Reinsurance Focus

An action for breach of contract and declaratory relief arising from “fronting” insurance arrangements and reinsurance contracts (some dating to the late 1960s) between Employers’ Liability Assurance Corp. (“ELAC,” a predecessor of OneBeacon) and a series of “Moving Party” reinsurers has fallen by the wayside. The moving party reinsurers filed a motion to dismiss for lack of personal jurisdiction, or alternatively, under the doctrine of forum non conveniens. The court granted the motion, finding that the reinsurers – based in the UK – did not transact business in Massachusetts under the Commonwealth’s long-arm statute, nor did they have the requisite minimum contacts consistent with due process under the federal Constitution. The court found that a separate insurance broker and not the reinsurers had contacted ELAC regarding the contracts. The reinsurers were likewise not party to the contracts, and those agreements to which they were parties were negotiated and entered into in London. Further, no moving party reinsurer had any contact with any Massachusetts entity after 1993, thus failing the “continuous and systematic” contacts standard. OneBeacon America Insurance Co. v. Argonaut Insurance Co., No. 09-5085 (Mass. Super. Ct. Nov. 9, 2011).

This post written by John Black.

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A court has granted a motion for judgment on the pleadings, under the theory that an underlying policyholder lacks a cause of action against its insurer’s reinsurer. National Indemnity Company (“NICO”) was brought in as a third party to insurance coverage litigation between Canal Insurance Company, its insured, Montello, Inc., and various other insurers in a declaratory coverage action pertaining to underlying asbestos litigation arising from Montello’s operations. Montello’s claim against NICO was unique, as it was the only reinsurer brought in to the action, and allegedly had in effect a reinsurance agreement with one of the defendants that purportedly had retroactive effect. NICO moved for judgment on the pleadings, arguing that an underlying policyholder has no direct cause of action against its insurer’s reinsurer. The court granted NICO’s motion, finding that the reinsurance agreement did not contain a cut-through provision enabling a direct action, and that neither of the exceptions permitting direct action were applicable. Canal Insurance Co. v. Montello, Inc., No. 10-CV-411 (USDC N.D. Okla. Sept. 26, 2011).

This post written by John Pitblado.

A suit filed late last year by two subsidiaries of Chartis, Inc. against their reinsurer, Transport Insurance Co, was recently settled and dismissed. The underlying complaint alleged that Transport failed to reinsure in excess of $4.5 million in connection with asbestos claims paid under commercial umbrella liability policies. The parties filed a stipulation of dismissal on October 11, 2011 and an order dismissing the case was entered two days later. Insurance Co. of the State of Pennsylvania v. Transport Ins. Co., Case No. 2:10-cv-09830 (USDC C.D. Cal. Oct. 13, 2011).

This post written by Michael Wolgin.

IRB-Brasil and National Indemnity Company recently filed cross petitions concerning the ongoing arbitration between the parties. The arbitration arises out of a dispute over reinsurance policies issued by NICO to IRB. IRB sought to stay the arbitration, to disqualify NICO’s appointed arbitrator, and to appoint one in his place. It sought further to consolidate the two arbitration proceedings pending between the parties. In the alternative, IRB sought to form an arbitration panel to determine whether the arbitrations should be consolidated. NICO, for its part, sought to designate a neutral third-party arbitrator in one of the pending arbitrations. The court denied all petitions, concluding that under the Federal Arbitration Act it was not authorized to disqualify an arbitrator chosen in accordance with the parties agreement to arbitrate. The agreement specified only that the arbitrators be “active or retired officers of insurance or reinsurance companies,” a criterion that had been fulfilled. All other decisions before the Court stemmed from this conclusion and the petitions were accordingly denied. IRB-Brasil Resseguros v. National Indem. Co., No. 11-1965 (USDC S.D.N.Y. Oct. 6, 2011).

This post written by John Black.

In what may be the final development in the ongoing saga between Princeton Insurance and Coverium Reinsurance, the parties agreed to settle their lawsuit in its entirety. The court dismissed the action without prejudice to reopen if the settlement between the parties is not consummated. The dispute had centered on liability limit of an employers’ liability reinsurance agreement. Please see our prior posts on April 7, 2008, August 6, 2008, and September 21, 2009 for more detail. Princeton Insurance Company v. Coverium Reinsurance (NA), Inc., No. 06-599 (USDC D.N.J. Sept. 14, 2011).

This post written by John Black.

