Reinsurance Focus

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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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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A New York federal court entered a stipulated judgment in favor of the plaintiff reinsurer that prevailed on its declaratory claim in a summary judgment previously ordered, which judgment capped its exposure to the dollar amount stated in the “Reinsurance Accepted” portion of the reinsurance contracts at issue.  The litigation had remained ongoing due to the cedant’s remaining counterclaims, but it agreed to forego pursuing those claims in favor of a strategy allowing it to pursue appeal of the prior summary judgment order.

Global Reinsurance Corporation of America v. Century Indemnity Company, No. 1:13-cv-6577, (USDC S.D.N.Y. June 3, 2015).

This post written by Zach Ludens.

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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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Lincoln General Insurance Company (“Lincoln”) appealed a district court judgment, despite it having won a $16.5 million dollar tortious interference verdict, to the Fifth Circuit Court of Appeals. Lincoln alleged that the district court erred in dismissing various claims before the trial began, including: breach of contract, breach of fiduciary duty, conversion, and derivative liability.

The lawsuit arose from a fronting arrangement whereby Lincoln reinsured 100% of State and County Insurance Company’s (“State”) liabilities. According to the suit, U.S. Auto Insurance Services (“US Auto”) served as general agent to State. For this arrangement, Lincoln expected to receive 10% of premium payments. The rest of expected premium payments were to be divided between US Auto for management services in conjunction with payments to policyholders. Despite paying out less than anticipated for filed claims, Lincoln claimed it lost millions of dollars.

In a morass of procedural history spanning six years, the Fifth Circuit Court reversed the district court’s refusal to alter its judgment to include a breach of contract claim against U.S. Auto. The Fifth Circuit Court also reversed the dismissal of a tortious interference claim against Jim Maxwell. Jim and Doug Maxwell were co-owners of a business that became the recipient of $50 million dollars from US Auto. The Fifth Circuit Court noted that even if one included the more rigorous “active participation” element to tortious interface–a debatable position in Texas—Jim Maxwell’s conduct was tortious. Defendants attempted to skirt this issue altogether by alleging that the tortious interference award was barred by a two-year statute of limitations. The Fifth Circuit Court disagreed, noting that Lincoln filed the action before the limitations period had run out as they “did not and could not have” reasonably known about the facts comprising the tortious interference claim until US Auto became insolvent.

Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Serv., Inc., No: 13-10589 (5th Cir. May, 18, 2015)

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

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A district court in New York denied an insurer’s motion for reconsideration of a partial summary judgment order in favor of the reinsurer that concluded that the reinsurance limits set forth nine certificates of reinsurance at issue in the case were inclusive of costs and expenses, and created an overall cap of liability on the certificates. The insured moved for reconsideration of the district court’s opinion based on the Second Circuit’s intervening unpublished opinion, not to be cited as precedent, in Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., 594 F. App’x 700 (2d Cir. 2014). The district court denied the motion for reconsideration because the insurer conceded that the Utica decision represented an important clarification of existing law and was not in of itself an intervening change in law. Thus, the insurer failed to point to any change in controlling law or any new evidence that might reasonably be expected to alter the conclusion reached by the Court in granting the reinsurer’s partial summary motion. Global Reinsurance Corp. v. Century Indemnity Co., Case No. 13 Civ. 06577 (USDC S.D.N.Y. April 15, 2015).

This post written by Kelly A. Cruz-Brown.

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A federal judge in New York has denied reinsurers’ motions for relief from a prior judgment. The reinsurers, Equitas Insurance Limited and Certain Underwriters at Lloyd’s of London, argued that they were entitled to judicial relief because the insured, Arrowood Indemnity Company, procured an arbitration award later confirmed by the Southern District through fraud. Arrowood entered into a casualty reinsurance agreement with the underwriters. To recover under this agreement, claims needed to fall within one of three types of coverage. The underwriters denied a series of Arrowood’s asbestos claims under the “Common Cause Coverage” because it believed that the asbestos claims needed to be noticed during the original contract period. The parties submitted the matter to arbitration, where the panel agreed that Arrowood’s interpretation of the contract: that Common Cause Coverage was intended only to prevent recovery on known losses whose “common cause” occurred before the term of the original contract. The court confirmed the award.

Months later, the underwriters obtained a letter produced by Arrowood in a separate action that revealed Arrowood interpreted the Common Cause Coverage clause in the same way the underwriters had posited in the previous arbitration. The underwriters filed a motion seeking to relieve it from the judgment because of fraud. While relief on this basis under the Federal Rules of Civil Procedure is not time-limited, similar relief under the Federal Arbitration Act imposes a time limit – a motion to vacate an arbitration award must be served upon the adverse party within three months after the award is filed or delivered. Because the Act trumps civil rules when those rules conflict, the underwriters were time-barred. Arrowood Indemnity Co. v. Equitas Insurance Ltd., Case No. 13 Civ. 7680 (USDC S.D.N.Y. May 14, 2015).

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

See our disclaimer.