Reinsurance Focus

This dispute concerns indemnity for losses stemming from the Exxon Valdez oil spill in 1989 and the loss of aircraft at the Kuwait International Airport when Iraq invaded Kuwait in 1990. Equitas Ltd. (“Equitas”), as the assignee of the rights of Lloyd’s syndicates, brought claims against R&Q Reinsurance Company Ltd. (“R&Q”) under reinsurance contracts written by R&Q within the London Market Excess of Loss spiral. Equitas argued that recoverable losses were capable of being proved, Equitas had succeeded in proving these losses to a standard of the balance of probabilities through the use of actuarial modeling, and, therefore, Equitas was entitled to recovery. R&Q argued against any recovery unless Equitas could prove contract by contract, at each level of the spiral, that the sums claimed were properly due. The High Court sided with Equitas, ruling that how Equitas proved losses was one of fact or evidence. Equitas was not required to prove losses contract by contract at each level of the spiral. The High Court next ruled that actuarial modeling, although imperfect, was an acceptable solution to prove properly recoverable losses incurred by the syndicates. Equitas Ltd. v. R&Q Reins. Co. Ltd., [2009] EWHC 2787 (Comm. Ct. Nov. 11, 2009).

This post written by Dan Crisp.

In the latest development in the Olsen v. United States case, the US District Court for the Eastern District of Washington issued an Order denying Plaintiffs’ Motion for Partial Summary Judgment. Following a complicated procedural history involving a number of arbitration decisions which were ultimately vacated, Plaintiffs initiated the instant action challenging under the APA the National Appeals Division’s resolution of Plaintiffs’ claims for payment of their crop insurance. Plaintiffs asserted two primary arguments: (1) Reinsurer FCIC had no legal right to revise claim determinations made under a private contract of insurance that FCIC was not a party to; and (2) NAD lacked jurisdiction over the issue of whether Plaintiffs had been overpaid by AGIC. The District Court denied Plaintiffs’ Motion, finding that the insurance contract granted FCIC authority to revise the claim and that administrative review of Plaintiffs’ claims by the NAD was appropriate. Olson v. United States, Case No. 08-5012 (USDC E.D. Wash. Sept. 30, 2009).

This post written by John Black.

A motion to dismiss counterclaims alleging that a property and casualty insurer and reinsurer (collectively, “Everest”) fraudulently conspired to engage in insurance business without the appropriate regulatory approval has been granted. In the primary action, Everest had asserted claims against a group of guarantors for breach of their guaranty obligations. Everest moved for partial summary judgment seeking an order that the guarantors were required to post security in an arbitration, which the court granted. The guarantors filed counterclaims for civil conspiracy, fraud, and negligent misrepresentations, among others. The conspiracy claim was predicated on a violation of state insurance licensing regulations, for which no private right of action existed. The misrepresentation claims asserted that Everest falsely stated that it was validly licensed to write a particular line of insurance, but the claims were barred by the statute of limitations. The court applied a choice-of-law analysis, determining that Colorado limitations periods applied to the parties’ transaction. The court also granted Everest’s motion to strike certain affirmative defenses, holding that the defenses had not been raised at the time of the motion for partial summary judgment, and so had been waived. Everest National Insurance Co. v. Sutton, Case No. 07-722 JAP (USDC D.N.J. Oct. 14, 2009).

This post written by Brian Perryman.

Century Indemnity Company (“Century”) made claim under certain retrocession agreements between it and Certain Underwriters at Lloyd’s, London (“Lloyd’s”) for a portion of the payment Century made to its reinsured, Argonaut Insurance Company (“Argonaut”) in connection with underlying asbestos coverage litigation expenses. Lloyd’s denied the claim, asserting that Century’s payment to Argonaut was not warranted under the reinsurance treaties. Century sued to recover the approximately $2 million in dispute. Lloyd’s moved to compel arbitration. Although it was undisputed that the retrocession agreements did not contain an arbitration clause, the trial court agreed with Lloyd’s that the retrocession agreements incorporated the underlying reinsurance treaties by reference, which treaties did contain arbitration provisions, and therefore granted the motion to compel arbitration. The parties arbitrated, and the three-member panel found in Lloyd’s favor, finding the reinsurance treaties did not obligate Century to pay Argonaut, and therefore Lloyd’s was not obligated to pay Century any portion of the payment to Argonaut. Century moved to vacate the award, contending that the arbitral panel had manifestly disregarded the law and failed to admit evidence which should have been admitted. The district court denied the motion. Century appealed to the Third Circuit Court of Appeals, which affirmed both the decision to compel arbitration, and the decision denying the motion to vacate the award. Century Indemnity Company v. Certain Underwriters at Lloyd’s, London, No. 08-2924 (3d Cir. Oct. 15, 2009).

This post written by John Pitblado.

In the latest development in the action arising out of a Strategic Alliance Agreement between Continental Casualty Company and IFG Insurance Company relating to a federal crop reinsurance program, the US District Court for the Southern District of Indiana held that CCC (along with 1911 Corp) demonstrated that the counterdefendants (the IFG parties along with IGF Holdings, SIG, Goran Capital, Granite Re, Pafco Gen. Ins. Co., Superior Ins. Co., Gordon Symons, Alan Symons, and Douglas Symons) fraudulently transferred assets in violation of the Indiana Fraudulent Transfer Act, and that the counterdefendants were alter egos of one another. Accordingly, the court pierced the corporate veil as to those parties. However, the court ruled that 1911 Corp failed to introduce evidence supporting its breach of contract claim against IGF Holdings, therefore ruling in favor of IGFH as to that claim. A separate judgment is forthcoming in the case. IGF Ins. Co. v. Continental Casualty Co., Case No. 01-cv-799 (USDC S.D. Ind. Oct. 19, 2009).

