Reinsurance Focus

In a dispute over a long-term care insurance contract, a court rejected the plaintiff’s allegation that five defendants “are an association of entities acting together for the purpose of providing long term care insurance under the name Ability Insurance and also act as the alter egos and/or agents of each other.” The defendants are Ability Reinsurance Holdings (a Bermuda-based holding company) and 4 subsidiaries, including Ability Resources Holdings, Ability Insurance (U.S. insurer), Ability Reinsurance (Bermuda-based captive reinsurer) and Ability Resources, Inc. The court granted a motion for judgment on the pleadings in favor of the Bermuda-based holding company, the Bermuda-based captive reinsurer, and Ability Resources Holdings for lack of personal jurisdiction based on the determination that they do not act as an alter ego for Ability Insurance. The court held that while regulators permitted Ability Insurance to purchase reinsurance from a member of the same corporate family, that fact “does not render the contractual relationship a ‘sham’ or otherwise make Ability Reinsurance (Bermuda) susceptible to suit in Iowa.” The court also dismissed the claims against Ability Resources, Inc., holding that simply alleging that Ability Resources is the alter ego of Ability Insurance, “without more,” failed to satisfy federal pleading requirements. Schultz v. Ability Insurance Co., Case No. 2:11-cv-01020-JSS (USDC N.D. Iowa Oct. 9, 2012).

This post written by Abigail Kortz.

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A consortium of London reinsurers are seeking a declaration from an English court regarding their duty to indemnify Philippine insurer Oriental Insurance Company for losses resulting from the sinking of a cargo passenger ship during Typhoon Frank in 2008. The sinking, which caused widespread outrage in the Philippines due to the vessel’s failure to heed storm warnings resulted in over 500 deaths and significant property loss. The reinsurance contract contained a “Typhoon Warranty,” which voided the policy if an otherwise covered vessel left port during a typhoon or storm warning. Oriental’s underlying policy with the ship owner contained a virtually identical clause. Oriental, facing massive claims and litigation in the Philippines, sought a stay of the proceedings initiated by the British reinsurers, arguing that their action was premature given the reinsurance contract’s “follow the fortunes” clause and significant unresolved claims pending in the Philippine courts. The lower court dismissed Oriental’s application for a stay, holding that such relief should only be granted in “rare and compelling circumstances,” which were not present. The appellate court dismissed the appeal with “little enthusiasm,” finding the lower court’s decision correct but noting its apparent “unfairness.” In particular, as one justice noted, the reinsurers’ action might force Oriental to assert in the London courts that the “Typhoon Warranty” did not apply, a position diametrically opposed to the one it would wish to take in defending ongoing and imminent coverage suits in the Philippines. Amlin Corp. Member Ltd. v. Oriental Assurance Corp., [2012] EWCA Civ. 1341 (Royal Courts of Justice, Queen Bench Division, Commercial Court Oct. 17, 2012).

This post written by Ben Seessel.
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Plaintiff, a reinsurer, and defendant, a holding company of several primary insurers, were parties to reinsurance agreements covering certain liabilities of the defendant’s member companies. In 2004, the parties entered into a commutation agreement. The agreement required the plaintiff to make a payment of $15,248,338 to the defendant “in full satisfaction of the Reinsurer’s past, present and future net liability” under the reinsurance agreements. Thereafter, the defendant continued to pay premiums under one set of the reinsurance agreements, and the plaintiff continued to make claims payments to the defendant under those agreements, despite the commutation. The plaintiff discovered its error in 2008, stopped claims payments and refused further premium. However, the defendant took the position that the commutation did not cover the agreements under which it continued to pay premiums and under which plaintiff had continued to pay claims. The plaintiff filed suit seeking a declaration that the subject agreements were covered by the commutation, and seeking recoupment of the approximately $500,000 in claims payments it believed it made in error from 2004 to 2008. The trial court granted judgment to the plaintiff, including the monetary relief, and the defendant appealed, arguing that the commutation agreement was ambiguous. The Connecticut Appellate Court disagreed, affirming the verdict in favor of the plaintiff. Trenwick America Reinsurance Corp. v. W.R. Berkley Corp., No. AC 33388 (Conn. App. Ct. Oct. 23, 2012).

This post written by John Pitblado.

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Arrowood issued a liability policy insuring Greenwood Terrace, a nursing home and rehab center which was sued following the death of one of its residents, Joseph Mark. Under the parties’ reinsurance treaty, defendant Assurecare was responsible for the first $250,000 of Arrowood’s net liability and a percentage of loss adjustment expenses. Arrowood contributed $1,000,000, the policy limits, to a $1,750,000 settlement reached between Mark and its insured Greenwood Terrace. After the Mark settlement, Greenwood Terrace sued Arrowood for breach of contract, alleging that Arrowood should have paid a greater portion of the settlement because the Mark lawsuit involved more than one “medical incident” and that Arrowood had acted in bad faith. Arrowood settled with Greenwood Terrace for $325,000.

