Reinsurance Focus

OneBeacon sued Commercial Union of Canada, based on its contention that Commercial Union agreed to reinsure successive renewals of a primary policy issued by OneBeacon to Harrisons & Crossfield (America) Inc. and affiliates. Harrisons faced lawsuits for asbestos-based personal injury claims. One of the OneBeacon primary policies at issue was renewed for three successive one-year terms in 1980, 1981, and 1982. Commercial Union issued a Facultative Certificate covering the policy period from March 28, 1980 through April 1, 1981. OneBeacon took the position that the parties intended for the reinsurance cover to be renewed as well. The court disagreed, finding as a matter of law that the Facultative Certificate was unambiguous, covered only the single year described in the contract, and that OneBeacon had not demonstrated with competent evidence any intent on the part of Commercial Union to extend the reinsurance cover beyond its stated term. The Court granted both parties’ motions to strike certain evidence (including a so-called “sham affidavit” proferred by OneBeacon that contradicted sworn testimony), denied OneBeacon’s motion for summary judgment, and granted Commercial Union’s motion for summary judgment. OneBeacon America Insurance Co. v. Commercial Union Assurance Co. of Canada, Case No. 10-10164 (USDC D. Mass. Aug. 18, 2011).

This post written by John Pitblado.

A court granted in part and denied in part a motion to dismiss in a case involving the alleged miscalculation and underpayment of amounts owed to plaintiff Lincoln General Insurance Company by defendant U.S. Auto Insurance Services, Inc. We covered this litigation in a May 11, 2009 post. Lincoln General was the reinsurer of a variety of auto insurance policies sold by U.S. Auto, as managing general agent for State and County Mutual Fire Insurance Company. U.S. Auto sought dismissal on variety of grounds, including that a memorandum of understanding entered by the parties in a 2007 lawsuit between the parties necessitated dismissal of claims not raised in that earlier suit. The court, however, found that the memorandum did not limit the available causes of action in the later suit to those delineated in the 2007 suit, so the motion to dismiss on this ground was denied. Defendants also claimed that an “Assignment of Rights” between State and County and Lincoln General was invalid because it contained a “revocability clause.” The court noted, however, the absence of any case or statute saying a court must ignore the manifested intent of the parties in declaring the assignment void on revocability grounds. The court did dismiss Lincoln General’s claims of alter ego liability against others for U.S. Auto’s breaches of contract, fiduciary duty, and conversion because Lincoln General voluntarily withdrew these claims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 10-CV-2307-B (USDC N.D. Tex. Aug. 18, 2011).

This post written by Brian Perryman.

Employers Reinsurance Corporation was denied a request to correct “imprecise” language in its answer and counterclaim in a suit brought against it by a medical malpractice insurer for failing to fund a settlement of a lawsuit against one of the malpractice insurer’s covered physicians. ERC’s answer included a defense of “setoff” for a sum that it had paid allegedly in error in connection with the underlying malpractice lawsuit. After the court’s deadline for amending pleadings expired, ERC sought to amend its answer to seek “recoupment” in addition to “setoff” in order “to make the terminology of its pleadings more precisely fit” the facts of the case. The court held that ERC’s belated attempt to make its answer more precise showed a “lack of diligence.” The court denied ERC’s proposed amendment for failure to show the requisite good cause. Ohio Insurance Co. v. Employers Reinsurance Corp., Case No. 2:08-cv-83 (USDC S.D. Ohio July 15, 2011).

This post written by Michael Wolgin.

