Reinsurance Focus

A New York appellate court affirmed the denial of summary judgment but with modifications. New Hampshire Insurance Company (“New Hampshire”) together with other insurers, settled with Kaiser Aluminum & Chemical Corporation (“Kaiser”) for asbestos personal injury related claims. The settlement allocated 100% of the asbestos liability to New Hampshire and their excess reinsurance carrier, Clearwater Insurance Company (“Clearwater”). New Hampshire sought indemnification from Clearwater pursuant to a reinsurance agreement.

Clearwater challenged the allocation in the settlement arrangement alleging that it forced New Hampshire to bear costs associated with other settled claims including bad faith, which was not covered in the excess policy. Clearwater further alleged that New Hampshire breached its notice and reporting duties under the terms of the reinsurance contract. In the very early stages of discovery, New Hampshire moved for summary judgment, arguing in part that Clearwater was bound by the allocation settlement under reinsurance principles. The trial court denied summary judgment and the appellate court affirmed, finding an allocation decision was not immune from scrutiny. Therefore, New Hampshire’s settlement would be judged on its reasonableness, which at this stage of the litigation was “undeveloped.”

Furthermore, the court found another triable issue as to New Hampshire’s notice to Clearwater on loses sustained by Kaiser. Clearwater alleged that it had been prejudiced by New Hampshire’s late notice resulting in “disadvantageous communication agreements” with its reinsurers. Based on these facts, the appellate court found New Hampshire’s summary judgment motion premature.

New Hampshire Ins. Co. v. Clearwater Ins. Co., No. 12779 (N.Y. App. Div. Mar. 24, 2015).

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

See our disclaimer.

A federal judge in North Carolina recently examined a reinsurance policy provision excluding loss “resulting from any claim for . . . any actual or alleged lack of good faith or unfair dealing in the handling of any claim or obligation under any insurance contract.” The case involved a request for coverage under a reinsurance policy for a lawsuit filed by a doctor against his medical malpractice carrier, the reinsured. The doctor, against whom an excess verdict had been entered, asserted a number of causes of action including bad faith refusal to settle within the policy limit. The reinsurer filed a motion for summary judgment arguing that there was no coverage for the doctor’s lawsuit based on the exclusion mentioned above because all potential loss resulted from the reinsured’s alleged lack of good faith in refusing to settle the underlying matter within the underlying policy limit. Applying North Carolina law, the court agreed with the reinsurer, concluding that all the causes of action alleged a single course of conduct involving a lack of good faith in refusing to settle within the limit. Because all potential loss “resulted from” and was “inextricably intertwined” with the bad faith allegations, the reinsurer had no duty to defend or indemnify.

Greenwich Ins. Co. v. Medical Mutual Ins. Co. of North Carolina, No. 5:14-cv-295 (USDC E.D.N.C. Jan. 27, 2015).

This post written by Catherine Acree.

See our disclaimer.

M&T Bank Corporation, M&T Bank, and M&T Mortgage Reinsurance Company unsuccessfully sought to stay all discovery in a suit brought against it in a putative class action involving allegations that M&T violated the federal Real Estate Settlement Procedures Act. The named plaintiffs were individual borrowers who entered into loan transactions with M&T and paid private mortgage insurance through M&T. M&T placed the private mortgage insurance with certain insurers who then reinsured the policies with M&T’s captive reinsurer. This scheme was allegedly an illegal sham because it did not create a bona fide reinsurance relationship. Moving to dismiss, M&T argued the entire case was barred under RESPA’s one-year limitations period. Plaintiffs countered that, under the doctrine of equitable tolling, M&T’s fraudulent conduct prevented them from discovering the RESPA violation within the one-year period.

The court allowed the plaintiffs to conduct limited discovery related to the equitable tolling argument. This ruling was in part informed by the ruling from a different judge in a companion case, Riddle v. Bank of America. The Riddle court subsequently entered an order in favor of the defendants which the plaintiffs in that case appealed. M&T thus moved for stay of all discovery pending the outcome of the appeal of the Riddle case. The motion was denied. Although some overlap existed, the court found that the Riddle court had too narrowly limited the issue as to whether plaintiffs in that case engaged in due diligence following execution of their mortgages. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-1238 (USDC M.D. Pa. Jan. 14, 2015).

This post written by Leonor Lagomasino.

See our disclaimer.