The Eighth Circuit Court of Appeals affirmed judgment in favor of Massachusetts Mutual Life Insurance Company (“Mass Mutual”) in a case brought against it by its reinsurer, Employers Reinsurance Company (“ERC”). ERC and Mass Mutual were parties to an Excess Disability Income Reinsurance Agreement. ERC and Mass Mutual later entered into a Claim Review Agreement, allowing ERC to make non-binding settlement recommendations. After Mass Mutual revealed some of its own claims reporting errors to ERC, ERC concluded that Mass Mutual had breached the reinsurance treaty and sued Mass Mutual, asserting breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory claims. Mass Mutual countered, making similar claims against ERC. The parties cross-moved for summary judgment and the trial court granted Mass Mutual’s motion and denied ERC’s. ERC appealed, but the Eighth Circuit Court affirmed the trial court’s decision and findings that the reinsurance agreement contained a “follow the settlements” provision, and that this ultimately allowed Mass Mutual to settle claims as it saw fit, whether or not the CRA required it to consider ERC’s non-binding recommendations. (We posted on the District Court’s decisions four times: September 15, 2010 (pre-judgment interest), July 12, 2010 (1292(b) appeal certification request), November 20, 2008 (reconsideration and appeal certification) and September 2, 2008 (summary judgment). Employers Reinsurance Co v. Massachusetts Mutual Life Ins. Co., No. 10-3099 (8th Cir. Sept. 7, 2011).

This post written by John Pitblado.

Following removal to federal district court of an action against AIG, defendants petitioned to refer the case to the district’s bankruptcy court. Plaintiffs’ claims arose out of a reinsurance arrangement between AIG and non-party The Robert Plan Corporation, who were engaged in the automobile insurance business. After a dispute regarding administration of the reinsurance treaties, plaintiffs – “family members and former shareholders” of TRP – allege TRP agreed to accept a certain sum as payment pursuant to AIG’s allegedly fabricated representations about its loss reserves. Following this dispute, TRP filed Chapter 11 bankruptcy. The District Court agreed to refer the case, holding that plaintiffs’ claims “could conceivably have an effect” on TRP’s bankruptcy estate and are therefore related to the case under Title 11. The Court noted that plaintiffs did not dispute AIG’s arguments. Wallach v. American International Group, Inc., No. 11-3025 (USDC E.D.N.Y. Sept. 12, 2011).

This post written by John Black.

A federal district court dismissed Lexington Insurance Company’s unjust enrichment claim against reinsurer Tokio Marine, holding that the parties’ dispute was governed by their reinsurance contract. Lexington had issued two layers of excess property coverage to the Port Authority, which owned the World Trade Center. Tokio Marine reinsured 100% of the risk. Tenants of the World Trade Center successfully argued to a jury that the September 11, 2001 attacks constituted two separate occurrences and the judgment was affirmed by the Second Circuit. Lexington paid its policy limits for one occurrence and was fully reimbursed by Tokio Marine. After engaging in coverage litigation over whether the Port Authority could recover for a second occurrence, Lexington and the primary carrier, American Home, settled with the Port Authority for a second payment. Lexington sued Tokio Marine after it rejected Lexington’s claim as to the second payment, arguing that the primary carrier should have paid a larger share. The court held that Lexington’s dispute was governed by the parties’ reinsurance agreement and not properly brought as an unjust enrichment claim. The breach of contract claim is still pending. Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., Case No. 11-391 (USDC S.D.N.Y. Sept. 7, 2011).

This post written by Ben Seessel.

Did you know that the notice/prejudice rules vary from state to state, and may be different for direct insurance and reinsurance claims? These rules may lead to unexpected burdens of proof and unexpected results. Special Focus Editor John Pitblado sorts out the rules in this area in a Special Focus article that recently appeared in Mealey’s Reinsurance titled: Pride and Prejudice: Prompt Notice in Reinsurance Claims.

This post written by John Pitblado.

The US District Court for the District of Columbia recently held an evidentiary hearing on two actions initiated by Lloyd’s against the Syrian Arab Republic, the Syrian Air Force Intelligence Agency, and Syria’s Director of Military Intelligence (the claims against the named Libyan defendants having been dismissed pursuant to the enactment of the Libya Claims Resolution Act). Lloyd’s seeks judgment and an award of damages for acts of state-sponsored terrorism that resulted in the hijacking and destruction of the aircraft of EgyptAir Flight 648 in 1985. The US Magistrate Judge ruled that the Syrian defendants provided material support and resources to and conspired with the terrorists in the hijacking of Egypt Air Flight 648, and that the Syrian defendants intended that their support would promote and cause extrajudicial killings of American citizens and the destruction of the EgyptAir aircraft. The Court additionally found that the actions could not have occurred without the explicit authorization of then-Syrian President Hafiz al-Asad. Accordingly, the Court will enter judgment and grant an award of damages on behalf of the plaintiffs against the Syrian defendants in a separate order. Certain Underwriters at Lloyd’s London v. Great Socialist People’s Libyan Arab Jamahiriya, No. 06-cv-731 (USDC D.D.C. Sept. 2, 2011).

This post written by John Black.