Reinsurance Focus

Glacier Re unsuccessfully appealed the decision of an English court allowing Gard Marine and Energy to bring proceedings under their participation in a contract of excess of loss reinsurance. Gard invoked English jurisdiction under the Lugano Convention, contending it brought claims against a London-domiciled participant and that the risk of irreconcilable judgments favored bringing all claims together at once. Glacier argued that its participation in the agreement was governed by Swiss law, so there was no risk of irreconcilable judgments. The appellate court determined that the parties to the excess loss reinsurance contract had chosen English law, and that the reinsurance arose out of Glacier’s participation in the London market. The underlying policy also was governed by English law. Further, the court determined that it did not make commercial sense for one portion of the contract to be considered under English law, and another under Swiss law. For these reasons, the appeal was dismissed. Gard Marine and Energy, Ltd. v. Tunnicliffe, Case No. A3/2009/2376; EWHC 2388 Comm (Ct. App. Q.B. June 10, 2010).

This post written by John Black.

In a dispute between reinsurers Trenwick America Reinsurance Corp. and IRC Re Limited regarding the alleged breach by IRC Re of a retrocessional reinsurance agreement, a court applied the “follow the fortunes” doctrine to find that IRC violated the agreement in bad faith. The dispute arose when IRC Re “at the 11th hour” denied the existence of a written reinsurance agreement and refused to pay its share of the liabilities arising from the underlying insurance program. The court found that an unwritten agreement existed based on IRC Re’s conduct (e.g., accepting premium payments), correspondence, and testimony from other parties involved in the program. The 56 page opinion contains extensive discussion regarding the existence and terms of the reinsurance contract, its place in a larger reinsurance program, and IRC’s conduct in the reinsurance dispute. IRC Re was not permitted to raise claim payment defenses due to the “follow the fortunes” doctrine. The court found that the doctrine was customary in the reinsurance industry and was therefore applicable even in the absence of a written agreement. The court further held that IRC Re, its CEO, and IRC Re’s affiliate responsible for managing the underlying insurance program, violated the Massachusetts unfair and deceptive trade practices statute. With the program’s manager and the program’s reinsurer “aligned on the same side” there was “little chance of resolving the claim in a timely fashion and surely without litigation” and they “did everything they could to obfuscate the issues and stall their ultimate resolution.” Trenwick America Reinsurance Corp. v. IRC, Inc., Case No. 07-12160 (USDC D. Mass. Feb. 16, 2011).

This post written by Michael Wolgin.

The U.K. Court of Appeals ruled on trigger of coverage issues in a consolidated appeal of cases involving underlying personal injury litigation arising from exposure to asbestos, in light of employers liability policies that generally cover liability for injury “sustained” during the policy year in question. The opinion discusses the unique long latency of mesothelioma, a cancer caused by exposure to asbestos, but which typically does not manifest into disease for as long as forty years or more. The court held generally that the insurer on the risk at the time of exposure — not the time of manifestation of the disease — is responsible for the liability. The ruling is grounded in industry custom, but addresses recent conflicting precedents, generally arising from differing policy wordings over time. The court distinguished a prior ruling, Wasa Int’l Ins. Co. Ltd. v. Lexington Ins. Co., [2009], which involved a conflict between the plain language of a reinsurance contract and a presumption arising from industry custom that insurance and reinsurance cover the same risks, and which ultimately applied the plain policy language as written, despite the presumption. Nevertheless, the court distinguished the Wasa case, noting the varying policy wordings in the employers liability policies at issue. It also recognized the consequences of its ruling on reinsurance liabilities and wordings as well, which it noted have likewise varied over time. Employers’ Liability Insurance “Trigger” Litigation, [2010] EWCA Civ. 1096 (U.K. Court App. Civ. Div. Oct. 8, 2010).

This post written by John Pitblado.

TIG Insurance Company (“TIG”) sued Arrowood Indemnity Company (“Arrowood”) in federal court for breach of a reinsurance agreement. TIG had settled claims with insured Browning Ferris Industries, Inc., and claimed coverage from Arrowood under a facultative reinsurance contract. The parties dismissed their court case without prejudice, agreeing to arbitrate the dispute. The dispute is described in the lawsuit’s Complaint. TIG Ins. Co. v. Arrowood Indem. Co., Case No. 1:10-cv-00465-SM (U.S.D.C. D.N.H. Dec. 29, 2010)

This post written by Ben Seessel.

