Reinsurance Focus

Travelers Casualty agreed to settle its claims against two of a series of reinsurer defendants – Factory Mutual and Arkwright Insurance. Travelers had filed suit against Nationwide, National Casualty, Argonaut Insurance, Factory Mutual, and Arkwright Mutual alleging breaches of contracts and seeking a declaratory judgment related to a series of reinsurance contracts covering Travelers’ blanket excess of loss program. Travelers alleged that the reinsurers failed and refused to pay valid claims due under the reinsurance contracts and sought damages arising out of the alleged breaches. The claims against these reinsurers were dismissed with prejudice pursuant to the settlement. Travelers Casualty and Surety Co. v. Nationwide Mut. Ins. Co., No. 11-00063 (S.D. Ohio Jan. 11, 2012).

This post written by John Black.

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As a result of Hurricane Katrina, the Mississippi Windstorm Underwriting Association sustained losses well in excess of its reinsurance. The Association assessed its members to cover the loss based on their percentages of wind and hail insurance premiums written in the previous calendar year. Several companies then complained that the Association had incorrectly reported the previous year’s figures and were given a one-time opportunity to submit correct data (a true-up). Some members, most of whom did not submit corrected data, appealed the assessment following the true-up. The Mississippi Supreme Court reviewed the lower court’s grant of relief to the members. The Court affirmed the lower court’s decision on two issues: finding that grouping was permitted and that reinsurance was allocated properly. The Court, however, reversed and remanded on the following issues: whether MWUA had authority to set and enforce a true-up deadline, the mandatory nature of voluntary credits and farm-property exclusions, whether assessments are akin to privilege taxes, and the mobile-home reporting issue. Further, because the lower court lacked authority to order the Association to adopt new rules, the Court reversed and rendered that part of the judgment below. Mississippi Windstorm Underwriting Assoc. v. Union Nat’l Fire Ins. Co., No 10-00076 (Miss. Jan. 26, 2012).

This post written by John Black.

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We last posted on a reinsurance dispute between White Mountains Re and Travelers Casualty on May 18, 2011. Since then, White Mountain Re agreed to voluntarily dismiss its claims with prejudice. The dispute arose out of several reinsurance agreements between the parties, notably regarding a series of blanket excess of loss reinsurance contracts entered into in the 1980s covering asbestos installations. White Mountains Re alleged claims for declaratory relief and breach of contract in New York state court. Travelers successfully removed the claims to federal court prior to the voluntary dismissal. White Mountains Reinsurance Co. of America v. Travelers Casualty and Surety Co., Case No. 11-390 (USDC S.D.N.Y. Jan. 3, 2012).

This post written by John Black.

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In a dispute arising out of reinsurance coverage regarding asbestos litigation spanning several decades, the New York Supreme Court Appellate Division reviewed a decision granting summary judgment to USF&G against reinsurers American Re and Excess Casualty Reinsurance Association. American Re and ECRA argued that USF&G’s bad faith, including an initial denial of its duty to indemnify and defend the asbestos producer tainted the entire case and warranted summary judgment. They further argued that USF&G’s bad faith breached its duty of utmost good faith to them as reinsurers. The court distilled these contentions into a basic issue of fact and a basic issue of law. The question of fact concerned the increase in the retention of the reinsurance treaties to $3 million, which ECRA alleged was agreed to by all parties. The issue of law concerned the application of the follow the fortunes doctrine. As to the issue of fact, the court found that the facts demonstrated that USF&G only increased the retention for certain years, rather than all claims post-1981, as argued by ECRA. On the question of law, the court concluded that the follow the fortunes doctrine required defendants to accept the reinsurance presentation made by USF&G on the asbestos claims. Accordingly, the motion for summary judgment in favor of USF&G was affirmed. One judge dissented, arguing that a triable issue of fact existed regarding USF&G’s alleged bad faith. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 5205 (N.Y. App. Div. Jan. 24, 2012).

This post written by John Black.

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A dispute arose between the Alabama Municipal Insurance Corporation and Alliant Insurance regarding the latter’s public entity reinsurance program. AMIC purchased $650 million in reinsurance, received a binder on the program, paid almost half a million dollars in premium, but did not receive a written policy until over a year later. According to AMIC, the two parties had agreed that AMIC must transmit timely loss notices to Alliant. Subsequently, during a round of golf between two senior executives from the parties, the two companies entered a “Gentlemen’s Agreement” that AMIC would not submit reinsurance claims for the 2000-01 treaty year. Five years later, AMIC submitted its 2000-01 claims which Alliant passed on to Lloyd’s, the reinsurance underwriter, which denied payment. At a trial of the dispute, a jury awarded AMIC just under $400,000 for breach of contract.

On Alliant’s motion for judgment as a matter of law, the federal district court found that the evidence so weighed in Alliant’s favor that no reasonable jury could find that AMIC had successfully proven a legally enforceable contract existed. AMIC could not demonstrate whether Alliant was acting as managing general agent for AMIC or for the reinsurance underwriters. Moreover, the claims had not properly been submitted in any case. The court further concluded that the equities barred recovery. Alabama Municipal Insurance Corp. v. Alliant Insurance Services, Inc., Case No. 09-928 (USDC M.D. Ala Jan. 10, 2012).

This post written by John Black.

