Reinsurance Focus

In a dispute regarding two quota share reinsurance agreements, Plaintiffs Arrowood Surplus Lines Insurance Company and Arrowood Indemnity Company sought an order requiring Gettysburg National Indemnity to post pre-pleading security pursuant to Connecticut statute. Under Connecticut law, before an “unauthorized insurer” can file a pleading in a case against it, it must either post a pre-pleading security, procure proper authorization to do business in Connecticut or seek an order from the court dispensing with pre-pleading security. The District Court for the District of Connecticut determined that Gettysburg National was required to post pre-pleading security in an amount determined by the contract under the reinsurance agreement between Arrowood and Gettysburg National. Thus, Gettysburg National was ordered to post pre-pleading security in the amount of $660,389. Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat. Ins. Co., Case No. 09-000972 (D. Conn. Apr. 6, 2010).

This post written by John Black.

OHIC Insurance sued to recover payment of statutory interest and legal expenses incurred in a 1998 Wisconsin medical malpractice lawsuit pursuant to a clause in a reinsurance agreement with ERC indemnifying OHIC for certain “losses” and “claim expenses.” Both parties moved for summary judgment, leaving the Court to decide two primary issues: (1) whether the “prejudgment” interest imposed pursuant to a Wisconsin statute is covered by the reinsurance agreement; and (2) whether a portion of the “postjudgment” interest imposed by statute and the legal expenses incurred by OHIC in defending the malpractice suit are covered by the reinsurance agreement.

Resolving question 1, the Court concluded that OHIC’s payment of the prejudgment interest constituted a “loss” under the reinsurance agreement. Thus, ERC was obligated to reimburse OHIC as to this loss. Conversely, the Court determined that OHIC was not entitled to indemnification for a portion of the legal expenses and postjudgment interest incurred in defending the malpractice suit. In addition to these determinations, the Court also granted ERC’s request to exclude OHIC’s expert’s opinion and granted ERC’s motion to file sur-reply briefs. OHIC Ins. Co. v. Employers Reinsurance Corp., Case No. 08-cv-93 (S.D. Ohio Mar. 8, 2010).

This post written by John Black.

A federal district court adopted in part, and vacated in part the report and recommendation of a magistrate judge on defendant TIG Insurance Company’s motion for partial summary judgment, which sought rulings that: (1) Illinois law governed a reinsurance coverage dispute and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; (2) AIU Insurance Company breached the reinsurance contracts by providing late notice of its 2001 claim; and (3) TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982. AIU issued four umbrella insurance policies covering the period from October 1, 1978 to October 1, 1982. AIU subsequently reinsured its exposure under three of the umbrella insurance policies, covering the period from October 1, 1978 to October 1, 1981, with TIG’s predecessor company under nine reinsurance certificates. AIU later sought reimbursement for certain settlement payments pursuant to the reinsurance certificates by submitting a reinsurance claim to a TIG affiliate, which responded by citing the certificates’ prompt notice provision, and reserving its rights. On this denial, AIU brought an action alleging breach of contract and seeking declaratory relief based on TIG’s failure to pay amounts due.

The magistrate judge assigned found that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. The magistrate judge further found that TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982 because AIU conceded that after filing its complaint it became aware that TIG had not, in fact, reinsured AIU for this period. The magistrate judge, however, further recommended that TIG’s motion be denied without prejudice to the extent it sought a ruling that AIU breached the reinsurance certificates by failing to provide prompt notice of a 2001 claim. On that point, questions clouded the issue of AIU’s knowledge of potential claims. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Feb. 11, 2010) (report and recommendation of magistrate judge).

The district judge declined to adopt the report and recommendation, except to the extent the parties did not dispute that coverage did not exist between October 1, 1981 and October 1, 1982. Because discovery was still being conducted on all the issues, summary judgment was premature. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Mar. 9, 2010) (order of district judge).

This post written by Brian Perryman.

