Reinsurance Focus

Several developments have occurred in the ongoing reinsurance dispute between Aurum Asset Managers and several Brazilian companies. In April, Aurum filed a petition in federal district court to confirm an amended arbitration award, entering judgment in Aurum’s favor, and granting Aurum equitable relief. On June 11th, the district court denied the award as against respondent Banco do Estado do Rio Grande do Sul. The court, however, confirmed the award as against two respondents (Bradesco Companhia de Seguros and Bradesco Auto/Re Companhia de Seguros) unless and until the court received arguments from any party opposing the confirmation prior to June 22nd. On June 26th, having not heard any arguments opposed, the court confirmed the final arbitration award and entered judgment against the two Bradesco entities. Aurum Asset Managers, LLC v. Banco do Estado do Rio Grande do Sol, No. 08-mc-102 (USDC E.D. Pa. June 12, 2012 & June 26, 2012).

This post written by John Black.

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In a case involving disputed claims made under “excess of loss” facultative reinsurance certificates, a court recently held that the reinsurer’s liability for “losses” should follow the meaning of “loss” and “expense” in the underlying insurance polices, rather than the meanings of those terms as used in the reinsurance certificates. The dispute surrounded whether the reinsurance covered litigation expenses, in addition to the indemnity paid under the underlying insurance policies. The court analyzed the certificates and determined that the liability of the reinsurer in this case should be determined by the scope of liability provided by the underlying insurance policies. Because the reinsurer “had copies of the underlying insurance polices, or at the very least had access to the underlying insurance policies” the reinsurer could be charged with knowledge of the policies’ terms. The court distinguished reinsurance expressly designated as “non-current,” or reinsurance that limits in the certificates coverage to only specific delineated risks. In that scenario, the court explained, “loss” and “expense” would be determined by the certificate, as opposed to the underlying policies. ACE Property & Casualty Insurance Co. v. R & Q Reinsurance Co., Case No. 11081920 (Pa. Ct. Comm. Pl. May 15, 2012).

This post written by Michael Wolgin.

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A federal district court has held that Hezbollah is liable for over $9 billion in damages on subrogation claims brought by insurers under the “business or property” provisions of the Anti-Terrorism Act. The insurers’ action was brought to recoup payments made on claims for losses resulting from the September 11, 2001 terrorist attacks. As we previously reported, the court had entered judgment awarding in excess of $9 billion in damages against Al Qaeda based on the same claims. This order extends the judgment to Hezbollah. Hezbollah and Al Quaeda had been defaulted as to liability in April, 2006. In re Terrorist Attacks on September 11, 2001, Case No. 03 MDL 1570 (USDC S.D.N.Y. Mar. 27, 2012).

This post written by Ben Seessel.

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The New Hampshire Insurance Commissioner, as liquidator for The Home Insurance Company, recently settled a breach of contract suit to collect reinsurance payment from reinsurer, Repwest Insurance Company. The commissioner had alleged that Repwest waived any defenses to payment by failing to timely object to the commissioner’s notice of claim made in liquidation under a reinsured Home insurance policy. In its answer, Repwest had denied that it had received proper notice, and had asserted, among other defenses, that Repwest was entitled to setoff certain claims it had against another reinsurer against its obligations to Home. Sevigny v. Repwest Insurance Co., Case No. 1:11-cv-00405 (USDC D.N.H. Apr. 23, 2012).

This post written by Michael Wolgin.

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A hospital sued its bond insurer and reinsurer for losses incurred pre-paying certain debt before learning that the insurers would refuse to consent to the hospital’s plan to procure additional debt to fund a new facility. The hospital contended that the underlying policy implicitly required the insurer and reinsurer to provide consent to additional loans if the hospital complied with the policy’s “additional debt test” standards, with which the hospital allegedly complied. The court disagreed and dismissed the case, holding that the policy provided an unqualified right to the insurers to withhold consent. The consent provisions were unconditional on their face and, moreover, contained in a section of the policy separate from the debt test provisions. The court further held that the hospital’s allegations of improper motives on the part of the insurers should be dismissed, where the insurers purportedly withheld consent to conduct diligence on what was to be a $350 million bond offering deal. Woman’s Hospital Foundation v. National Public Finance Guarantee Corp., Case No. 11-cv-00014 (USDC M.D. La. Mar. 20, 2012).

This post written by Michael Wolgin.

