, finding that the insurance policy was void ab initio because the insured failed to disclose the true value of the dry dock, its level of deterioration, and other material facts. The First Circuit affirmed, holding that uberrimae fidei is an established admiralty rule within the first circuit. The First Circuit, however, modified the district court’s ruling to reflect that the contract was merely voidable, not void ab initio.

Catlin at Lloyd’s v. San Juan Towing & Marine, No. 13-2491, 2015 WL 500744 (1st Cir. Feb. 6, 2015).

This post written by Catherine Acree.

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In a case on which we previously reported, the Third Circuit recently evaluated the legal standard for determining materiality in a claim for rescission of an insurance contract.  The case involved a dispute between two reinsurers in which a federal court awarded the plaintiff $5.6 million based on breaches of the parties’ retrocession agreements.  The district court also entered summary judgment in the plaintiff’s favor on the rescission counterclaim.  The Third Circuit affirmed, ruling that the information plaintiff withheld was not material so as to amount to a breach of the duty of utmost good faith, approving the following definition of materiality under New York law: “A fact is material . . . if, had it been revealed, the insurer or reinsurer would either have not issued the policy or would have only at a higher premium.”  The Third Circuit rejected the other party’s broader definition of materiality – that information is material if it “likely” would have influenced the decision.

Munich Reinsurance Am., Inc. v. Am. Nat’l Ins. Co., No. 14-2045 (3rd Cir. Feb. 3, 2015)

This post written by Catherine Acree.

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The Second Circuit recently addressed the issue doctrine of uberrimae fidea. St. Paul Fire & Marine Insurance brought suit against Matrix Posh, LLC, its insured under a policy of marine insurance, seeking to have the policy declared void ab initio due to Matrix’s alleged misrepresentations about pre-existing damage to the insured vessel. The trial court granted summary judgment and the Second Circuit affirmed. The Second Circuit held that the determination of whether the misrepresentations were material hinged not on the extent of the damage to the vessel (Matrix claimed after the fact that the damage was minor), but on whether the misrepresentation that there was no damage, precluded St. Paul from the opportunity to investigate the risk itself, prior to acceptance. This violated Matrix’s duty of utmost good faith and the policy was therefore void. St. Paul Fire & Marine Insurance Co. v. Matrix Posh, LLC, No. 12-2045-CV (2d Cir. Jan. 16 2013).

This post written by John Pitblado.

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Munich Re sued retrocessionaire ANICO based on ANICO’s refusal to pay over $4 million allegedly due under excess loss policies issued to Munich Re to provide retrocessional cover on Munich Re’s reinsurance of Everest National’s workers compensation program. After discovery closed, ANICO counterclaimed for rescission, alleging that facts revealed in discovery demonstrated that Munich Re failed to abide by its duty of utmost good faith or uberrimae fidei by failing to disclose its own internal loss calculations that ANICO claimed would have been material to ANICO’s decision to issue the retrocessional policies. The parties cross-moved for summary judgment on ANICO’s counterclaim for rescission and Munich Re moved for summary judgment on aspects of its breach of contract and declaratory judgment claims.

The federal district court denied the parties’ cross-motion on ANICO’s rescission counterclaim, holding that there were issues of fact regarding whether ANICO reasonably would have considered Munich Re’s internal loss calculations material and, further, whether Munich Re should have known that ANICO would have deemed this information material. With respect to Munich Re’s breach of contract claim, the court rejected ANICO’s argument that Munich Re’s alleged failure to provide timely notice precluded recovery, finding that timely notice was not required under the parties’ agreements and, further, that ANICO could show no prejudice. The court granted Munich Re summary judgment with respect to its interpretation of the agreements’ retention provisions. As none of these decisions entirely disposed of the case, it remains pending in federal district court. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. Sept, 28, 2012).

This post written by Ben Seessel.

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Reiterating that Massachusetts law requires the insured to bear the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage, the First Circuit affirmed an award of summary judgment to a Canadian reinsurer in an action in diversity brought by an American insurer seeking indemnification of amounts incurred in defending its insured against asbestos-related claims. The court parsed through three years of insurance and reinsurance policies, endorsements thereto, as well as the flow of premium payments, to find corroborative of the parties’ intents both the plain language of the documents and extrinsic evidence, including premium payments and the existence of only an initial-year facultative certificate. The court held that the reinsurance arrangement that existed in the first policy year terminated at the end of that year. OneBeacon Am. Ins. Co. v. Commercial Union Assurance Co. of Canada, No. 11-2072 (1st Cir. July 11, 2012).

This post written by Brian Perryman.

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Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).

This post written by Ben Seessel.

The Second Circuit Court reversed a $34.3 million judgment rendered after a jury verdict against AIG on fraudulent inducement claims asserted by AXA arising from reinsurance facilities the parties entered into in or about 1998. While the Court agreed with a district court ruling that AXA’s claims sounded in fraud and not contract, and thus were properly not referable to arbitration, it nonetheless held as a matter of law that AXA failed to prove the claims were timely brought under the two-year discovery prong of the statute of limitations for fraud. The Court found that AXA was on notice of the alleged fraud as early as 1998, when it signed wordings which the Court found clearly indicated the manner in which AIG intended to operate the reinsurance facilities. AXA, despite the “storm warnings” of the wordings, and other indications of AIG’s intentions from 1998 through 2000, failed to bring suit until 2005. Because it found the claims were time-barred, the Court reversed the entry of judgment, and remanded with instructions to enter judgment in favor of AIG. AXA Versicherung AG v. New Hampshire Ins. Co., No. 08-2521 (2d Cir. Aug. 23 2010).

This post written by John Pitblado.

A California federal court addressed arguments pertaining to whether a dismissal of a third party complaint as part of a settlement agreement between a plaintiff insurer and defendant-third-party-plaintiff reinsurer should be with or without prejudice. The third party plaintiff argued that the nature of the agreements between it and the third party defendant, another pool reinsurer (and no settlement had been reached as between these two parties), as to future indemnification obligations left open questions that could be precluded by dismissal with prejudice. The court ordered the dismissal without prejudice, invoking its broad discretion under Rule 41, and citing a failure by the third party defendant to identify a concrete harm it would suffer from a dismissal without prejudice. Eagle Star Ins. Co., Ltd. v. Highland Ins. Co., No. 02-cv-2165 (USDC S.D. Cal. July 22, 2010).

This post written by John Pitblado.

Pacific Employers Insurance Company moved for reconsideration of a recent court ruling that Global Reinsurance Corporation of America was not required to reimburse Pacific for costs beyond the $1 million cap on “reinsurance accepted” under a facultative certificate issued to Pacific by Global (see our May 5, 2010 post for details about the initial ruling). The court denied Pacific’s motion for reconsideration, noting that it failed to point to new evidence or a change in controlling law. The court also denied Pacific’s alternative motions seeking to have the previous order certified as final for immediate appeal, or to have the matter certified for an interlocutory appeal to the Third Circuit. The court held that claims for relief remain to be adjudicated, and that any appeal is premature and unwarranted. Pacific Employers Ins. Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. June 9, 2010).

This post written by John Pitblado.