Reinsurance Focus

A federal district court held that, under Pennsylvania law, a reinsurer must show prejudice to deny coverage based on an insurer’s failure to provide prompt notice of loss, even where timely notice is a condition precedent to coverage. Global Reinsurance Corporation of America claimed that Pacific Employers Insurance Company was not entitled to benefits under the parties’ facultative reinsurance contract because Pacific Employers failed to provide prompt notice of loss arising from underlying asbestos litigation. Under the contract, prompt notice was a condition precedent to coverage. New York law, which Global argued should apply, provides that a reinsurer is not required to show prejudice to avoid coverage if the insurer fails to provide prompt notice and timely notice is a condition precedent. The court concluded, however, that Pennsylvania law should apply and denied Global’s attempt to avoid paying benefits for what it called the insurer’s “technical breach” of providing late notice. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. May 23, 2011).

This post written by Ben Seessel.

Plaintiff White Mountains Re, successor in interest to MONY Re, filed an action in the New York Supreme Court against Travelers asserting claims for declaratory judgment and breach of contract arising out of a dispute concerning certain reinsurance contracts. Travelers removed the action to the US District Court for the Southern District of New York and subsequently filed a motion to transfer this action to the District of Connecticut. There are a number of related cases concerning the reinsurance contracts pending in the US District Court for the District of Connecticut, although White Mountains Re is not a party in any of the Connecticut actions. The District Court denied Travelers’ motion, concluding that although the action could have been filed in the District of Connecticut originally, White Mountain Re’s choice of forum is “given great weight.” Further, the Court concluded that while the current action is related to those in the District of Connecticut, White Mountain Re’s suit was not filed in response to a direct threat of litigation in the other forum. Accordingly, Travelers failed to show that transfer was appropriate. White Mountains Reinsurance Co. of Am. v. Travelers Casualty and Surety Co., Case No. 11-390 (S.D. N.Y. Apr. 13, 2011).

This post written by John Black.

On March 16, 2011, we reported on a summary judgment finding Lexington Insurance Company not responsible for a $28 million claim arising under a Lexington medical malpractice insurance policy issued to United Healthcare. While the decision was based on United’s failure to comply with notice provisions in the underlying policy and the resulting prejudice to Lexington, United sought reconsideration on the grounds that the court’s opinion erroneously described the policy as reinsurance, instead of insurance. United argued that an insured should be afforded more protection against the forfeiture of benefits than a reinsured. The court has now issued an amended opinion that corrects its description of the relationship between the parties, but stands by its original conclusions. The court refused to apply rules of contract interpretation that compel a court to construe an insurance policy in favor of an insured because “United is not an innocent consumer but rather a sophisticated insurance company who negotiated, and indeed drafted, the terms of their policy.” Lexington Insurance Co. v. United Health Group, Inc., Case No.09-10504 (USDC D. Mass. April 18, 2011).

This post written by Michael Wolgin.

On August 24, 2010, we reported that Folksamerica Reinsurance (n/k/a White Mountains Reinsurance) had been given 60 days to perfect service against Constructora Del Litoral in an action arising out of Constructora’s alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. In the latest development, the parties agreed to a joint stipulation of dismissal of the action with prejudice, although Folksamerica will not be precluded from pursuing claims against the defendants in Ecuador. The district court entered an order dismissing the case on February 25, 2011. Folksamerica Reinsurance Co. v. Constructora Del Litoral, S.A., Case No. 10-20560 (S.D. Fla. Feb. 25, 2011).

This post written by John Black.

Cross-motions for summary judgment were denied in Nova Casualty’s federal legal malpractice action against Robert Santa Lucia, which involved the question of whether reinsurance falls within the collateral source rule. Mr. Santa Lucia had been hired to defend Nova’s insured in a personal injury suit brought in Florida state court. In the underlying action, the state court set aside a “high-low” agreement, which led to a million dollar settlement. Thereafter, Nova alleged that Mr. Santa Lucia negligently advised Nova in the negotiation and form of the high-low agreement and ultimate settlement. During the relevant times, Nova had two reinsurance contracts with GMAC Re providing reinsurance immunity. After the settlement, Nova provided GMAC with the required proof of loss and was indemnified for the entire amount above its retention.

Nova and Santa Lucia each filed motions for summary judgment, which were denied. Nova argued that Mr. Santa Lucia’s payment defense was prohibited under Florida’s collateral source rule. The court disagreed, noting that reinsurance was not listed among the collateral sources covered under the statute. Likewise, the court found unpersuasive Mr. Santa Lucia’s argument that GMAC was the real party in interest. The reinsurance contracts stated that GMAC has no right to reimbursement unless Nova succeeds in a claim related to the loss. Nova Casualty Co. v. Santa Lucia, Case No. 09-1351 (M.D. Fla. Mar. 10, 2011).

This post written by John Black.