On November 18, 2014, we reported on the Seventh Circuit’s decision in Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, in which Pine Top claimed that Banco de Seguros owed it $2,352,464.08 under certain reinsurance contracts.  The Seventh Circuit affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, agreeing that Pine Top’s assigned rights under the reinsurance contracts were limited to the collections of certain debts and did not include the right to arbitrate.  The Seventh Circuit also had affirmed the trial court’s denial of a motion to strike Banco Seguros’s pleading for failure to post security, holding that such pre-judgment security is a form of attachment that violates the Foreign Sovereign Immunities Act.  On December 22, 2014, the Seventh Circuit denied Pine Top’s petition for rehearing and rehearing en banc, as no judge requested a vote on the petition, and the judges on the prior panel voted to deny rehearing.  Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Dec. 22, 2014).

This post written by Michael Wolgin.

See our disclaimer.

In a case on which we previously reported, the Third Circuit recently evaluated the legal standard for determining materiality in a claim for rescission of an insurance contract.  The case involved a dispute between two reinsurers in which a federal court awarded the plaintiff $5.6 million based on breaches of the parties’ retrocession agreements.  The district court also entered summary judgment in the plaintiff’s favor on the rescission counterclaim.  The Third Circuit affirmed, ruling that the information plaintiff withheld was not material so as to amount to a breach of the duty of utmost good faith, approving the following definition of materiality under New York law: “A fact is material . . . if, had it been revealed, the insurer or reinsurer would either have not issued the policy or would have only at a higher premium.”  The Third Circuit rejected the other party’s broader definition of materiality – that information is material if it “likely” would have influenced the decision.

Munich Reinsurance Am., Inc. v. Am. Nat’l Ins. Co., No. 14-2045 (3rd Cir. Feb. 3, 2015)

This post written by Catherine Acree.

See our disclaimer.

A legal dispute stemmed from Utica Mutual Insurance Company’s late notice of claim to Fireman’s Fund Insurance Company, Utica’s reinsurer. Although the parties’ facultative reinsurance certificate required Utica to provide prompt notice “of any occurrence or accident which appears likely to involve reinsurance,” Utica did not provide notice of its claim until 2008 after it entered into a settlement agreement with its own insured surrounding litigation which commenced in 1997. Fireman’s Fund argued that it was prejudiced by Utica’s late notice of its $35 million claim because Fireman’s Fund did not take the claim into account when it negotiated thirteen commutation agreements with retrocessionaires. According to Fireman’s Fund, the retrocessionaires would have been responsible for almost $20 million of the $35 million claim had Fireman’s Fund known of the claim because those claims would have been part of their negotiations. Utica maintained that the commutations were collateral matters which did not constitute prejudice and sought partial summary judgment on the issue of late notice. The court concluded that a reinsurer may be prejudiced by its ceding insurer’s late notice which caused it to make disadvantageous commutations. However, the reinsurer must prove that it suffered tangible loss. If it can do so, then the reinsurer is entitled to complete relief from its duty to indemnify and not merely for those damages caused by the prejudice. The court also denied Utica’s motion for partial summary judgment on Fireman’s Funds bad faith defense. Genuine issues of material fact existed as to whether Utica was grossly negligent or reckless in failing to provide prompt notice to Fireman’s Fund. Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., No. 6:09-CV-853 (USDC N.D.N.Y. Feb. 9, 2015).

This post written by Leonor Lagomasino.

See our disclaimer.

Steadfast Insurance Company entered into a settlement agreement with its insured, Barton Malow Enterprises after agreeing to pay $15 million on Barton’s claim. The settlement included a complete release of all claims by Steadfast against Barton and its affiliates and subsidiaries. Thereafter, Steadfast discovered that it had purchased reinsurance covering a portion of the settlement proceeds under a reinsurance agreement with United Integrity. United denied the claim, arguing that Steadfast released United because United was in fact a wholly-owned subsidiary of Barton’s. Steadfast then served an arbitration demand on United pursuant to the arbitration clause in their reinsurance agreement. Barton and United responded by filing suit against Steadfast, which moved to stay the action pending arbitration. Barton and United opposed the motion for stay, arguing that the later-executed settlement agreement overrode the arbitration provision. The court disagreed and stayed the case pending arbitration. The arbitration provision was not superseded by the settlement agreement because the settlement agreement did not specifically preclude arbitration. Moreover, United’s claims fell within the scope of the arbitration provision; the claims implicated both sides’ rights and obligations under the reinsurance agreement. Finally, although Barton was not a party to the reinsurance agreement, the court found that judicial economy warranted staying Barton’s claims against Steadfast pending conclusion of the arbitration. Barton Malow Enterprises, Inc. v. Steadfast Insurance Co., No. 14-cv-7347 (USDC S.D.N.Y. Dec. 31, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

