Reinsurance Focus

In late April, the Indiana Supreme Court held that Continental Casualty Company (“CNA”) must provide insurable relief for Anthem Insurance Companies, Inc. (“Anthem”), reversing a lower court decision. Anthem’s expenditures were covered under their excess reinsurance policy.

Anthem, which later merged with co-defendant WellPoint Inc., was originally subject to multiple lawsuits in Florida and Connecticut for failing to pay claims in a timely manner, breach of state and federal statutes, breach of good faith and fair dealing, unjust enrichment, negligent misrepresentation, and violations of Racketeer Influenced and Corrupt Organizations Act. Anthem later settled, without admitting wrongdoing or liability, a multi-district litigation that consolidated the various state actions. Anthem then sought indemnification from their reinsurers.

Anthem self-insured E&O liability coverage and also purchased additional reinsurance coverage. CNA and other implicated excess reinsurers denied coverage for Anthem’s underlying litigation expenses. The trial court granted summary judgment in favor of CNA. Twin City Fire Insurance Company (“Twin City”) later joined that verdict. A court of appeals affirmed that decision.

CNA argued that (1) Anthem’s alleged conduct was not solely in performance of “Professional Services,” a requirement under their reinsurance agreement; (2) that Anthem’s coverage relief was barred under Indiana public policy; and (3) Anthem’s alleged conduct was barred under the reinsurance agreements “dishonest or fraudulent act or omission” exception. The court found that Anthem’s coverage extended to “loss of the insured resulting from any claim or claims…for any Wrongful Act of the Insured…but only if such Wrongful Act…occurs solely in the rendering of or failure to render Professional services.” The court found that Anthem’s alleged conduct fit under this guidance, as the conduct was a part of Anthems handling of health claims. The court also noted a strong presumption for the enforceability of contracts, especially between CNA and Anthem, both sophisticated parties. For these and other reasons, the court reversed the trial court and granted in large part, summary judgment for Anthem.

WellPoint, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 49S05-1404-PL-244 (Ind. Apr. 22, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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The District Court for the Middle District of Florida recently held that defendant First American Title Insurance Company (“First American”) could maintain its breach of the utmost duty of good faith counterclaim against plaintiff Old Republic National Title Insurance Company (“Old Republic”), but that it could not countersue Old Republic for breach of contract. First American alleged that Old Republic breached the Reinsurance Agreement (“Agreement”) the parties shared by 1) paying First American under a reservation of rights to assert claims against First American, 2) disputing Old Republic’s obligation to pay First American, and 3) improperly trying to claw back the $3.8 million payment. The court held that First American’s claims were insufficient because the Agreement did not explicitly prohibit Old Republic’s actions, a necessary basis for a breach of contract claim. The court did, however, find sufficient First American’s claim that Old Republic breached the utmost duty of good faith. As the court noted, “generously construing First American’s allegations under this count in conjunction with its claim that Old Republic breached the Reinsurance Agreement by failing to pay its share of defense costs,” the pleaded facts for First American’s “utmost good faith” claim were sufficient to survive the motion to dismiss stage.

Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ, 2015 WL 1530611 (USDC M.D. Fla. Apr. 6, 2015)

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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The Court of Common Pleas of Philadelphia County denied defendant OneBeacon Insurance Company’s (“OneBeacon”) motion for summary judgment against plaintiffs Century Indemnity Company (“Century”) and Pacific Employers Insurance Company (“Pacific”). Century and Pacific, which held reinsurance policies issued by OneBeacon, sued the reinsurer to recover expenses in addition to the stated policy limits and to recover an award of interest on the payments received. OneBeacon  sought summary judgment on two grounds: 1) that the limit stated in the parties’ reinsurance certificates placed a total cap on its liability, and 2) that plaintiffs were not entitled to an award of interest on payments. The court denied OneBeacon’s motion.  First, the court determined that certain conditions placed on premiums in the reinsurance certificates meant that the premium was subject to a condition that excluded expenses in calculating the total loss limit. “If anything,” the court noted, “the terms of the certificates may have created a presumption of expense-exclusiveness.”

