Reinsurance Focus

USF&G settled underlying asbestos coverage claims for nearly a billion dollars, and looked to its reinsurers for coverage. The reinsurers, including American Re, challenged the claims, and USF&G brought suit. A New York state trial court granted USF&G summary judgment, and the intermediate appellate court affirmed. American Re petitioned to New York’s high court, arguing (1) summary judgment was improper because USF&G improperly calculated its share of the losses; and (2) USF&G improperly attempted to allocate the portion of the underlying settlements attributed to bad faith claims against USF&G to the reinsurers.

As to issue (1), the Court of Appeals affirmed, citing the “follow the settlements” doctrine. As to issue (2), the Court agreed with American Re that summary judgment was improper as to the issue of allocating a portion of the settlements that could reasonably have been attributed to extracontractual bad faith claims against USF&G. It remanded with instructions for the trial court to determine if, and by how much, it should reduce allocation to the reinsurers of any portion of the underlying settlements attributable to USF&G’s settlement of the underlying bad faith claims against it, for which the reinsurers are not responsible. United States Fidelity & Guaranty v. American Re-insurance Co., 2013 NY Slip Op 00784 (N.Y. Feb. 7, 2013).

This post written by John Pitblado.

See our disclaimer.

In a dispute with reinsurers over coverage for the settlement of asbestos-related disputes valued at close to one billion dollars, in which the reinsurance contracts contained a follow the fortunes provision, the reinsurers challenged whether the doctrine applied to the cedent’s decisions in the allocation of the settlement amount, and, if applicable, it could be applied in a summary judgment context to the cedent’s allocation of the settlement. Modifying the decision of the lower court, the Court of Appeals held: (1) the follow the fortunes doctrine applied to the cedent’s allocation of the settlement amount; (2) the doctrine appropriately was applied to sustain the cedent’s allocation of the entire settlement amount to a single policy year, since the applicable trigger of coverage supported such an allocation; and (3) disputed issues of material fact prevented the application of the doctrine in a summary judgment context with respect to challenges to the allocation of the settlement amount to different policies and the value attributable to specific types of claims. United States Fidelity & Guaranty Company v. American Re-Insurance Company3, 2013 WL 451666 (N.Y. Ct. App. 2/7/2013).

This post written by Rollie Goss.

See our disclaimer.

In July 2012, Allied World Assurance Company brought suit against its reinsurer, Hannover Ruckversicherung AG, alleging that it improperly declined coverage under certain facultative agreements covering certain of Allied’s commercial property insurance risks. The complaint cites Hannover’s breach of its duty to “follow the settlements” which allegedly required Hannover Re to cover settlements which Allied agreed to pay to underyling policyholders, despite misrepresentations allegedly made to Allied by the broker who placed the underlying property risks. The breach is also cast in the complaint as a breach of Hannover’s “utmost duty of good faith.” On January 22, 2013, the court entered an order of dismissal, based on the parties’ reported settlement (the terms of which were not disclosed). Allied World Assurance Co. (U.S.), Inc. v. Hannover Ruckversicherung AG, Case No. 12 Civ. 5146 (USDC S.D.N.Y. Jan. 22, 2013).

This post written by John Pitblado.

See our disclaimer.

A Massachusetts bankruptcy court denied the motion for summary judgment of reinsurers Trenwick America Reinsurance Corporation and Unum Life Insurance Company, which sought to determine that debtor Malcom C. Swasey’s debt owed them was nondischargeable in bankruptcy. The underlying dispute centered on the reinsurers’ claim that Swasey and companies he controlled, IRC, Inc. and IRC Re, engaged in fraud and breached a contract under which IRC Re was to provide retrocessional coverage in connection with a workers’ compensation program. The reinsurers had prevailed in a lawsuit in which the district court held that Swasey violated Massachusetts’s unfair or deceptive practices statute, Chapter 93A, by disavowing the parties’ retrocessional contract in bad faith. The reinsurers sought summary judgment on the grounds that the district court’s determination that Swasey had violated Chapter 93A established, under the doctrine of collateral estoppel, that Swasey’s debt was nondischargeable under Bankruptcy Code § 523(a)(6), which excepts from discharge any debt that results from “willful and malicious injury.” The court denied the reinsurers’ motion, holding that Chapter 93A’s “willful and knowing” standard differed from the standard for willfulness under § 523(a)(6) and that the reinsurers had not established, for purposes of the Bankruptcy Code, that Swasey had intended to injure them. In re Swasey, Case No. 11-20627, Adv. P. No. 12-1040 (USDC Bankr. Mass. Feb. 14, 2013).

This post written by Ben Seessel.

See our disclaimer.

Travelers and runoff reinsurer Excalibur have settled Traveler’s suit for reinsurance benefits allegedly owed to Travelers for asbestos claims coverage reinsured by three facultative certificates. Travelers had filed suit in federal court for breach of contract and account stated, seeking $451,809.66 in allegedly unpaid claims made in 2011 and 2012. The reinsurance claims were based on benefits Travelers paid to its insured, Zurn Industries, Inc., further to a settlement entered into in 2003. Travelers alleged that Excalibur had previously paid reinsurance claims based on the subject insurance coverage, but had failed to pay the 2011 and 2012 claims. Travelers Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 3:12-cv-01701 (D. Conn. Jan. 31, 2013) (notice of dismissal).

This post written by Michael Wolgin.

See our disclaimer.

