Reinsurance Focus

A federal district court granted a motion by reinsurer Unionamerica Insurance Company to dismiss a lawsuit seeking enjoin the allegedly “illegal arbitration” of a reinsurance dispute between Unionamerica and Trenwick American Reinsurance Corp.; the court instead granted Unionamerica’s motion to compel the arbitration. Unionamerica had demanded that Trenwick participate in arbitration concerning Unionamerica’s claim that Trenwick failed to make payments due under a reinsurance assumption agreement. In response, Trenwick filed a lawsuit seeking to enjoin such an arbitration.

The court rejected Trenwick’s suit and compelled arbitration. Although the court found it had jurisdiction to decide threshold questions of arbitrability, it also determined that Unionamerica – a nonsignatory to the reinsurance agreement – could invoke the arbitration provision because of “cut-through” language allowing Unionamerica to rely on all terms of the agreement. The court further determined that the parties’ claims and defenses fell within the arbitration provisions’ scope, which encompassed “any” dispute arising out of or in connection with the agreement. Finally, the court held that Trenwick’s statute of limitations defense was not justiciable in court, but would need to be decided by the arbitrator. Trenwick American Reinsurance Corp. v. Unionamerica Insurance Co., Case No. 3:13cv94 (USDC D. Conn. July 12, 2013).

This post written by Brian Perryman.

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Wellpoint, Inc. sued a number of defendants, chief among them reinsurers Continental Casualty Company and Twin City Fire Insurance Company, for denying coverage for Wellpoint’s defense and settlement of a number of medical reimbursement-related lawsuits against it. Wellpoint’s predecessor, Anthem, was the subject of a class action lawsuit in 1999 that alleged that Anthem’s subsidiary failed to timely and adequately reimburse for medical services. Beginning in 2001, Anthem became the subject to a series of over ten additional state and federal lawsuits alleging improper denial of reimbursement and other wrongful acts, including alleged violations of the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Anthem sought coverage from its insurers for defense and settlement of the CUTPA and RICO claims, and the reinsurers counterclaimed seeking declaration that these claims were not covered by the reinsurance agreement. The trial court granted the reinsurers’ motion for summary judgment on the issue.

The reinsurance agreement at issue covered claims against the insured for a wrongful act “only if such Wrongful Act . . . occurs solely in the rendering of or failure to render Professional Services.” (emphasis added) The reinsurance agreement states that “Professional Services” are “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” In a divided panel vote, the appeals court affirmed the lower court’s summary judgment ruling for the reinsurers finding professional services only included those rendered in the conduct of Wellpoint’s handling or adjusting of claims submitted on the policies that it had issued. Coverage was available only if the alleged wrongful acts that gave rise to the underlying litigation happened “solely” in the conduct of Wellpoint’s claims handling and adjusting. The court held the alleged acts did not, interpreting “solely” to mean “exclusively” or “entirely.” Thus, the alleged violations of CUTPA and RICO were not claims handling activities and could not be covered. Wellpoint, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 49A05-1202-PL92 (Ind. Ct. App. June 19, 2013).

This post written by Brian Perryman.

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United Guaranty sought reconsideration of its motion to dismiss, which the Court denied in part due to Plaintiffs’ successful equitable tolling argument. United Guaranty again argued that equitable tolling was inappropriate as Plaintiffs “did not sufficiently allege that United Guaranty committed an act of fraudulent concealment that prevented him from discovering his claim during the limitation period.” Broome, one of the original plaintiffs, obtained a mortgage from First Horizon. First Horizon then selected United Guaranty to act as Broome’s insurer. United Guaranty in turn then selected FT Reinsurance, a subsidiary of First Horizon, to provide reinsurance. Broome alleges this relationship represented a “captive reinsurance scheme,” with referral payments used to circumvent the kickback prohibitions of the Real Estate Settlement Procedures Act (“RESPA.”)

Once again, the Court found that Broome’s allegations were sufficient under the doctrine of equitable tolling, and therefore, the one-year statute of limitations did not bar his claim. The Court noted that the extent of cooperation between the bank, insurer, and reinsurance companies, while currently unknown, are better left to discovery. The Court also denied United Guaranty’s motion to certify the February 27, 2013 Order for immediate appeal as the previous court order did not represent a controlling question of law. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. April 4, 2013).

This post written by Rollie Goss.

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Plaintiff Backups Plus Computer Services, LLC (Backups) owned hard drives which failed. Plaintiff GF&C Holding Company (GF&C) was a client of Backups and stored its data on Backup’s servers. After the failure of the hard drives, Backups and GF&C both submitted claims to Harford Casualty Insurance Company (Hartford), which had issued policies to both companies. Hartford submitted a claim to its reinsurer, Hartford Steam Boiler Inspection & Insurance Company (HSB). HSB then engaged an independent analyst, LWG, to examine the hard drives and determine the cause of the failure. LWG determined that the damage was the result of normal wear and tear, not a covered risk under the policy. HSB advised Hartford that it would not pay a claim under the reinsurance agreement, and Hartford denied the claims submitted by Backups and GF&C.