A Justice of the UK Commercial Court (Queen’s Bench Division) has issued an opinion as a result of a trial of a “preliminary issue about the proper construction and the operation of an excess reinsurance policy of professional liability insurance, and more specifically about how it is determined whether the “excess point” that triggers the reinsurance cover has been reached.” Teal Assurance Company Limited alleged that its facultative reinsurance agreement with W.R. Berkeley Insurance (Europe) Limited and Aspen Insurance UK Limited covered certain claims arising from the operations of Teal’s insured, Black & Veatch Holding Company (Teal is a captive insurer subsidiary of Black & Veatch, a large international engineering firm), that were in excess of Black & Veatch’s primary layers of professional liability insurance. The primary insurance covered all of Black & Veatch’s claims, geographically, while the excess facultative reinsurance excluded from coverage all American liabilities. The Court held, contrary to Teal’s position, that the order in which claims should be aggregated for purposes of determining when the reinsurance was triggered (and thus, whether any non-American liabilities exceeded the primary layer), should be based on when those liabilities originated, not when they were paid to the policy limits by the primary insurer. Teal Assurance Co. Ltd. v. W.R. Berkeley Ins. (Europe) Ltd., [2011] EWHC 91 (Comm. Ct. Jan. 31, 2011).

This post written by John Pitblado.

On April 21, 2009, we reported on a case in which reinsurance broker Aon Re prevailed at trial against reinsurer Reliastar Life. Reliastar claimed Aon failed to disclose the potential termination of the reinsurance pool’s retrocessional insurance by its retrocessionaires. An appellate court has now affirmed the judgment for Aon. The appellate court rejected Reliastar’s arguments for reversal, including the argument that the trial court erred by excluding the arbitration decision that ultimately terminated the pool’s retrocessional insurance. The arbitration decision was irrelevant and inadmissible hearsay because Aon was not a party to the arbitration. The court further reasoned that only the timing of when the retrocessionaires considered their agreement ineffective, and not the fact that an arbitration eventually terminated the agreement, was relevant to Reliastar’s claim. The arbitration decision could have mislead the jury by imputing “guilt by association” to Aon for the retrocessional insurance’s termination. Reliastar Life Insurance Co. v. Roger Smith & Aon Re, Inc., Case No. A-4484-08T2 (N.J. App. Div. Mar. 1, 2011).

This post written by Michael Wolgin.

A federal district court granted summary judgment to insurer Lexington Insurance Company because insured Untied Health Care Group failed to comply with the notice provision in United’s insurance contract, prejudicing Lexington. The contract stated that United would give notice as soon as practicable of any claim where United reserved at or above 50% of its SIR of $3 million. United litigated a lawsuit filed in May 2001 for seven years, incurring nearly $20 million in legal fees and settling in May 2008 for $8.5 million. Untied did not notify Lexington of the claim in a distinct communication until April 2008, but argued that quarterly loss run reports in which the claim appeared as one line item was sufficient notice. The court agreed that such reports could constitute notice, but the reports United submitted inaccurately indicated that the claim had been settled within the SIR in 2006. Lexington was prejudiced because it was denied its contractual right to associate in the investigation, defense, or control of the claim. The court, in its order, mistakenly described Lexington as United’s reinsurer. United has moved for reconsideration, arguing that the court’s mistake in this regard materially affects the propriety of the court’s grant of summary judgment to Lexington because an insured should be afforded more protection against forfeiture of benefits than a reinsured. Lexington Insurance Co. v. United Health Group, Inc., Case No. 09-10504 (U.S.D.C. Feb. 15, 2011)

This post written by Ben Seessel.

Following a $9 million judgment in its favor, Granite Re was further awarded pre- and post-judgment interest on that judgment. Granite Re filed a proof of claim in Acceptance Insurance’s bankruptcy action for the amount of $10.9 million, the balance of the premium due under a reinsurance contract plus interest. Acceptance disputed the claim, arguing it no longer needed reinsurance, and filed a separate adversary proceeding against Granite Re alleging unjust enrichment. The Eighth Circuit’s Bankruptcy Appellate Panel reversed the bankruptcy court’s ruling in favor of Acceptance. The Eighth Circuit affirmed the Bankruptcy Appellate Panel’s ruling. Granite Re moved for an entry of judgment, requesting $9 million under the claim plus 1.5% pre- and post-judgment interest. The bankruptcy court ruled that because the exception for unilateral performance applied, Acceptance’s repudiation did not accelerate premium payments and thus Granite Re was entitled to pre-judgment interest. Likewise, Granite Re was entitled to post-judgment interest at the rate specified by federal statute. In re Acceptance Insurance Co., Case No. 05-80059 (Bankr. D. Neb. Jan. 20, 2011).

This post written by John Black.

In a suit surrounding the application of an offset provision in one reinsurance agreement to amounts allegedly owed under a second reinsurance agreement, a court narrowly construed a merger clause in the first agreement, denying a motion to dismiss. American Medical and Life Insurance Company and Guarantee Trust Life Insurance Company entered into two separate reinsurance agreements. In the first, the former would reinsure the latter with respect to certain insurance business. In the second, the latter would reinsure the former with respect to other insurance. After GTL allegedly failed to perform under the second agreement, American Life used an offset provision in the first agreement and refused to pay its share of claims under the first agreement. GTL then sued for breach of the first agreement and American Life counterclaimed for breach of the second agreement. GTL moved to dismiss American Life’s counterclaim, contending the first agreement’s merger clause prohibited linking the second agreement with the first agreement. The court denied GTL’s motion, holding that the offset provision, which permitted offset based on “any other agreement between the parties,” could not be barred by the merger provision in that same contract. Further, the merger provision applied only to “the business reinsured hereunder,” so unrelated business reinsured under a separate agreement would fall outside that provision’s reach. Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co., Case No. 10 C 2125 (USDC N.D. Ill. Feb. 3, 2011).

This post written by Michael Wolgin.