Republic Indemnity Co. of America voluntarily dismissed its suit against Transatlantic Reinsurance Company, shortly after the parties sought entry of a tolling agreement. Presumably, the dismissal indicates that the parties have agreed to resolve their dispute by an alternative dispute resolution. Republic alleged that Transatlantic breached obligations under a facultative reinsurance certificate allegedly requiring it to reimburse Republic for certain costs under excess policies issued by Republic to its insured, a distributor of insulation products who had been sued in connection with asbestos-related injuries stemming from the 1980’s. Republic Indemnity Co. of America v. Transatlantic Reinsurance Co., No. 09-Civ-8871 (USDC S.D.N.Y. Jan. 19, 2010).

This post written by John Pitblado.

This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.

In the latest development in the case of DiNallo v. Dunav Ins. Co., defendant Dunav moved for reconsideration of the Southern District of New York’s order remanding the suit to New York State Court. Dunav argued that the Court’s order overlooked the fact that Dunav Re was a Serbian reinsurance company rather than Underwriters at Lloyds. Further, Dunav Re asserted that the Reinsurance treaties were among the first entered into by the company in the US and it lacked the sophistication and expertise of insurance companies who regularly did business in London or the US. Dunav Re additionally argued that it thought that the Service of Suit provision was “required by law” and that none of the parties indicated that Dunav Re was being asked to waive its removal rights. The Court determined that, given the strict standard for motions for reconsideration, Dunav Re had failed to demonstrate that the Court had overlooked important factors. Further, to the extent that Dunav Re grounded its motion on previously unconsidered issues, the motion for reconsideration was untimely. Dunav Re’s motion was denied. DiNallo v. Dunav Ins. Co., Case No. 09-5575 (S.D. N.Y. Feb. 1, 2010).

This post written by John Black.

Royal Surplus Lines Insurance Company, the plaintiff’s predecessor, assumed the liabilities and acquired the related assets of an insurer that provided a one-year general liability policy to Equity Residential (“Equity”). Employers Reinsurance Company, the defendant’s predecessor, reinsured this policy until it terminated the reinsurance agreement on August 18, 2000. In this action, the plaintiff, Arrowood Surplus Lines Insurance Company (“Arrowood”), sought reimbursement for a settlement payment to Equity and claim expense in connection with losses occurring between December 15, 2000 and December 15, 2002, and the defendant, Westport Insurance Corporation (“Westport”), moved for judgment on the pleadings, arguing that Westport has no liability for losses after December 15, 2000. Arrowood argued that the Equity settlement was covered under the reinsurance agreement under the “follow the fortunes” clause.

The court, however, found that the losses under the Equity policy were outside of the reinsurance agreement, which stated that a policy issued for a period of more than one year shall be considered as “becoming effective” on the policy’s anniversary date while the policy is in force. Even if the runoff option was exercised, the policy would only be in effect until the anniversary date. Therefore, the reinsurance coverage period was limited to one year at a time, regardless of the length of the underlying insurance contract. Losses after the anniversary date would not be covered because the Equity policy could not “become effective” under a terminated reinsurance agreement. Moreover, the “follow the fortunes” clause only applies to a reinsurance contract in force. The court thus granted Westport’s motion for judgment on the pleadings. Arrowood Surplus Lines Ins. Co. v. Westport Ins. Corp., Case No. 08-1393 (USDC D. Conn. Jan. 5, 2010).

This post written by Dan Crisp.

AXA Belgium S.A. (“AXA”) reinsured Century Indemnity Co. (“Century”) under certain treaties dating back to the 1970’s. In 2005, Century disputed AXA’s fulfillment of certain payment obligations, and the parties arbitrated the matter. The award, rendered in 2007, was in Century’s favor on a number of issues, and ordered AXA to make payments to Century. After AXA refused to make the ordered payments, Century filed an action in Pennsylvania in 2009 to confirm the award, and the award was confirmed. Thereafter, Century claims AXA still did not make required payments, and moved for contempt in the Pennsylvania action.