This post written by John Black.

The underlying dispute involves claims made by Gard Marine & Energy, Ltd. (“Gard”), a Bermudan company, against its reinsurers in an English court. One reinsurer, Glacier Reinsurance AG (“Glacier”), domiciled in Switzerland, objected to the court’s jurisdiction. Glacier had originally paid Gard the sum Glacier considered due, but later sued Gard in a Swiss court seeking repayment of the sum paid. The present action was stayed until the Swiss Federal Court declined jurisdiction. The English court then addressed the issues of governing law and jurisdiction.

The English court first addressed whether Swiss or English law applied. Following the principles of the Rome Convention, the court found that Gard established a good, arguable case that English law applied for four reasons, which were: (1) the circumstances of the placement; (2) the use of a Lloyd’s slip and policy; (3) a number of London market wordings incorporated in the slip; and (4) the wording included provisions relevant to English law. The court next addressed jurisdiction. Applying the Lugano Convention (the “Convention”), the court found that it had jurisdiction. The Convention permits Gard to sue Glacier in Glacier’s country of domicile; however, certain provisions in the Convention allow for an exception. Pursuant to Article 6(1) of the Convention, since the English court had jurisdiction over the other defendants, the court had jurisdiction over Glacier because litigation in English and Swiss courts would result in irreconcilable judgments. Gard Marine & Energy Ltd. v. Tuncliffe, [2009] EWHC 2388 (Comm. Oct. 9, 2009).

This post written by Dan Crisp.

G-I Holdings, Inc. purchased directors & officers liability coverage from Reliance Insurance Company, covering claims made from 1999 – 2002. Due to Reliance’s putatively impending insolvency at that time, it reached an agreement with Hartford Fire Insurance Company, whereby Hartford agree to take over some of Reliance’s claims administration, and agreed to reinsure obligations under Reliance policies for claims made after July 15, 2000. Reliance remained responsible for covering claims made under its policies prior to July 15, 2000. Thereafter, Reliance became insolvent and went into liquidation. G-I Holdings asserted a claim for coverage for three fraudulent conveyance suits against its CEO and Chairman. The first suit was brought during the Reliance coverage period, and the other two were brought during the period covered by Hartford. However, Hartford declined coverage, and the parties litigated, based on the question of whether the two later suits related back to the Reliance coverage period. The district court agreed with Hartford, finding that all three suits were Reliance’s responsibility. The Third Circuit affirmed. G-I Holdings, Inc. v. Reliance Ins. Co., No. 07-2510 (3d Cir. Oct. 26, 2009)

This post written by John Pitblado.

On December 26, 2008, we reported on a putative class action brought by homebuyers alleging that their private mortgage insurance premiums were subject to an unlawful captive reinsurance arrangement in violation of the Real Estate Settlement Procedures Act (“RESPA”). The district court had granted the defendants’ motion to dismiss, construing RESPA as requiring the plaintiffs to allege an overcharge in order to sue for damages. The Third Circuit reversed the order of the district court, finding that RESPA’s plan, unambiguous language did not require the plaintiffs to allege an overcharge and that the plaintiffs had suffered an injury-in-fact sufficient to support Article III standing, with or without an overcharge. The circuit court further found the filed rate doctrine inapplicable as the plaintiffs challenged allegedly unlawful conduct, not the reasonableness of the rate triggering the conduct. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Dan Crisp.

A court granted summary judgment to the Michigan Catastrophic Claims Association, a reinsurer for statutorily mandated no-fault personal injury protection benefits, where the plaintiff, an insurer authorized to write automobile insurance and member of the Association, failed to present evidence that it had paid premiums to the Association. The court therefore declined to address what it considered to be a question of first impression: whether the Association’s obligation to reimburse its member-insurers for no-fault personal injury protection benefits paid in excess of the statutory threshold applied when the insurer’s policy requires its insureds to share financial responsibility for the claim. The Association argued that under Michigan’s no-fault statute, failure to pay a premium to the Association disqualifies the member-insurer from receiving indemnification. Examining the record, the court concluded that the insurer could not establish entitlement to indemnification as it had not provided admissible evidentiary support that it paid the Association a premium on the vehicle involved in the underlying accident. Old Republic Insurance Co. v. Michigan Catastrophic Claims Association, Case No. 08-12522 (USDC E.D. Mich. Sept. 29, 2009).

This post written by Brian Perryman.

A federal court in Texas denied Aon Re’s motion for preliminary injunction against the defendant TIG Insurance Company. Aon Re moved to enjoin TIG from bringing claims arising out of two reinsurance treaties entered into in the late 1990’s that had been the subject of prior litigation, also in federal court in Texas, and which was resolved on summary judgment in Aon Re’s favor on statute of limitation grounds in 2005. However, TIG subsequently brought claims against Aon Re, based at least in part on issues pertaining to the two treaties, in federal court in Texas, which it withdrew, and then re-filed in state court in California.

Aon Re sought an injunction from the Texas federal court to enjoin TIG from prosecuting any further claims arising from the treaties, as it contended those issues had all been resolved. TIG cited the Anti-Injunction Act, which generally disfavors a federal court’s injunction preventing a state court from exercising its jurisdiction. Aon Re cited the “relitigation” exception to the Anti-Injunction Act, but the Court held that Aon Re failed to demonstrate, under the more strict standards required to obtain injunctive relief, that the prior judgment rendered based on statute of limitations grounds was a judgment “on the merits,” entitling it to the preclusive effect. The court essentially left it to the state court in California to decide for itself whether Aon Re was entitled to preclusion, based on the prior judgment in its favor. Aon RE, Inc. v. TIG Ins. Co., No. 3:09-cv-0300-B (USDC N.D. Tex. Sept. 28, 2009).

This post written by John Pitblado.