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Various insurance carriers covering losses from the 9/11 terrorist attacks were collectively awarded treble damages amounting to over $9 billion against the terrorist organization al Qaeda. The carriers had obtained default judgments against al Qaeda and moved under the “business or property” provisions of the Anti-Terrorism Act to assess damages. Adopting the magistrate judge’s report and recommendation, the district judge broadly construed the available damages under the ATA based on similar language in the Clayton Act and civil RICO statute. Based on the insurers’ allegations and affidavits, the court awarded treble damages for claims paid on business interruption, property damage, and other losses resulting directly from the 9/11 attacks. The court denied recovery, subject to reconsideration after submission of additional evidence and briefing, for claim adjustment costs and legal expenses associated with paying claims. The court noted that binding precedent likely limited the insurers’ recoveries to the extent of their subrogation to their insureds’ claims. In re Terrorist Attacks on September 11, 2001, Case No. 03 MDL 1570 (USDC S.D.N.Y. Dec. 16, 2011).

This post written by Michael Wolgin.

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An English court held that a professional indemnity insurance “tower” of multiple excess of loss policies incurred liability simultaneously, rather than sequentially as each policy’s limits were exhausted. The tower consisted of a primary professional indemnity policy upon which were three layers of excess of loss insurance written by the insured’s captive insurer, Teal Insurance. Above the excess of loss policies was a “top and drop” policy written by Teal and reinsured by W.R. Berkley Insurance providing additional coverage once the excess of loss policies were successively exhausted. All policies provided worldwide coverage except the top and drop policy, which excluded North American claims. When the insured incurred multiple American and non-American claims, Teal argued it was entitled to ignore the order in which claims were incurred, and elected to exhaust the tower’s coverage with only the American claims, so as to pass the non-American claims to the reinsured top and drop policy. Teal contended that each policy in the tower incurred liability only after the lower layer policy accepted and exhausted liability. The court disagreed with Teal, holding that liability for the tower occurred simultaneously based on the top and drop policy’s provision that the policy would “continue in force as Underlying policy” (i.e., the top and drop policy would “become” the first layer policy) once the tower was exhausted. Any other conclusion would mean Teal “could determine when they (Teal) admitted liability further up the layer and could themselves organise the lower levels to pay American claims, leaving reinsurers to face non-American claims where those claims should otherwise have exhausted the tower.” Teal Assurance Co. v. W.R. Berkley Insurance (Europe) Ltd., [2011] EWCA Civ 1570 (Eng. Ct. App. Dec. 15, 2011).

This post written by Michael Wolgin.

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Some resolution was reached in a lawsuit between Munich Re and Tower Insurance. The parties asserted claims against each other under reinsurance and retrocessional agreements wherein they agreed to indemnify each other against all or a portion of the loss sustained under certain standard insurance policies. Both parties moved for partial summary judgment. Munich Re sought a past due payment of over $3 million plus prejudgment interests. Tower sought summary judgment on certain claims pertaining to quota share agreements and a multiple line excess of loss reinsurance agreement. The federal district court granted in part and denied in part Munich’s motion, finding that: (a) Tower had already paid the alleged past due payment; (b) Munich was entitled to submit a certification setting for the appropriate prejudgment interest; and (c) a request for an order directing Tower to cease its practice of withholding disputed net balances due should be denied. Likewise, Tower’s motion also was granted in part and denied in part. Munich’s claim regarding the quota share agreements should be limited in scope; loss adjustment expenses arising out of the agreements should be denied. Finally, the court denied Tower’s claim under the excess of loss agreement. Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-2598 (USDC D.N.J. Dec. 23, 2011).

This post written by John Black.

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A court dismissed reinsurer Assurecare Corp.’s counterclaim for fraud and unjust enrichment against reinsured Arrowood Indemnity Company for drawing on Assurecare’s letter of credit for the allegedly improper purpose of collecting a disputed reinsurance claim. After engaging in a choice of law analysis, the court found that Assurecare’s fraud claim, which Assurecare sought to replace with a claim that Arrowood tortiously interfered with Assurecare’s relationship with the bank that issued the letter of credit, failed because no effect on the banking relationship was alleged. Assurecare’s unjust enrichment counterclaim failed because an enforceable contract (the Assurecare-Arrowood reinsurance agreement) existed between the parties. The court rejected Assurecare’s argument that Arrowood’s conduct related exclusively to the letter of credit, holding that the reinsurance agreement governed “the conditions under which Arrowood could draw on the Letter of Credit.” Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11-5206 (USDC N.D. Ill. Dec. 15, 2011).

This post written by Michael Wolgin.

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A New York appellate court decided an appeal of a grant of summary judgment and dismissal of an action relating to a 1993 settlement of massive coverage litigation regarding the manufacture of polychlorinated biphenyl (PCB). After the 1993 settlement, the underlying insured who manufactured the PCB became the subject of claims for bodily injury and property damage related to PCB. The insured settled those cases for roughly $600 million, $150 million of which was paid by National Union and its affiliates. National Union turned to its reinsurers for reimbursement; the reinsurers refused to pay. Normally, reinsurers are bound by settlements entered into by a ceding insurance company in good faith. Here, however, the appeal court found that there were issues of fact related to whether National Union settled in good faith. Though there was no evidence that National Union negotiated in bad faith, a 1993 Delaware superior court decision called into question the propriety of National Union’s dealings. Accordingly, the grant of summary judgment was overturned. American Home Assurance Co. v. National Union Fire Insurance Co. of Pittsburgh, No. 06-6430 (N.Y. App. Div. Dec. 27, 2011).

This post written by John Black.

See our disclaimer.