Lexington Insurance Company participated in a tower of coverage for Dresser Industries, a manufacturer of asbestos-containing products that was forced into bankruptcy by the multi-billion dollar exposure it faced arising from product liability litigation against it. In the context of the bankruptcy proceeding, Dresser commenced an insurance coverage action against its various liability insurers. The several insurers named as defendants, including Lexington, ultimately participated in a global settlement, at a figure determined by an outside consultant hired by the group of settling insurers. For its part, Lexington utilized its own “bathtub” method of allocation to determine which of its policies would contribute to its share of the settlement, and in what amounts. By this method, each of its exposed policies were layered (as though in a bathtub) according to their layers of coverage, and those that were “underwater” given the settlement structure were tendered to their limits. Based on this analysis, Lexington paid out the limits under two particular $10,000,000 policies. As a participating reinsurer on these two policies, Clearwater denied Lexington’s claim under the theory that Lexington’s use of the “bathtub” methodology was contrary to the recommendations of the outside consultant that determined the ultimate global settlement. Lexington sued and the parties cross-moved for summary judgment on the issue. The Court found in favor of Lexington under the “follow the fortunes” doctrine, noting that there was nothing inherently unreasonable about Lexington’s chosen allocation method. Lexington Ins. Co. v. Clearwater Ins. Co., No. 09-0234C (Mass. Super. Ct. July 26, 2011).

This post written by John Pitblado.

We have previously reported on the class action lawsuit by members of the National Worker’s Compensation Reinsurance Pool (the “Pool”) against AIG for alleged “fraudulent underreporting of workers compensation premiums for the purpose of reducing its share of the residual workers compensation market – and consequently increasing the residual market costs of the other members of the [Pool].” The amount allegedly underreported by AIG was estimated at approximately $2.1 billion. Subject to “some minor modifications” to the class notice and settlement agreement, the district court has granted preliminarily approval to a class settlement between AIG and certain members of the Pool that intervened in the case. Factors militating in favor of settlement approval included: that the strength of plaintiffs’ case compared to the settlement offer was “within a reasonable range,” that the likely complexity, length and expense of trial weighed heavily in favor of the settlement’s fairness, and that the amount of opposition to the settlement was minimal thus far. The highlights of the settlement include A $450 million settlement award to the class, $146 million in penalties, back taxes, and assessments payable to certain states, and a reformation of AIG’s methodology for reporting workers compensation premiums. The settlement has also been approved by the insurance commissioners of all 50 states and the District of Columbia. American International Group, Inc. v. ACE INA Holdings, Inc., Case No. 07-02898 (USDC N.D. Ill. July 26, 2011).

This post written by Michael Wolgin.

Citing the treaty’s honorable engagement clause, a federal district court denied a group of reinsurers’ motion to vacate an arbitration award in which the arbitrators had fashioned a remedy requiring prompt payment of all disputed and undisputed claims. Certain London market reinsurers had entered into a reinsurance treaty with Century Indemnity Company that indemnified Century for certain liabilities arising out of asbestos litigation. The agreement did not contain a “Reports and Remittances” clause dictating when claims should be paid, but provided that the “liability of the Reinsurers shall follow that of the Company in every case.” The treaty also included an “honorable engagement” clause, directing the arbitrators to interpret the agreement to effect its general purpose.

Facing significant losses due to a flood of asbestos litigation, the reinsurers imposed a program in which Century would have to meet documentation requirements before claims were paid. When payments became delayed, Century initiated arbitration. The arbitrators issued an interim order requiring the reinsurers to promptly pay 100% of all undisputed claims and 75% of any disputed claims, finding that arrangement would effectuate the general purpose of the parties’ agreement. After several years of paying claims pursuant to this arrangement, the reinsurers moved to vacate the award when the arbitrators, who had retained jurisdiction over the matter, made the award final. Citing the “honorable engagement” clause, the court denied the motion to vacate and confirmed the award, holding that the arbitrators had the power to fashion the remedy even though it included obligations not explicitly bargained for by the parties. Harper Insurance Ltd. v. Century Indemnity Co., Case No. 10 Civ. 7866 (USDC S.D.N.Y. July 28, 2011).

This post written by Ben Seessel.