Plaintiffs sued both Hartford and HSB. The district court granted the reinsurer’s motion for summary judgment on all claims. The court noted that plaintiffs’ counsel acknowledged at oral argument that there was no privity between the plaintiffs and the reinsurer. Consequently, there was no contract that could be breached and no implied covenant of good faith and fair dealing or bad faith. GF&C Holding Co. v. Hartford Casualty Insurance Co., Case No. 11-236 (USDC D. Idaho March 15, 2013).

This post written by Rollie Goss.

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ACE Property & Casualty Insurance Company, as successor in interest to Central National Insurance Company of Omaha, sued Global Reinsurance Corporation of America for breach of a facultative reinsurance certificate issued by Global’s predecessor in interest reinsuring a portion of an umbrella policy issued by Central National. Central National’s insured incurred significant asbestos bodily injury claims that Central National and other umbrella insurers settled. ACE brought suit for breach of contract and declaratory judgment after Global refused to honor remittances submitted by Central National under the reinsurance certificate.

Global asserted several defenses to ACE’s claims. First, Global asserted that a substantial part of Central National’s settlement included defense costs where the policy arguably did not cover such costs. Citing the follow-the-fortunes doctrine, the court rejected this defense, holding that Global failed to meet its burden of demonstrating that Central National’s payment of defense costs was not arguably covered by the policy. The court similarly discarded Global’s argument that, under the language of the reinsurance certificate, Global was only required to pay defense costs where an indemnity payment had been made, holding that the reinsurance certificate must be construed in keeping with underlying policy language which included no such restriction. The court refused to accept Global’s argument that an endorsement extending the expiration date of the certificate created a separate $10 million retention limit for Central National. After a bench trial, the court entered judgment in ACE’s favor. ACE Property & Casualty Insurance Co. v. Global Reinsurance Corp. of America, Case No. 11-2838 (USDC E.D. Pa. Mar. 31, 2013).

This post written by Ben Seessel.

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Following are summaries of three recently announced settlements of reinsurance-related disputes.

Mortgage insurance dispute – This class action suit alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) for acceptance of “kickbacks” from mortgage insurers under “captive reinsurance agreements” in exchange for the referral of business. Wells Fargo has agreed to pay roughly $12,750,000 to class members, which includes over $4,000,000 in attorneys fees and litigation costs and a case contribution award of $7,500 for each named plaintiff as approved by the court. Liguori v. Wells Fargo & Co., Case No. 08-479 (USDC E.D. Pa. Feb. 7, 2013) (final approval Order and Order approving attorneys’ fees, costs and class representative incentive payments).

Life insurance retrocession – Swiss Re and Berkshire Hathaway announced the settlement of a dispute over a life retrocession agreement entered into in 2010 by allowing Swiss Re to recapture certain treaties from the portfolio of term life business in return for a payment of $610 million from Berkshire Hathaway, and a reduction in the assumption of losses by Berkshire Hathaway from $1.5 billion to $1.05 billion. The payment is expected to result in a gain of approximately $100 million for Swiss Re in the first quarter of 2013. See Swiss Re’s press release.

Workers’ compensation reinsurance – In this dispute, members of a pool for workers’ compensation reinsurance sought $3.1 billion from AIG for underreporting premiums, which caused other pool members to bear a disproportionate share of the pool’s losses. The district court approved a class settlement for $450 million, which Safeco challenged on appeal, claiming that the settlement did not adequately compensate it for individual claims against AIG. The Seventh Circuit dismissed the appeal based on Safeco and AIG’s representations that they have reached an additional settlement regarding the individual claims. Judge Posner dissented, finding dismissal to be premature since the terms of the additional settlement were not disclosed to the court. Safeco Ins. Co. of Am. v. Am. Int’l Group, Inc., No. 12-1157 (7th Cir. Mar. 25, 2013).

This post written by Abigail Kortz.

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We reported earlier on decisions rendered on the parties’ cross motions for summary judgment in an action brought by reinsurer Munich Re against retrocessionaire ANICO relating to retrocessional cover issued by ANICO to Munich Re in connection with Munich Re’s reinsurance of an Everest National workers’ compensation program. The federal court has reconsidered two of its summary judgment decisions and affirmed one and reversed one of its prior rulings. The court affirmed that ANICO had failed to present sufficient evidence to create a genuine issue of material fact as to whether Munich Re’s late notice of claims prejudiced ANICO by affecting ANICO’s decision to commute liabilities to Max Re. The court, however, reversed itself by holding that ANICO had established that sunset provisions in the Munich Re-ANICO agreements precluded certain claims submitted after December 31, 2007 and that there were genuine issues of material fact regarding whether claims submitted after December 31, 2008 were similarly barred. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC Mar. 28, 2013).

This post written by Ben Seessel.

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A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).

A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

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We previously reported on Utica Mutual Insurance Company and R & Q Reinsurance Company’s dispute arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. By Order dated February 27, 2013, the case is reported as settled, though none of the terms were disclosed. Utica Mut. Ins. Co. v. INA Reinsurance Co., No. 6:12-cv-194 (USDC N.D.N.Y. Feb. 27, 2013).

This post written by John Pitblado.

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