Reinsurance Focus

In an ongoing reinsurance arbitration between Allstate Insurance Company and OneBeacon American Insurance Company, Allstate unsuccessfully sought to enjoin the arbitration because OneBeacon’s position statement informed the umpire of OneBeacon’s selection of him as umpire. Allstate alleged that this submission (1) violated the arbitration agreement’s umpire selection protocol, which, Allstate argued, implicitly prohibited communications that threatened umpire impartiality, and (2) violated the “reinsurance industry’s custom and practice.” Allstate could not make the requisite showing of “likelihood of success on the merits” to obtain injunctive relief because it misinterpreted the selection protocol, and because “[p]reaward challenges on the basis of bias” are not permitted. Allstate also failed to show “irreparable harm,” given Allstate’s ability to challenge the final award after the arbitration was completed. Concern over potential “lack of neutrality” did not tip the balance of equities in Allstate’s favor, nor did a “technical skirmish over arbitration procedure between two reinsurance companies” rank high in terms of the public’s interest. Allstate Insurance Co. v. OneBeacon American Insurance Co., Case No. 1:13-cv-12368 (USDC D. Mass. Oct. 8, 2013).

This post written by Michael Wolgin.

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An insurance company that provided directors and officers liability to a lottery corporation sought coverage from its reinsurer for an employment litigation judgment entered against the lottery corporation. The reinsurance certificate stated that coverage would not be provided until the insurer’s losses totaled $5 million. The final judgment at issue was $6.7 million, which included $2.4 million in interest. Thus, the issue was whether the $2.4 million in interest was considered a “loss,” which would trigger reinsurance coverage with a final judgment of $6.7 million, or “interest on a judgment,” which would result in a final of judgment of $4.3 million which falls just shy of the $5 million threshold. The court determined that the carefully worded conditions in the reinsurance certificate made it clear that the reinsurer’s obligation to cover a portion of “interest on any judgment” was separate and apart from its obligation to cover losses and granted summary judgment in favor of the reinsurer. Seneca Insurance Co. v. Everest Reinsurance Co., Case No. 11-7846 (USDC S.D.N.Y. Oct. 17, 2013).

This post written by Abigail Kortz.

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Absent a “pressing need,” an arbitration action and related court case in one federal district do not justify an indefinite stay of a court case in a different federal district when different reinsurance contracts and different merits are at issue, regardless of whether the parties are the same. In Employers Insurance Company of Wausau v. OneBeacon Insurance Company, a garden-variety breach of contract claim, the Western District of Wisconsin recently entertained, and subsequently rejected, OneBeacon’s motion to stay arguments (1) that a Massachusetts arbitration award could eventually result in a setoff against an expected Wisconsin judgment and (2) that Employers Insurance Company of Wausau’s dawdling conduct in arbitration could be positively impacted by an indefinite stay in court. Holding that a potential setoff is not a “pressing need” and that concerns regarding party conduct should be raised in the forum in which that conduct occurs, the court ultimately granted summary judgment to Employers because OneBeacon had not disputed its liability under the Wisconsin contracts. It also awarded Employers prejudgment interest pursuant to Wisconsin law. Employers Insurance Co. of Wausau v. OneBeacon Insurance Co., Case No. 13-cv-85-bbc (W.D. Wis. July 8, 2013).

This post written by Kyle Whitehead.

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On May 17, 2012, we reported on a district court decision granting summary judgment to a reinsurer on contribution claims asserted against it by two cedents. The cedents had sought contribution after they faced litigation arising out of their denial of defense and indemnity coverage to their insured under liability insurance policies, related to a government-mandated cleanup of polluted lands. The district court granted summary judgment on the ground that the claim for defense and indemnity, upon which the claim for contribution was based, was barred by limitations. The Eighth Circuit has now affirmed the district court’s order, and dismissed as moot the reinsurer’s appeal, which argued against contribution in the event that the appellate court were to reverse. Land O’ Lakes, Inc. v. Employers Insurance Co. of Wausau, No. 12-1887 (8th Cir. Aug. 29, 2013).

This post written by Michael Wolgin.

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In one of the sister cases previously reported on involving Utica Mutual Insurance Company and one of its reinsurers Munich Reinsurance, a federal district court granted Munich’s motion for summary judgment. Utica sought reimbursement under the reinsurance contract for expenses incurred in litigation with an insured. At issue was whether the reinsurance contract subjected those expenses to Munich’s limit of liability or whether Munich was obligated to pay for those expenses in addition to its $5 million limit of liability. Based on Second Circuit and New York Court of Appeals precedent regarding limit-of-liability provisions in reinsurance contracts, the court held that the limit-of-liability provision applicable to Munich was unambiguously cost-inclusive and that Munich was obligated to Utica for no more than the $5 million. Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., Case No. 6:12-CV-0196 (N.D.N.Y. Sept. 30, 2013).

This post written by Abigail Kortz.

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As previously reported, Utica Mutual Insurance Company was successful in seeking transfer of its dispute against two reinsurers from the Southern District of New York to the Northern District of New York. The insurance company has again succeeded, defeating a motion to dismiss, and alternatively a motion to stay the proceeding in the Northern District of New York in favor of a suit initiated by one of the reinsurers against Utica in Wisconsin. Rejecting defendants’ contention that the “first-file rule” requires a stay of the New York lawsuit, the court determined that the New York suit can proceed along side the Wisconsin dispute because: a) the New York suit involves an additional defendant not present in the Wisconsin proceeding, b) the New York suit involves an additional claim under the Federal Arbitration Act, and c) Utica asserts it is not amenable to personal jurisdiction in Wisconsin. Utica Mutual Insurance Co. v. Employers Insurance Co. of Wausau, Case No. 6:12-CV-1293 (N.D.N.Y. Sept. 26, 2013).

