Reinsurance Focus

The District Court for the District of New Jersey recently granted defendant AIG’s motion to dismiss Robert Plan Corporation’s claims arising out of a series of reinsurance agreements between the parties. The procedural history of the action is complex, and it involves underlying state court action, financial rehabilitation and bankruptcy proceedings. Robert Plan filed a Notice of Removal in January, 2009, and AIG subsequently moved to dismiss for lack of subject matter jurisdiction. The court granted the motion to dismiss, finding that that there was no case or controversy for the court to decide because the underlying state court action had been dismissed by the time plaintiffs filed their notice of removal. Additionally, because the Court found subject matter jurisdiction lacking, it denied as moot Robert Plan’s Motion to Transfer Venue. The Robert Plan Corp. v. American Int’l Group, Case No. 09-200 (D.N.J. Aug. 10, 2009).

This post written by John Black.

In a December 22, 2008 post, we reported on a group of litigants in two related lawsuits voluntarily withdrawing motions and claims against each other. In one of the lawsuits, the plaintiff, National Indemnity Company (“NIC”), alleged that the defendants schemed to coerce NIC into relinquishing certain contractual rights and the defendants counterclaimed that NIC schemed to defraud the defendants into purchasing certain stock. The judge in this case has since issued an order removing the motion to dismiss and summary judgment motion from the court’s calendar, stating that the parties reached an agreement to settle the claims and counterclaims. National Indem. Co. v. Greenwich St. Invs. II, LLC, Case No. 08-4067 (USDC S.D.N.Y. Aug. 26, 2009).

This post written by Dan Crisp.

In the latest development of Guaranteed Trust Life’s (“GTL”) suit for reinsurance benefits from First Student Programs, the Northern District of Illinois granted in full third party defendant American United Life’s (“AUL”) motion to dismiss. After previously granting in part and denying in part AUL’s motion to dismiss, the court invited the parties to readdress the issues of res judicata. In fully granting AUL’s motion in the instant order, the court determined that, even though First Student Programs was not a party to the arbitration between GTL and AUL, it was in privity with GTL. The court concluded that because the two companies’ claims against AUL arose out of the same alleged breach of contract, were based on the same legal and factual arguments, and rested on a contractual relationship between the two companies, Illinois’ privity test was met. Accordingly, First Student Programs’ claim agasint AUL was precluded by the arbitration award against AUL. Guarantee Trust Life Ins. v. First Student Programs, LLC, Case No. 05 C 1261 (N.D. Ill Sept. 9, 2009).

This post written by John Black.

We previously reported (April 7, 2008) on a federal district court’s interpretation of the liability limit of an employers’ liability reinsurance agreement in a summary judgment setting, finding in favor of the position advanced by the reinsured. We subsequently noted (August 6, 2008) the district court’s entry of judgment in the total amount of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. It appears, however, that the district court was in error, as the Third Circuit vacated the judgment, and remanded the case for further proceedings. The central issue was whether the warranty provision in the agreement limited the reinsurer’s liability for EL claims. The district court held that the contract was unambiguous and contained no such limitation. The Third Circuit held the problem with this conclusion was that it fails to account for the phrase “or so deemed” in the warranty provision. The existence of this “deemer clause” meant the warranty provision could not be interpreted as the district court saw it, solely as a promise or guarantee. The consequence of the reinsured’s failure to comply with the warranty is that, at least in some circumstances, the reinsured was deemed to have complied, so the deemer clause effectively redefined the EL limits in the underlying policies in a way that limited the reinsurer’s liability. Princeton Insurance Co. v. Converium Reinsurance (North America) Inc., No. 08-2136 (3d Cir. Sept. 14, 2009).

This post written by Brian Perryman.

The parties to this insurance dispute sought to determine which insurance company, if any, must provide coverage to Charleston Area Medical Center, Inc. (“CAMC”) in regards to a verdict and resulting settlement. In the Second Amended Complaint, the plaintiff, Executive Risk Indemnity, Inc. (“ERI”), asserted two claims, which were a declaratory judgment action and a claim for equitable contribution against a captive insurance company, Vandalia Insurance Company (“Vandalia”), and an assumption reinsurer, Employers Reinsurance Corporation (“ERC”). CAMC and Vandalia brought cross claims against ERC, and ERC moved to dismiss all claims.

On ERI’s equitable contribution claim, the court found that one part of the policy assumed by ERC was in excess to the policy issued by ERI and that two other parts of the policy assumed by ERC did not insure the same risk as the policy issued by ERI. Thus, the court dismissed ERI’s equitable contribution claim. The court then denied the dismissal of ERI’s, CAMC’s, and Vandalia’s declaratory judgment cause of actions against ERC because a substantial live controversy existed between the parties and the issuance of a declaration of rights or other legal relations was warranted. Executive Risk Indem., Inc. v. Charleston Area Med. Ctr., Inc., Case No. 08-00810 (USDC S.D. W. Va. July 30, 2009).

This post written by Dan Crisp.

In an April 8, 2008 post, we reported on a UK Court of Appeals decision, Wasa International Insurance Co. v. Lexington Ins. Co., [2008] EWCA Civ. 150 (Feb. 29, 2008), reversing a lower court’s decision denying reinsurance coverage despite a follow the fortunes provision, based on a finding that the damages occurred outside the coverage period of the reinsurance, and despite the conclusion of a US court on the underlying claim finding liability for damage occurring outside the coverage period of the underlying policy. The Court of Appeals found that the coverage provision of the reinsurance should be interpreted in the same manner as the coverage provision in the underlying insurance. The Court of Appeals agreed that the insurance and reinsurance contracts were not entirely “back-to-back” in terms of the coverage periods, but concluded that although there were some differences in the contracts, the parties intended that they should have the same effect, so the reinsured’s settlement of the insurance claim did fall within the terms of the reinsurance contract.