Assurecare paid Arrowood $250,000 plus a portion of loss adjustment expenses associated with the settlement of the Mark litigation. It refused, however, to pay for any portion of the settlement of the subsequent suit by Greenwood Terrace against Arrowood. Arrowood sued Assurecare, alleging breach of contract and seeking a declaratory judgment that it was entitled to payment for the Greenwood Terrace settlement, including the first $250,000 of net liability. The district court granted Arrowood’s motion for summary judgment holding that the Greenwood Terrace settlement constituted a covered “loss settlement” under the parties’ treaty, an interpretation that the court stated was supported by the treaty’s follow-the-fortunes clause. Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11 CV 5206 (USDC N.D. Ill. Sept. 19, 2012).

This post written by Ben Seessel.

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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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A dispute arose when Pacific Employers Insurance Company demanded payment from Global Reinsurance Corporation of America under a facultative reinsurance contract. The contract reinsured part of Pacific’s exposure on an excess risk policy issued to a manufacturing company. It contained a provision requiring Pacific to “promptly provide the Reinsurer with a definitive statement of loss on any claim.” Pacific learned of the underlying insured’s exposure to significant asbestos litigation in 2001 but did not notify Global until 2008.

The district court, applying what it predicted Pennsylvania law to be, held that Global could not refuse coverage based on late notice absent evidence of prejudice, which Global had failed to proffer. The Third Circuit reversed, applying New York law, which holds that a reinsurance company can deny coverage based on late notice, even in the absence of prejudice. The Third Circuit noted, in dicta, that it could discern two reasons why a reinsurer would want to promptly receive a DSOL on a potentially serious claim: (1) to appropriately reserve, and (2) to exercise its contractual right to participate in the defense of the underlying claims. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Nos. 11-3234 & 11-3262 (3d Cir. September 7, 2012).

This post written by Ben Seessel.

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Acumen Re Management Corporation brought suit against General Security National Insurance Company, claiming 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 that it breached those agreements. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. It was granted with respect to each of Acumen’s three claims that (1) Acumen was damaged by General’s failure to provide quarterly reports; (2) Acumen was damaged by General’s failure to consult Acumen prior to entering into the commutation agreements; and (3) Acumen was damaged by General’s improper calculation of commutation loss allocation and contingency commission allocation. As to the first issue, Acumen waived its contractual right to receive quarterly reports by failing to require them over a period of several years. As to the second claim, while General failed to consult Acumen on commutation settlements with reinsurers through whose business Acumen was receiving contingent commissions, the contract only required such consultation in situations inapplicable to the dispute. Finally, as to the third claim, the court also agreed that General properly computed the commutation loss allocation and contingency commission allocation. The court, however, denied General’s motion on Acumen’s additional claim that it was damaged by General’s improper use of erroneous data in calculating the contingent commission, finding genuine issues of material fact as to whether General’s calculation relied on erroneous data. Acumen Re Management Corp. v. General Security National Insurance Co., Case No. 09-CV-01796 (USDC S.D.N.Y. Sept. 7, 2012)

This post written by John Pitblado.

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On April 5, 2010, we reported on a federal district court’s decision to decline a magistrate judge’s report and recommendation on defendant TIG Insurance Company’s motion for partial summary judgment. The dispute involved a reinsurance claim made by plaintiff AIU Insurance Company in 2007 after settling litigation brought in 2001 involving the underlying insurance coverage. TIG responded by denying the claim, citing the reinsurance certificates’ prompt notice provision. The court declined the magistrate’s report as premature to the extent it sought rulings that: (1) Illinois law governed its reinsurance coverage dispute with AIU and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; and (2) AIU breached the reinsurance contracts at issue by providing late notice of the 2001 claim.

Upon conclusion of discovery and TIG’s renewal of its motion for summary judgment, the magistrate judge has found again that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. AIU breached the reinsurance certificates by failing to provide prompt notice, notwithstanding AIU’s contention that TIG had notice of the potential claims from other sources. The magistrate explained, “although notice from third parties can satisfy policy requirements under Illinois law, reinsurers are not charged with notice based merely on receipt of non-specific information that might lead to discovery of a potential claim.” AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 16, 2012).

This post written by Michael Wolgin.

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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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On January 23 and April 12, 2012, we reported on orders concerning liability and damages in a suit involving disputed payment obligations under reinsurance and retrocessional agreements between Munich Re and Tower Insurance. The court recently addressed the parties’ motions in limine designed to determine whether Munich must affirmatively prove that Tower was 100% liable for claims under one of the retrocessional agreements at issue, or whether a burden rested with Tower to show that it was obligated to pay only 10% under certain conditions provided in the agreement. The court interpreted the agreement’s language and found that the burden of proof belonged to Tower because the 10% indemnity provisions constituted policy exclusions, which, under state law, must be “construed narrowly with the onus on the insurer to bring the case within the exclusion.” Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-02598 (USDC D.N.J. July 17, 2012).

This post written by Michael Wolgin.

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