This post written by Abigail Kortz.

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In a litigation over the extent of liability covered by certain facultative excess general liability reinsurance certificates, a court recently granted a reinsurer’s motion for judgment on the pleadings, dismissing the case. The reinsured sought a declaration that the reinsurance certificates at issue did not contain limits on the reinsurer’s liability for the reinsured’s expenses, and that the reinsurer therefore breached its certificates by failing to pay the full amounts owed for covered expenses under the certificates. The reinsured argued that no limits on liability for expenses were expressly stated in the certificates, and that the certificates’ use of the phrase “in addition thereto” with respect to the reinsurer’s obligation to pay its proportion of expenses, insulated expenses from the certificates’ limits on covered losses. The court rejected the reinsured’s argument, holding there was “nothing in the language of the certificate[s] to suggest that the ‘reinsurance assumed’ amount did not encompass both the ‘reinsurance assumed’ for losses and the ‘reinsurance assumed’ for expenses,” and that this interpretation “is in accord with the majority of cases that have dealt with similar reinsurance certificates.” The court also rejected the reinsured’s alternative argument that the certificates were ambiguous. Continental Casualty Co. v. Midstates Reinsurance Co., Case No. 12 CH 42911 (Ill. Cir. Ct. Aug. 29, 2013).

This post written by Michael Wolgin.

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Travelers brought a breach of contract action against reinsurer Excalibur, alleging breach of contract due to Excalibur’s alleged failure to pay $1,573,189.58 in claims under a reinsurance contract between the parties’ respective predecessors in interest. In the course of briefing a dispositive motion, Travelers introduced an affidavit on reply, which addressed arguments made by Excalibur in its opposition. Travelers also moved to amend its complaint to add a Connecticut Unfair Trade Practices Act claim. Excalibur objected to the proposed amendment, moved to strike the affidavit, and, in the alternative, moved for permission to file a counter-affidavit. The Court granted leave to amend, and denied Excalibur’s motion to strike the Travelers affidavit, but granted Excalibur’s motion for leave to file a counter-affidavit, finding both affidavits are properly admitted, and could bear on the parties’ claims as the litigation proceeded. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., No. 3:11-cv-1209 (USDC D. Conn. Aug. 5, 2013)

This post written by John Pitblado.

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The Insurance Company of the State of Pennsylvania sued its reinsurer Argonaut for liability arising from underlying asbestos litigation. ICSOP issued excess umbrella coverage to its insured, Kaiser, which manufactured products containing asbestos and faced underlying liability from lawsuits alleging asbestos-related injury. ICSOP obtained facultative reinsurance from Argonaut covering a percentage of the Kaiser excess policy. ICSOP received notice in 2001 that Kaiser had exhausted primary coverage, implicating the umbrella coverage. Kaiser ultimately brought ICSOP into a coverage lawsuit in California in 2002, which was litigated extensively until a 2009 mediation. However, ICSOP did not notify Argonaut until 2009 of the potential exposure under the facultative reinsurance, long after the court had made a number of rulings adverse to ICSOP. Argonaut denied ICSOP’s claim citing, among other things, untimely notice. ICSOP filed suit and the parties cross-moved for summary judgment on the late notice issue.

The Southern District of New York, applying California law, held that notice had been untimely, but that in order to be excused from paying claims Argonaut had to prove that it had been prejudiced by the late notice. Although it found that Argonaut had submitted sufficient evidence to raise a genuine issue of fact as to whether it had been prejudiced by the untimely notice, in anticipating evidentiary burdens at trial, the court considered whether Argonaut might be excused from showing prejudice if it demonstrated that ICSOP had acted in bad faith in providing untimely notice. The bad faith exception to the prejudice requirement has been adopted in New York and some other states. Acknowledging that California courts had not addressed whether to recognize the bad faith exception, the court predicted that California courts would recognize the exception. The court permitted Argonaut to take discovery on ICSOP’s alleged bad faith before proceeding to trial. Insurance Co. of the State of Pennsylvania v. Argonaut Insurance Co., No. 12 Civ. 6494 (USDC S.D.N.Y. Aug. 6, 2013).

This post written by John Pitblado.

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U.S.-based insurers wrote risks and obtained reinsurance from a syndicate of reinsurers, for which Republic Insurance was a fronting company. The syndicate obtained retrocessional coverage in the London market through LMX quota share contracts which ran for a number of years. The retrocessional coverage required that the reinsured retain a certain percentage of the risk, which is not an unusual warranty. Claims statements were submitted and paid over several years without dispute, but due to a change in the administration of the retrocessional coverage claims statements were not submitted on the retrocession contracts for about ten years, even though claims had been paid on the underlying coverages. Billings then resumed and a dispute arose. On motions for summary judgment, the trial court held: (1) English law applied to the retrocession contracts since the place of negotiations, contracting, obligations, subject matter, and arbitration situs for the retrocession contracts were primarily focused on London (the fact that the underlying risks were located around the world made that factor of little significance); (2) claims arising during the ten year period of non-billing were barred by the six year English statute of limitation; and (3) later claims were not contested, and were established and owing on an account stated basis. The court found that there was no breach of the retention warranty, even though Republic did not retain the requisite amount of the risk, because the warranty provided for retention by the reinsured, which was defined to be the syndicate rather than the fronting company, and the syndicate did retain the warranted amount of risk. Republic Ins. Co. v. Banco de Seguros del Estado, Case No. 10-C-5039 (USDC N.D. Ill. July 26, 2013).

This post written by Rollie Goss.

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