Reinsurance Focus

On February 9, 2009, we reported on a Louisiana appellate court holding that the Louisiana Safety Association of Timbermen Self-Insurers Fund (the “Fund”) was entitled to coverage because the Fund was not an insurer and the excess coverage obtained by the Fund from Reliance Indemnity Company, which became insolvent in 2001, was not reinsurance. In this case, the Supreme Court of Louisiana reversed the judgment of the appellate court. First, the court held that the Fund was an insurer based on the court’s interpretation of state statutes and the Fund’s formative documents, which undertook to indemnify members for the full amount of workers’ compensation claims, which members paid premiums and assessments to the Fund for that purpose. Second, in finding that the excess coverage was reinsurance, the court determined that the contractual relationship between the Fund and the insolvent insurer presented a classic instance of reinsurance. Louisiana Safety Assoc. of Timbermen Self-Insurers Fund v. Louisiana Ins. Guaranty Assoc., Case No. 2009-0023 (La. June 26, 2009).

This post written by Dan Crisp.

The Nevada Supreme Court held that two employers (MGM and Steel Engineers), who operated as self-insured employers under the state’s workers’ compensation act, were not barred from recovering reimbursement from the Nevada Insurance Guaranty Association because they were not “insurers” for purposes of the act. Thus, they could recover payment for their covered workers’ compensation claims payable by their insolvent excess insurance carrier, for which the Association was otherwise liable. If MGM or Steel Engineers had been deemed “insurers,” their claims would have been outside the scope of “covered claims,” and the Association would not have covered them. Uncertain as to the meaning of the term “insurer,” the Association sought a declaration of its obligations. The trial court held that MG and Steel Engineers were “insurers” and precluded them from seeking reimbursement. But the Supreme Court reversed and remanded, holding that the term “insurer” has a plain meaning, and that MGM and Steel Engineers did not fall within a reasonable connotation of the term, since they were mere employers, and did not engage in the business of insurance. MGM Mirage v. Nevada Insurance Guaranty Association, No. 49445 (Nev. June 25, 2009).

This post written by Brian Perryman.

Century Indemnity Company has settled and voluntarily dismissed its lawsuit against Munich Re. Century’s complaint alleged that Munich Re failed to pay amounts due under several facultative reinsurance certificates through which it reinsured Century. Specifically, Munich Re agreed to indemnify Century’s predecessor in interest, Insurance Company of North America, for payments made pursuant to various insurance policies covering asbestos losses. Century sought nearly $2.26 million in unpaid reinsurance billings. As part of the settlement, Century dismissed that portion of its complaint seeking a declaratory judgment that Munich Re was obligated to pay all future billings. Century Indemnity Co. v. Munich Reinsurance Am., Inc., Case No. 2:08-CV-5666-LDD (USDC E.D. Pa. May 22, 2009).

This post written by Brian Perryman.

A Florida appellate court recently reversed a trial court’s decision to dismiss Advantage General Insurance Company's suit against its reinsurers, KILN and QBE Int’l. The trial court dismissed the suit finding that, under Florida statute § 626.903, Advantage was an unauthorized insurer and was barred from bringing suit in Florida courts. The Court of Appeals, however, ruled that in the reinsurance transaction at issue Advantage was the insured, not the insurer. Further, the Court of Appeals determined that the suit between Advantage and KILN & QBE did not “arise out of” Advantage’s alleged unauthorized sale of insurance to the original insured. Accordingly, the Court of Appeals held that it was improper to bar Advantage from access to the courts, and reversed and remanded the case. Advantage Gen. Ins. Co., Ltd. v. KILN/QBE Int’l, Case No. 4D08-1944, (Fla. Dist. Ct. App. Apr. 9, 2009).

This post written by John Black.

A Florida appellate court recently reversed a trial court’s decision to dismiss Advantage General Insurance Company's suit against its reinsurers, KILN and QBE Int’l. The trial court dismissed the suit finding that, under Florida statute § 626.903, Advantage was an unauthorized insurer and was barred from bringing suit in Florida courts. The Court of Appeals, however, ruled that in the reinsurance transaction at issue Advantage was the insured, not the insurer. Further, the Court of Appeals determined that the suit between Advantage and KILN & QBE did not “arise out of” Advantage’s alleged unauthorized sale of insurance to the original insured. Accordingly, the Court of Appeals held that it was improper to bar Advantage from access to the courts, and reversed and remanded the case. Advantage Gen. Ins. Co., Ltd. v. KILN/QBE Int’l, Case No. 4D08-1944, (Fla. Dist. Ct. App. Apr. 9, 2009).

This post written by John Black.