A minor injured in a softball game obtained a verdict exceeding the $2 million limit on a policy issued to the United States Sports Specialty Association by United States Fidelity and Guarantee Co. and reinsured by Lloyds of London. The reinsurers, USF&G’s behalf, paid a settlement amount also significantly exceeding the policy limits. USF&G filed suit seeking reimbursement from USSSA for amounts paid beyond policy limits. The state supreme court rejected the claim, holding there was no extracontractual right to restitution between an insurer and its insured. The reinsurers, as subrogees of USF&G and the insured, added malpractice claims against the law firm that had been appointed to represent the insured, seeking, among other damages, the litigation expenses incurred by the USF&G and USSSA in determining whether USF&G was entitled to reimbursement from USSSA for amounts spent beyond policy limits. The court granted partial summary judgment to the law firm on this theory, holding that the coverage dispute between USF&G and USSSA was not a foreseeable consequence of the law firm’s alleged malpractice. National Indemnity Co. v. Nelson, Chipman & Burt, Case No. 2:07-CV-996 TS (USDC D. Utah Jan. 18, 2013).

This post written by Ben Seessel.

See our disclaimer.

Pine Top Receivables LLC (“PTR”) was formed when a buyer purchased the assigned rights under certain reinsurance contracts from the Illinois liquidator handling the Pine Top Insurance Company receivership. PTR then brought suit against reinsurer Banco De Seguros Del Estados, which had entered into reinsurance contracts with Pine Top. PTR alleged that Banco owed more than $2,000,000 in overdue balances on the contracts. PTR’s suit sought to compel arbitration. Banco filed a motion to dismiss on jurisdictional grounds. PTR moved to strike the motion, on the grounds that Banco had not paid prejudgment security under Illinois’ statute requiring security by a nonresident reinsurer. Banco resisted the motion, asserting that the Foreign Sovereign Immunities Act prohibited the assessment of any “attachment” on a foreign governmental entity. The Court agreed with Banco, finding that it is a government instrumentality of the Republic of Uruguay, and that pre-judgment security under the statute was effectively an “attachment” as the term is used in the Act. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estados, No. 12 C 6357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by John Pitblado.

See our disclaimer.

Petitioner American Home Assurance Company sought appointment of an umpire, or a third arbitrator under certain treaties, to preside over arbitrations of disputes arising under three reinsurance treaties with respondent Clearwater Insurance Company. The treaties provided that each side would select an arbitrator and the two would select an umpire or third arbitrator; the parties had each selected an arbitrator but the two arbitrators had not chosen an umpire or third arbitrator. The court granted petitioner’s request pursuant to New York CPLR 7504, which provides that a court shall appoint an arbitrator if the method the parties’ agreed upon “fails or for any reason is not followed.” In so holding, the court rejected respondent’s argument that CPLR 7504 did not apply because it was not mentioned in the reinsurance treaties, holding that the law was in existence at the time of the formation of the contracts and thus incorporated in them. The court also dispensed with respondent’s argument that the arbitrations should proceed before an umpire is selected, i.e., that an umpire need not be selected unless the two arbitrators failed to agree, reasoning that having an umpire present during the arbitrations to hear the proof is the more practical approach. The court ordered a specific selection process for the umpire (or third arbitrator) – a hybrid of the ARIAS-US ranking method and the “strike and draw” method. In re American Home Assurance Co., Case No. 653079/2012 (N.Y. Sup. Ct. Jan. 15, 2013)

This post written by Ben Seessel.

See our disclaimer.

In our September 17, 2012 post, we reported on Acumen Re Management Corporation’s reinsurance-related suit against General Security National Insurance Company, in which it claimed that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied any breach. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. Acumen moved to reconsider, or, in the alternative, for certification for immediate appeal. The court declined reconsideration, but granted certification to appeal, finding the appeal could efficiently dispose of a number of issues before trial. Acumen Re Management Corp. v. General Security National Insurance Co., No. 09-Civ-1796 (USDC S.D.N.Y. Dec. 4, 2012)

This post written by John Pitblado.

See our disclaimer.

Pacific Employers Insurance Company petitioned for rehearing of a Third Circuit decision ordering that judgment of non-liability be entered in favor of Global Reinsurance Corporation of America regarding a coverage dispute under the parties’ facultative reinsurance contract. As we earlier reported, the Third Circuit reversed a lower court decision in favor of Pacific under Pennsylvania law. The Third Circuit reversed and, applying New York law, held that Pacific’s late notice of underlying asbestos-related litigation that would likely give rise to claims precluded coverage, even absent a showing of prejudice to Global.

Moving for rehearing, Pacific argued that the court misapprehended and overlooked three points of New York law. First, Pacific argued that the court misapprehended New York law on contract interpretation by, in effect, rewriting the parties’ reinsurance contract to require Pacific to submit a definitive statement of loss even where no liability for a claim had yet been incurred, which could not be read harmoniously with a provision requiring Global to promptly pay Pacific after receiving a definitive statement of loss. Pacific further argued that the court overlooked that there had been no determination that the asbestos-related lawsuits the court held should have been promptly reported by Pacific were claims or occurrences for which Pacific later sought indemnity. Finally, Pacific argued that Global waived its late notice defenses by failing to raise them in its initial brief on appeal. The court denied the petition for panel rehearing without opinion. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, No. 11-3234 (3d Cir. Oct. 3, 2012).

This post written by Ben Seessel.

See our disclaimer.