Neles-Jamesbury Inc. filed suit for breach of contract against Pohjola Ins., a Finnish insurer, arising from a reinsurance contract between Pohjola and Lumbermens Mutual Casualty. NJI sought to hold Pohjola directly liable, alleging that Lumbermens was acting as Pohjola’s agent. Lumbermens had issued a comprehensive insurance policy covering NJI. The policy was stamped “Facultative Reinsurance” and contained the notation “reverse flow business 100% reinsured by Pohjola Ins. Co.” After Lumbermens denied coverage on certain claims, NJI filed suit against Lumbermens in Massachusetts state court. When NJI learned Lumbermens was having financial trouble, it sued Pohjola, which suit was removed to federal court. The federal court granted Pohjola’s motion to dismiss for lack of personal jurisdiction, finding that the Finnish company’s relationship with Lumbermens was not a mere agency and thus the Pohjola’s contacts with Massachusetts did not reach the levels necessary for personal jurisdiction. Neles-Jamesbury, Inc. v. Pohjola Ins. Co., LTD., Case No. 10-40055 (USDC D. Mass. Dec. 7, 2010).

This post written by John Black.

Coors Brewing Company sought to terminate its distributor agreement with Finger Lakes Bottling. After Finger Lakes refused a check in the amount calculated by Coors to be the fair market value at termination, Coors initiated an arbitration pursuant to the agreement to have an arbitrator determine the amount. The arbitrator set an amount, but specifically declined to rule on pre-judgment interest, finding it beyond the scope of the parties’ submission, and thus denied Finger Lakes’ request for the interest, though without prejudice to raising the issue in enforcement proceedings. Finger Lakes then filed an application to confirm the award. The court confirmed the award and, exercising its discretion, granted Finger Lakes pre-judgment interest at the weekly average one-year Treasury rate. Finger Lakes Bottling Co., Inc. v. Coors Brewing Co., No. 09-6024 (USDC S.D.N.Y. Oct. 18, 2010).

This post written by John Pitblado.

On cross-motions for summary judgment, a federal court in Minnesota ruled that an indemnitor, SuperValu, was in breach of an indemnity agreement it had entered with the now-defunct Amwest Surety Insurance Company. The suit arose out of a multi-million dollar jury verdict obtained against Tidyman’s Management Services on whose behalf Amwest issued an appeal bond of over $5 million. Swiss Re subsequently entered into a reinsurance agreement to secure and guaranty Amwest’s performance of the appeal bond obligations. At issue was whether Swiss Re was entitled to be reimbursed by SuperValu for payments to the persons who obtained the original jury verdict. Swiss Re was entitled to recover over $100,000, but was not entitled to attorneys’ fees. Amwest’s insolvency did not change the fact that the claims were made “relative to the bond,” the equities favored Swiss Re’s recovery, and Swiss Re acquired Amwest’s right by assignment. Swiss Reinsurance America Co. v. SuperValu, Inc., Case No. 09-3083 (USDC D. Minn. Oct. 15, 2010).

This post written by John Black.

Swiss Re, invoking a Indemnity Agreement SuperValu had entered into with the now defunct Amwest Surety, sought to recover attorneys fees and expenses from SuperValu based upon a reinsurance agreement it had entered into, as reinsurer, to guaranty the performance under an appeal bond. Because SuperValu refused to remit payment pursuant to the Indemnity Agreement (which Swiss Re acquired from Amwest by assignment), the District Court found that SuperValu’s refusal constituted a breach and that Swiss Re was entitled to recover damages incurred as a result. However, the District Court concluded that Swiss Re was not entitled to recover attorneys’ fees and costs incurred in defending, settling, and administering payment of the claim relative to the Bond underlying the action because the Indemnity Agreement did not contain any language supporting the recovery of fees and costs. Thus, the parties’ cross-motions for summary judgment were both granted in part and denied in part. Swiss Reinsurance Am. Co. v. SuperValu, Inc., Case No. 09-3083 (USDC D. Minn. Oct. 15, 2010).

This post written by John Black.

In May of 2010, insurer Mutual Marine Office Inc. commenced an action against one of its excess-of-loss reinsurers, British Law Insurance Co. (now known as Sun Alliance Insurance UK Ltd.), in New York County Supreme Court. Mutual Marine and British Law have now agreed to dismiss the case and go to arbitration. The dispute pertains to the application of a settlement into which Mutual Marine and British Law’s parent company had previously entered. The settlement permitted Mutual Marine to submit aggregated claims to British Law, which would be payable on a discounted basis, despite the fact that the governing reinsurance treaties did not contain an express aggregate extension clause. Mutual Marine Office, Inc. v. British Law Ins. Co., Case No. 10-cv-4306 (USDC SDNY, Sept. 15, 2010)

This post written by Michael Wolgin.

In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).

This post written by Michael Wolgin.