Second, the court denied defendant’s motion for summary judgment on collateral estoppel grounds. OneBeacon cited two prior district court cases that considered the “limit-of-liability” issue, but the court held that this legal authority did not “hold the necessary weight of final judgments at this juncture in order to apply collateral estoppel against plaintiffs.”  Finally, because the court had already granted plaintiffs’ separate motion for summary judgment on payments of interest, it denied OneBeacon’s motion on that issue as well.  Century Indem. Co. v. OneBeacon Ins. Co., No. 02928 (Pa. Com. Pl. Mar. 27, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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On a motion for reconsideration of a summary judgment entered against it, on which we previously reported, Century Indemnity Company urged a New York federal court to review its order in light of a subsequent decision by a different judge. The ruling Century sought to reverse concluded that the reinsurance limits set forth in each certificate of insurance issued by its reinsurer, Global Reinsurance Corporation of America, were inclusive of costs and expenses and created an overall cap of liability. The intervening decision Century brought to the Court’s attention was Utica Mutual Insurance Co. v. Munich Reinsurance American, Inc., an unpublished 2014 decision by the Second Circuit. Century’s motion was denied. The Utica decision was not controlling law and Century did not introduce new evidence. In addition, Utica would not require a different conclusion given that it was based on the particular language in the certificates in that case, which differed from the language of the certificates issued by Global. Specifically, the language in the certificates in the Utica case made losses and damages subject to the certificates’ limit of liability, but did not include a similar provision for “loss expenses.” Global’s certificates provided a total cap for liability and did not differentiate between reinsurance accepted for loss versus reinsurance accepted for expenses. Global Reinsurance Corp. of America v. Century Indemnity Co., No. 13 Civ. 06577 (USDC S.D.N.Y. Apr. 15, 2015).

This post written by Brian Perryman.

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A federal district court has confirmed a $14 million arbitration award entered in favor of Amerisure against its reinsurer Everest. As we earlier reported, the court had previously denied the motion to seal briefing associated with Amerisure’s motion to confirm the award. Now at issue was the confirmation, modification, or vacatur of the award, which directed Everest to indemnify Amerisure for its share of asbestos losses that fell within the parties’ reinsurance treaties. Everest moved to vacate the award on several grounds, including an arbitrator’s “evident partiality” in the proceedings and the panel’s allegedly erroneous procedural and evidentiary rulings. At the core of the reinsurance dispute was whether Amerisure could aggregate individual asbestos losses into a single occurrence in order to exceed the applicable retention and thereby qualify for indemnification under the reinsurance treaties. The panel held that Amerisure could aggregate the losses by relying, in part, on what it found to be the “commonly accepted” business of treating multiple asbestos losses as a single occurrence. The panel rejected the argument that Amerisure’s claim was precluded or undercut by the fact that the underlying claims were settled as individual losses and further discounted the expert opinion testimony offered by Everest as unpersuasive. The district court, in turn, affirmed the award, rejecting all arguments of partiality or erroneous rulings. While Everest had established the panel exceeded its powers in one respect, it did not find that warranted vacatur or modification of the award. Amerisure Mutual Insurance Co. v. Everest Reinsurance Co., Case No. 14-cv-13060 (USDC E.D. Mich. Mar. 18, 2015).

This post written by Renee Schimkat.

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In a case involving a dispute arising from a fire at the Wisconsin County Courthouse, a Wisconsin federal court issued an order denying Lexington Insurance Company’s motion to participate in an arbitration between the two insurers primarily responsible for the losses. Lexington argued it was an excess insurer (or reinsurer – the parties disagreed) for the policy issued by the State of Wisconsin Local Government Property Insurance Fund insuring the county. In addition to coverage afforded by the Fund, the county was also insured by Cincinnati Insurance Company for losses to cover machinery and equipment that might not otherwise be covered by the Fund’s policy.

The Fund and the Cincinnati policies included a joint loss agreement (“JLA”) which provided that in the event of a dispute, the insurers would pay half of the disputed amount to their insured, the county, and arbitrate the dispute thereafter. The county took advantage of this provision. Lexington then sought to intervene in the ensuing arbitration, arguing that while its policy did not include a joint loss agreement, it was a follow-form policy which included that provision. The court agreed with Lexington, finding that although the Lexington policy was “a little strange,” it expressly stated it was a follow-form policy to the Fund’s policy and, further, it did not expressly exclude or supersede the joint loss agreement. The court, however, disagreed with Lexington’s view that it was entitled to participate in the arbitration between the Fund and Cincinnati. The joint loss agreement did not apply in this case because it did not apply to Lexington or allow for Lexington’s participation in the arbitration. State of Wisconsin Local Government Property Insurance Fund v. Lexington Insurance Co., Case No. 15-CV-142-JPS (USDC E.D. Wis. Apr. 17, 2015).

This post written by Brian Perryman.

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Granite State Insurance Company (“Granite State”) brought an action against Clearwater Insurance Company (“Clearwater”) regarding a dispute over reinsurance claims Granite State made, and which Clearwater denied based on late notice. The claims pertained to underlying settlements of a large number of asbestos claims. The reinsurance certificates required prompt notice “of any event or development” which Granite State “reasonably believe[d] might result in a claim.” The district court found that Granite State’s notice to Clearwater under the reinsurance certificates at issue was untimely, and the Second Circuit affirmed.

In particular, the Second Circuit resolved a question raised on appeal pertaining to which state law applied. The parties agreed that, if there was a conflict of laws, Illinois law would apply under a “significant contacts” analysis, versus the law of the state where the action was pending – New York. But Granite State argued that Illinois law did not clearly conflict with New York law, and that therefore the New York federal court should have applied New York’s late notice rule, which requires an affirmative showing of prejudice on the part of the party asserting late notice as a bar to recovery.