For its part, AXA claims that correlated issues involving the parties that were not subject to the arbitration impact AXA’s payment obligations because they entitle AXA to offsets or credits against its payment obligations ordered in the arbitration and confirmed in court. AXA thus filed its own action in New York federal court, seeking to compel arbitration of the offset issues it claims impact its payment obligations. The New York court deferred and transferred the action, suggesting that AXA was engaged in forum shopping, and finding that the Pennsylvania court was already familiar with the issues and was the appropriate forum for AXA to raise its claims pertaining to the offset. However, in an Order ironically issued the same day as the New York Order, the Pennsylvania court – plainly displeased by the bitter tone of the parties’ dispute – refused to enjoin the New York litigation, but did not grant Century’s motion for contempt, based on its review of the arbitration award, finding that the award did not command the payment of a sum certain by AXA. It also held that the arbitrability of the offset issue should be determined in the New York action. Both courts have now deferred the resolution of this issue to the other court. AXA Belgium, S.A. v. Century Indemnity Co., 09-9703 (USDC S.D.N.Y. Jan. 11, 2010); Century Indemnity Co. v. Certain Underwriters at Lloyd’s, No. 09-94 (USDC E.D.Pa. Jan 11, 2010).

This post written by John Pitblado.

Haiti is one of sixteen members of the Carribean Catastrophe Risk Insurance Facility (CCRIC), which is a regional parametric trigger cat risk insurance pool that is intended to provide member governments with short term cash payments to bridge the gap between hurricanes or earthquakes and the receipt of contributions from other governments, organizations and individuals. The facility makes payments to member governments after a 14 day waiting period after a qualifying event. The CCRIF is scheduled to make a payment to the Government of Haiti of $8 million on January 26, which is more than 20 times the premium of $385,000 paid by Haiti for this coverage. The World Bank sponsored a donor conference when the CCRIF was founded in 2007, seeking international support for this facility, but pledges of support at that time from countries around the world, the World Bank and other organizations totaled only $47 million. This level of support may have been due in part to the fact that this was the first regional cat risk insurance pool of its kind, and there was uncertainty as to how effective it would be in accomplishing its goal. The CCRIF claims that it provides coverage to its members at approximately 40% less than commercially available coverage, when such coverage is available. While the amount of the CCRIF’s payment to Haiti is not impressive in light of the magnitude of this disaster, perhaps this event will prompt a re-evaluation of the level of international support for the CCRIF as a means of providing short term liquidity for immediate relief efforts for such disasters.

News reports have indicated that a large portion of the losses in Haiti are not insured, making the impact of this disaster for one of the historically poorest nations in the Western Hemisphere even more catastrophic. For sobering details about the impact of this disaster, including post-earthquake population movements in Haiti, details on the humanitarian response, and details about relief contributions from many sources around the world, go to the Relief Web, which is administered by the United Nations’ Office for the Coordination of Humanitarian Affairs.

This post written by Rollie Goss.

The Second Circuit Court of Appeals recently affirmed a district court decision (reported on this blog March 10, 2009), which dismissed a putative shareholder derivative class action against PXRE Group, Ltd., a publicly traded Bermuda reinsurer, and certain of its directors and officers. The plaintiff shareholders alleged that PXRE intentionally or recklessly understated loss projections in the immediate aftermath of Hurricanes Katrina, Rita and Wilma in 2005, in order to preserve its credit rating. Specifically, the plaintiffs claimed that PXRE failed to take river flooding into account in its loss modeling, and that its loss modeling software was inadequate for much-larger-than-typical hurricane loss modeling, and was based only on typical hurricane loss modeling. The plaintiffs alleged specific misleading statements in press releases that it argued were intended to deceive in advance of public offerings. In an effort to establish scienter, the plaintiffs’ Complaint included allegations purportedly obtained from “confidential informants” from PXRE, including actuaries, a Vice President in charge of loss modeling, and the Chief Actuary of a “peer company.” Citing heightened pleading requirements for securities/fraud type claims, the district court dismissed the case, as plaintiffs had failed to sufficiently allege the bases for its allegations. The Second Circuit court affirmed by short summary order, citing the district court’s “thorough, well-reasoned opinion.” In re PXRE Group, Ltd., No. 09-1370 (2d Cir. Dec. 21, 2009).

This post written by John Pitblado.