The UK House of Lords allowed consolidated appeals from the Court of Appeals. These appeals raised the question of the extent to which the coverage under a proportional facultative reinsurance contract is, or should be construed as being, coextensive with the coverage under the insurance contract. The House of Lords, as articulated by Lord Collins, found that the reinsurer takes a proportional share of the premium and bears the risk of the same share of any losses. Normally reinsurance of that kind is back-to-back with the insurance, and the reinsurer and the original insurer enter into a bargain that if the insurer is liable under the insurance contract, the reinsurer will be liable to pay the proportion which it has agreed to reinsure. Any loss within the coverage of the insurance will be within the coverage of the reinsurance. In the view of Lord Phillips, the result of the appeals was dictated by the fact that the subject reinsurance contract was governed by English law and by the principle under English law that a reinsurance contract in relation to property is a contract under which the reinsurers insure the property that is the subject of the primary insurance; “it is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance.” Lexington Insurance Co. v. AGF Insurance Ltd., [2009] UKHL 40 (July 30, 2009).

This post written by John Black.

A Pennsylvania state court recently approved a Commutation, Settlement Agreement, and Release (“Settlement Agreement”) between Reliance Insurance Company (“Reliance”) and Munich Reinsurance America, Inc., formerly known as American Re-Insurance Company (“Munich Re”). Under the Settlement Agreement, Munich Re agreed to pay the Reliance estate $73,250,000 to terminate and commute the Reinsurance Agreement and release Munich Re from all liability under the Reinsurance Agreement. The court approved the Settlement Agreement, accepting representations that the Settlement Agreement constituted a fair and reasonable settlement of Munich Re’s past, present, and future obligations to the Reliance estate. Ario v. Reliance Ins. Co., No. 269 M.D. 2001 (Pa. Commw. Ct. July 15, 2009).

This post written by Dan Crisp.

We previously reported on May 20, 2009 and June 25, 2009, about TIG Insurance Company’s suit against Century Indemnity Company, which alleged that Century breached its reinsurance agreement with TIG’s predecessor-in-interest, in connection with certain reinsured losses arising from underlying Honeywell asbestos suits. As previously reported, in April, 2009 the Court allowed TIG to amend its complaint to add breach of contract claims on two additional reinsurance contracts. In June, 2009, the Court denied Century’s motion to transfer venue from New York City to Philadelphia. All parties have now stipulated to dismissal with prejudice of all claims and cross-claims. TIG Ins. Co. v. Century Indemnity Co., No. 08-7322 (USDC S.D.N.Y. July 17, 2009).

This post written by John Pitblado.

As reported in our March 27, 2008 and April 6, 2009 posts, The National Council on Compensation Insurance (“NCCI”), as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool (“the Pool”), brought claims against AIG and several of its subsidiaries (“AIG”). The suit generally alleged that payments made by AIG in resolution of charges against it by the New York Attorney General’s office arising from an allegedly fraudulent workers compensation premium accounting scheme, were insufficient to compensate Pool members for their losses.

AIG moved to dismiss the claims brought by NCCI, asserting (1) NCCI lacked standing to bring claims in its capacity as “attorney-in-fact;” (2) NCCI suffered no direct injury; and (3) NCCI did not have associational standing to bring the claims on behalf of individual companies. The Court agreed with AIG, finding that there was no transfer of title or assignment of interest of any affected rights in the agreement Pool members made with NCCI to act as “attorney-in-fact.” The Court also agreed that NCCI suffered no direct injury of its own, and that NCCI could not demonstrate associational standing because of the underlying conflicts between member companies. However, while the Court dismissed the claims, it noted that the litigation continues because individual pool members’ claims were “reassigned for relatedness” to the Court, and those Pool members now seek to bring those claims as a class action. National Council on Compensation Ins., Inc. v. American Int’l Group, Inc., No. 07-C-2898 (USDC N.D. Ill. August 20, 2009).

This post written by John Pitblado.

New Hampshire Insurance Company brought suit in the Turks and Caicos Islands against its reinsurer, Magellan Reinsurance Company, claiming that Magellan failed to properly fund a trust set up by the parties with a Texas bank, for the deposit by Magellan of all unearned premium reserves plus outstanding loss reserves at the end of each quarter. The premiums derived from a book of vehicle service contract reimbursement policies. New Hampshire, under the terms of the reinsurance agreement, was entitled to withdraw the funds for certain purposes specified in the reinsurance agreement. New Hampshire claimed that Magellan underfunded the trust by approximately $1.4 million. Reversing the holding of the Chief Justice of the Privy Council, the Court of Appeals held that New Hampshire lacked standing to presently pursue the claim, essentially on grounds of ripeness, insofar as it failed to establish any legal right to withdrawal of the amount of funds it claimed were improperly withheld, for any of the specific purposes of withdrawal set forth in the reinsurance agreement. Rather, it merely established that such legal claim of right to those funds would accrue in the future. The appeal was thus dismissed. New Hampshire Ins. Co. v. Magellan Reinsurance Co. Ltd., [2009] UKPC 33 (July 15, 2009)

This post written by John Pitblado.