Ace American Insurance Company (“Ace”) made claim for coverage from its reinsurer, Continental Casualty Company (“Continental”), for an $11.68 million settlement it entered into with its underlying insured in a first party coverage case which included bad faith claims against Ace. Continental declined coverage and instituted a declaratory action seeking a determination that it owed no coverage because (1) Ace settled the case without Continental’s approval as required under the consent to settle provision, and (2) given Ace’s $10m deductible, uninsured losses would have reduced the claim to less than the deductible.

The Court agreed with Continental, finding that an oral agreement to settle in principal, even though not consummated, was entered into by Ace prior to any attempt to obtain Continental’s consent thereto. The Court found this breach of the consent-to-settle provision dispositive, but also noted its agreement with Continental’s other claim that certain of the losses pertained to Ace’s exposure to non-covered punitive damages, which losses would have reduced the claim to less than the amount of Ace’s deductible. Continental Cas. Co. v. Ace American Ins. Co., Case No. 07-958 (USDC S.D.N.Y. May 31, 2009)

This post written by John Pitblado.

Two Philadelphia-based reinsurance companies’ motion to transfer venue from New York to Philadelphia has been denied. Describing the proximity of the two cities as a “95-mile jaunt” and citing the availability of “rapid, efficient transit,” the court was not persuaded by the defendants’ argument that Philadelphia would be a more convenient forum for defense and a majority of non-party witnesses. Despite the reinsurers’ contention that the reinsurance claims and billings at issue were handled in Philadelphia, making it the locus of operative facts, the court found that because the contracts were made in New York, the defendants “should expect to be sued here.” This blog previously reported on this matter after TIG successfully moved the court to amend its complaint. See May 19, 2009 posting. TIG Ins. Co. v. Century Indemnity Co., Case No. 08-7322 (USDC S.D.N.Y. June 4, 2009).

This post written by Brian Perryman.

As we reported on September 18, 2007, a federal court granted summary judgment to Airport Industrial Park, doing business as P.E.C. Contracting Engineers (“PEC”), as against Swiss Reinsurance America Corp. (“Swiss Re”), the reinsurer of a party with whom PEC contracted on a government construction project, which contracting included a general indemnity agreement (“GIA”). Swiss Re appealed, and the Third Circuit Court of Appeals held in its favor, reversing the trial court and remanding for further proceedings. First, the Circuit Court held that Swiss Re was unambiguously an intended beneficiary of the GIA, as “reinsurers” were explicitly mentioned therein, along with other “affiliates” of the reinsured. Second, the Court held that, even if the GIA was unambiguous, Pennsylvania law nonetheless allows a court to look to the parties’ custom and usage in interpreting a contract’s terms. It then cited material disputes of fact (and a less-than-complete factual record) with regard to the parties’ competing interpretations of the contract vis-à-vis the underlying parties’ custom and usage. Swiss Reinsurance America Corp. v. Airport Industrial Park, Inc., d/b/a P.E.C. Contracting Engineers, No. 07-3749 (3d Cir. May 5, 2009).

This post written by John Pitblado.

Before a United States Magistrate Judge, TIG Insurance Company (“TIG”) moved for leave to amend its complaint for a second time to include breach of contract claims arising out of two additional reinsurance contracts. The defendants opposed the motion and argued that the two new claims were unrelated to the existing claims and that discovery would be substantially increased. However, the Magistrate Judge granted TIG’s motion, reasoning that courts regularly allow amendments of pleadings to join additional claims under Rule 18(a), even when those claims arise out of different transactions, and that the need for additional discovery is a consequence of almost every amendment of the pleadings, which, by itself, does not constitute sufficient prejudice to preclude the amendment. TIG Ins. Co. v. Century Indemnity Co., Case No. 08-7322 (USDC S.D.N.Y. Apr. 8, 2009).

This post written by Dan Crisp.

An appellate court in Illinois recently concluded that a decades-old commutation agreement between Old Republic Insurance Company and Central National Insurance Company (predecessor in interest to the defendant), was, in fact, not ambiguous, rendering superfluous the trial at which various extrinsic evidence was introduced in support of the parties’ competing interpretations, after the trial court denied summary judgment based on triable ambiguity.

The parties entered into the agreement in 1990, in an effort to mitigate the effects of Central National’s financial difficulties, which had caused it to be placed in rehabilitation by the State of Nebraska. The parties had come to reinsure one another under various reinsurance agreements. However, Central National argued that the commutation agreement was ambiguous, and was not intended to extinguish certain of Old Republic’s obligations to Central National. The appellate court disagreed, finding the language mutually releasing “all liabilities and obligations of the parties to each other under the reinsurance agreements” to mean just that – that all liabilities and obligations flowing both ways were equally extinguished. Old Republic Ins. Co. v. Ace Property & Casualty Ins. Co., 1-07-2668 (Ill. App. Ct. March 24, 2009).

This post written by John Pitblado.