The Second Circuit affirmed, finding that Illinois law was sufficiently clear on the issue, and does not require a showing of prejudice. Therefore, the laws were truly in conflict, and conflict of law analysis required application of Illinois law. Clearwater was thus not required to demonstrate that it was prejudiced by Granite State’s late notice in order to refuse to pay Granite State’s claims for reinsurance coverage.  Granite State Ins. Co v. Clearwater Ins. Co., No. 14-1494 (2d Cir. April 2, 2015).

This post written by Catherine Acree.

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Phased arbitration proceedings involving First State Insurance Company and New England Reinsuance Corporation against Nationwide Mutual Insurance Company addressed claims arising under numerous reinsurance agreements between First State and Nationwide. The arbitration panel entered three orders, one as to each phase, in favor of First State and, as part of its decision, crafted certain remedial measures under the reinsurance agreements between the parties. The arbitration panel’s rulings engendered additional litigation on both procedural and substantive grounds before the federal court. Procedurally, the federal court ruled that First State’s motion to confirm the award as to the first phase was premature when filed because the arbitration panel had not yet ruled on the remaining phases. On reconsideration of its prior order dismissing the motion to confirm as premature, the court ruled that the motion should have been deferred and not dismissed as premature. The court consolidated the motion with First State’s other motions seeking to confirm the awards on the subsequent phases of the arbitration proceedings. Substantively, the court rejected Nationwide’s argument that the panel exceeded its authority in crafting the remedial measures in light of the high level of deference given to arbitral awards by reviewing courts. First State Insurance Co. v. Nationwide Mutual Insurance Co., Case No. 13-cv-11322-IT (USDC D. Mass. Mar. 25, 2015).

This post written by Leonor Lagomasino.

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A federal district court has denied a cedent’s motion to dismiss a negligence claim brought against it by its reinsurer, Old Republic National Title Insurance. The dispute between Old Republic and First American Title arose out of a reinsurance agreement where Old Republic agreed to assume a specified share of First American’s contractual liability under certain title insurance policies. First American negotiated a settlement of claims brought under those title policies and then asserted that Old Republic was obligated under the reinsurance agreement to pay its proportionate share of that sum. Old Republic paid the amount under a full reservation of rights, then sued First American for several causes of action, including negligence. The negligence claim alleged that when Old Republic made the offer for the reinsurance agreement, “First American undertook a duty to underwrite the Title Policies in a reasonably prudent manner and created a special relationship” with Old Republic that First American then breached.

First American moved to dismiss the negligence claim, arguing that the “gist of the action” doctrine precludes it. That doctrine states that an action in tort will not arise for breach of contract unless the tort action arises independent of the existence of the contract. First American argued that its liability stems from the parties’ reinsurance agreement and any duty owed by First American to Old Republic arises solely out of that contractual relationship. The court rejected that argument and the doctrine’s application, stating that the nature of the relationship between reinsurers and cedents, including the exercise of utmost good faith between them, supported a duty grounded in social policy, not solely in contract. The court further found that irrespective of the source of the duty owed, the negligence claim would not be dismissed because Old Republic, in the alternative, sought to rescind the reinsurance agreement and if the rescission claim ultimately prevailed, then the “gist of the action” would no longer be contractual. Old Republic National Title Insurance Co. v. First American Title Insurance Co., No. 8:15-cv-126 (USDC M.D. Fla. March 25, 2015).

This post written by Renee Schimkat.

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In a lengthy opinion detailing extensive findings of fact and law, a New York federal district court entered its order in favor of Harbinger F&G, LLC and against OM Group (UK) Limited in an action stemming from claims arising from the stock purchase agreement for the purchase of Old Mutual Financial Life Insurance Company by Harbinger from OM Group. Under the Agreement, Harbinger was entitled to a $50 million purchase price reduction if the Maryland insurance regulators did not approve a post-closing transaction between Old Mutual and Front Street Re, a reinsurance company owned indirectly by Harbinger, and if Harbinger fulfilled certain other conditions precedent. Harbinger was required to prepare and file certain approval documentation in the form agreed to by the parties, to use reasonable best efforts to obtain governmental approval for the reinsurance transaction and, if the transaction was not approved, Harbinger was required to engage in certain remedial efforts. When the post-closing transaction was not approved but OM Group failed to make the purchase price reduction payment, Harbinger sued. After holding a bench trial on those issues not disposed of on summary judgment, the trial court entered judgment in favor of Harbinger but found OM Group was entitled to the payment of certain fees from Harbinger. “>Harbinger F&G, LLC v. OM Group (UK) Limited, Case No. 12 Civ. 05315 (CRK) (USDC S.D.N.Y. Mar. 18, 2015).

This post written by Leonor Lagomasino.

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