In a dispute arising between Anthem Insurance (now known as Wellpoint) and what the court described as one of its excess reinsurers, Twin City Fire Insurers, Anthem sought defense and indemnification for several state and federal lawsuits alleging improper denial of reimbursement. Twin City denied coverage, arguing that those suits “related back” to the claim preceding its policy period and were accordingly excluded from coverage. An Indiana trial court agreed with Twin City, and Anthem subsequently appealed to the state appeals court. The Indiana Court of Appeals reversed and remanded, holding that none of the subject policy provisions operated to exclude such coverage. The court held specifically that the reinsurance agreement covered “claims made” and found no basis to read the agreement as excluding coverage retrospectively based on notice of claims preceding the inception of coverage. The court additionally found inapplicable Twin City’s attempt to superimpose the “prior notice exclusion” onto the agreement. Wellpoint, Inc. v. National Union Fire Ins. Co., No. 05-2011 (Ind. Ct. App. July 20, 2011).

This post written by John Black.

A dispute over rural water district revenue bonds has reached an end. CIFG commenced an action in the Supreme Court for New York County to recover for payments it made to its insured, Xenia Rural Water District, under a financial guarantee insurance policy which allegedly should have been made by defendant Assured Guaranty pursuant to a reinsurance agreement. CIFG further contended that failure to pay constitutes a breach of the parties’ administrative services agreement. CIFG moved for summary judgment. The Supreme Court granted the motion, finding that the reinsurance agreement clearly allows for exclusion of policies with investment ratings below certain thresholds, even if the policy was inadvertently listed as meeting the threshold requirement at the time. The court, however, also granted summary judgment to Assured on CIFG’s allegation that Assured acted in bad faith. Finally, the court dismissed several of Assured’s affirmative defenses and its counterclaims.

Shortly following the Supreme Court’s order, the parties announced in a press release that they had reached a settlement dismissing the action altogether. Under the settlement agreement, Assured will reinsure 100% of the Xenia policy, and CIFG and Assured will seek to novate the policy to Assured according to the terms and procedures adopted by the parties with respect to the novation of other CIFG policies covered by the reinsurance agreement. CIFG Assurance North America, Inc. v. Assured Guaranty Corp., No. 651090/10 (N.Y. Sup. Ct. June 15, 2011).

This post written by John Black.

The UK Commercial Court recently ruled on the interpretation of a reinsurance agreement related to wind storm risks for a large independent oil exploration and production venture in the Gulf of Mexico. The dispute concerns the interpretation of the coverage limit provision of a facultative reinsurance policy applied to claims from Hurricane Rita. The provision provided “to pay up to Original Package Policy limits/amounts/sums insured excess of USD250 million (100%) any one occurrence of losses to the original placement.” The cedent calculated the reinsurance claim on the basis that the US $250 million excess point was referable to 100% values of the property, and that since Devon Energy (the insured) had less than a 100% interest, the excess point had to be “scaled” to reflect its lower interest. The Court agreed, finding that the evidence was “overwhelming” that the notation “100%” in the reinsurance agreement “has a recognized and established meaning in the market … [meaning] that the limit or excess scales to reflect the assured’s interest in the relevant assets.” A claim of misrepresentation was also rejected by the court. Gard Marine & Energy Limited v. Tunnicliffe, Case No. 2007 Folio 351, 2011 EWHC 1658 (Comm. Ct. June 30, 2011).

This post written by John Black.

A federal district court denied reinsurer Allstate’s motion to compel two separate arbitrations and granted insurer Liberty Mutual’s cross-motion to compel Allstate to select an umpire to complete an arbitration panel that, in turn, could decide how many arbitration proceedings should be held. Allstate had filed two arbitration demands based on distinct issues and argued that the parties’ reinsurance treaties permitted each dispute to be arbitrated separately. Allstate further argued that the Federal Arbitration Act required that two arbitrations be held. The court denied Allstate’s request, however, reasoning that its job was to determine the validity and scope of the arbitration provision. The arbitrators should decide procedural questions related to the arbitration, including whether to consolidate the separately requested arbitration proceedings. Allstate Insurance Co. v. Liberty Mutual Insurance Co., Case No. 11-10415 (USDC D. Mass. May 19, 2011).

This post written by Ben Seessel.