A federal judge in the Southern District of New York recently denied a motion to vacate an arbitration award in a reinsurance dispute, scolding the movant for complaining that the arbitrators reached a compromise verdict. The movant, the ceding insurer, argued that two of the three members of the arbitration panel had engaged in “manifest disregard of the law” by failing to properly apply the “follow the fortunes” doctrine when they disallowed reimbursement for several claims. The movant challenged a portion of the award holding that the reinsurer was not required to reimburse the movant for certain claims due to negligent claims handling and/or late notice. In a somewhat gruff opinion (“Petitioner’s argument is manifestly wrong . . . .”), the court stated that the movant “asks this court to do what it cannot do – review the award for correctness.” The court noted that all the relevant legal issues were placed squarely before the panel, that considerable evidence and argument was presented on those issues during a five-day hearing, and the evidence on the disputed issues “could be read either way.” In denying the motion to vacate and confirming the award, the court noted that the arbitrators were not required to follow “judicial formalities” in making their decision, and therefore were not required to predict what a court would hold. Rather, all that was required of them was that the decision have “colorable justification.” Apparently frustrated by the movant’s “manifest disregard of the law” argument, the court lectured: “If parties want the luxury of judicial review and reasoned results that require strict application of the law, without the sort of compromises that often characterize arbitral awards, they should not agree to arbitration clauses. Having done so, they should not be heard to complain when the arbitrators do what arbitrators so often do – reach compromise verdicts that can easily be justified by taking a particular view of the evidence.”

Associated Industries Ins. Co., Inc. v. Excalibur Reinsurance Corp., Case No. 1:13-cv-08239 (USDC S.D.N.Y November 26, 2014)

This post written by Catherine Acree.

See our disclaimer.

Following the rejection by a Florida jury of all claims made by Instituto Nacional de Seguros (as we reported on July 9, 2014), a Costa Rican insurer, against two reinsurance brokers, Hemispheric Reinsurance Group and Howden Insurance Brokers, the trial court entered final judgment in defendants’ favor. The court conducted an evidentiary hearing to determine reasonable attorneys’ fees and costs. It entered judgment in the amount of $3,134,459.30, which included an award of $2,456.131.10 for attorneys’ fees, $497,469.32 for taxable costs, $96,297.00 for expert fees, and $84,561.98 for prejudgment interest. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33-653 CA 04 (Fla. Cir. Ct. Jan. 5, 2015).

This post written by Leonor Lagomasino.

See our disclaimer.

The North Carolina Court of Appeals has held that the state’s Insurance Guaranty Association is obligated to pay for workers’ compensation claims made or incurred against CompTrust, a former group self-insurer that issued workers’ compensation insurance policies to certain employer members. CompTrust was never an Association member, but had converted itself into the CAGC Insurance Company, a North Carolina licensed direct insurer, and CAGC joined the Association. Only CAGC survived the merger and members of CompTrust were converted into CAGC policyholders. CAGC had assumed liability for all claims previously held by CompTrust but was liquidated in January 2014. At issue were workers’ compensation claims that occurred when CompTrust was still in business and responsible for the relevant insurance policies. The Association argued that it should not be obligated for those claims because, in part, they did not arise under policies of direct insurance issued by CAGC and were therefore outside the scope of the Association’s statutory obligations.

The appellate court disagreed. All of CompTrust’s debts and obligations were transferred to CAGC “to the same extent as if said debts, liabilities, and duties had been incurred or contracted” by CAGC. The court found no difference between the merger agreement at issue and the assumption reinsurance agreement at issue in a prior North Carolina case whereby Reliance National Insurance assumed a self-insurer’s responsibilities and the Association was then obligated, upon Reliance’s insolvency, to workers’ compensation obligations that originated with the self-insurer. CAGC was a direct insurer placing it within the Association’s statutory obligations and, therefore, when CAGC became insolvent the covered claims became the Association’s responsibility. The appellate court reversed the trial court’s decision and remanded with directions to enter judgment that the Association was estopped from denying its obligations for any pre-merger workers’ compensation claims made or incurred against CompTrust. Goodwin v. CAGC Insurance Co., No. COA14-445 (N.C. Ct. App. Jan. 20, 2015).

This post written by Renee Schimkat.

See our disclaimer.