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Land O’ Lakes, a member-owned agricultural cooperative, acquired a property in Oklahoma that was later designated by the EPA as a “Superfund” clean-up site. In or about 2001, the EPA notified Land O’ Lakes that it was a Potentially Responsible Party (“PRP”) for the clean-up costs, and demanded $8.9 million. Land O’ Lakes notified its insurers, who declined coverage. In or about 2008, the EPA sent a renewed notice to Land O’ Lakes, demanding more than $20 million in additional clean-up costs. Land O’ Lakes again turned to its insurers and all declined coverage. Land O’ Lakes sued and all issues were raised via cross motions for summary judgment, with all parties seeking judgment in their favor. While the majority of this opinion addresses the direct claims by Land O’ Lakes against its insurers, the Court granted summary judgment to White Mountains Reinsurance on contribution claims asserted against it by Travelers Indemnity and Employers Insurance Company of Wausau. Summary judgment was predicated upon alternative grounds, the most basic of which was that although Travelers and Wausau breached their duty to defend Land O’ Lakes, that claim, upon which the claim of contribution was based, was barred by the statute of limitation. Land O’ Lakes, Inc. v. Employers Mut. Liability Ins. Co. of Wisconsin, Case No. 09-CV-0693, (USDC D. Minn. Mar. 6, 2012).

This post written by John Pitblado.

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New York’s Court of Appeals reversed the Appellate Division of the Supreme Court and upheld the trial court’s dismissal of plaintiff’s claim against Equitas under the Donnelly Act, New York’s antitrust law. The plaintiff, a cedent under certain retrocessional agreements with various Lloyd’s syndicates covering non-life exposures, alleged that Equitas engaged in antitrust violations because it controlled the market for retrocessional and reinsurance claims adjustment for these types of so-called “long tail” claims, such as asbestos-related injury claims. Equitas was formed and approved by European governmental authorities, as a claims adjustment facility for the Lloyd’s syndicates, in order to manage exposures which threatened the financial stability of syndicates, and the market itself. The high court held that even if there were a “market” for the claims handling function performed by Equitas (which it found dubious), it held that any such market would not have a sufficient nexus with New York State to warrant extra-territorial application of its antitrust law. Global Reinsurance Corp. v. Equitas, Ltd., No. 2012-53 (N.Y. March 27, 2012).

This post written by John Pitblado.

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Travelers and R&Q Reinsurance recently settled and agreed to voluntarily dismiss their ongoing dispute in the US District Court for the District of Connecticut. The action arose out of a series of reinsurance contracts between Travelers and R&Q Reinsurance (successor in interest to INA Re). The reinsurance contracts were part of Traveler’s Blanket Excess of Loss program, incepted in 1962, and covered a period between April 1, 1976 through April 1, 1979. The contracts covered asbestos related claims which were indemnified by Travelers. In this action, Travelers filed a Complaint alleging breach of contract, contending that it had properly indemnified an asbestos producer but that INA Re wrongfully had refused to pay in violation of the reinsurance agreements between the parties. Travelers Casualty and Surety, Co. v. R&Q Reinsurance Co., Case No. 10-01946 (USDC D. Conn. Jan. 31, 2012).

This post written by John Black.

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Munich Reinsurance America, Inc. and Tower Insurance Co. of New York were parties to certain reinsurance and retrocessional agreements. A billing dispute arose and Munich Re brought suit. Tower had resisted payment of the billings due because it had not received sufficient information demonstrating its liability for the billed amounts. During the course of discovery the parties reconciled the billings, and determined and agreed that Tower owed Munich $3,287,597. They disputed how much interest Tower should be charged for its withholding, and moved for summary judgment on the issue, with Tower contending interest should be limited to $5,404.27, and Munich Re contending it was owed $673,806.00, based on differing views of the rate and accrual date. Citing its equitable powers, and with guidance from state civil procedure rules applicable to interest on contract debts, the Court split the baby, finding Tower owed Munich Re $168,093.61 in pre-judgment interest. Munich Reinsurance America, Inc. v. Tower Ins. Co. of New York, No. 09-2598 (USDC D.N.J. Mar. 26, 2012).

This post written by John Pitblado.

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Seaton Insurance Company and Stonewall Insurance Company jointly filed a lawsuit against Clearwater Insurance Company asserting breach of contract claims based on Clearwater’s alleged failure to comply with the terms of certain facultative reinsurance certificates issued to the insurers in the 1970s. Seaton moved to sever its claims from Stonewall’s or for a separate trial. Seaton argued that, at the time the lawsuit was filed, Seaton and Stonewall were commonly owned and managed but had since parted ways and, furthermore, that the insurers’ claims were being brought under different reinsurance certificates reinsuring entirely different underlying policies. The federal district court denied Seaton’s request, holding that severing the claims or permitting a separate trial would not simplify or streamline the proceedings. Seaton Insurance Co. v. Clearwater Insurance Co., Case No. 09-516 (USDC D.R.I. Feb. 2, 2012).

This post written by Ben Seessel.

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