Reinsurance Focus

The Second Circuit refused to hear an appeal in an action brought by Acumen Re Management Corporation, an underwriter, against a reinsurer, General Security National Insurance Company. The crux of the action was Acumen’s allegation that General Security breached the agreement between them by failing to pay Acumen certain commissions which General Security allegedly owed under the parties’ agreement. In the suit, Acumen alleged five distinct theories as to how General Security breached the agreement. The lower court entered partial summary judgment in favor of General Security on four of those theories and further held that, under all five theories, no more than nominal damages were available to Acumen. The lower court certified the partial final summary judgment as to the four counts under Federal Rule of Civil Procedure 54(b) which authorizes, under certain circumstances, entry of a partial final judgment as to one or more, but fewer than all, claims of the parties such that the partial final judgment becomes reviewable on appeal. The Second Circuit determined that the five theories Acumen alleged were not separate and distinct claims; instead, Acumen alleged five various ways in which General Security breached the agreement and the claims were interrelated and dependent upon each other. The Second Circuit concluded that it did not have jurisdiction to review the lower court’s entry of partial summary judgment. Acumen Re Management Corp. v. General Security National Insurance Co., No. 12‐5081‐cv (2d Cir. Oct. 3, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

We posted previously on the Mariah Re cat bond lawsuit.  The court recently dismissed the Amended Complaint in that action with prejudice.  Rollie Goss discusses this opinion in a Special Focus article titled Cat Bond Litigation: Unambiguous Bond Documents Cause Court To Dismiss With Prejudice Complaint Seeking to Claw Back Payments Made From a Cat Bond Reinsurance Trust.

This post written by Rollie Goss.

See our disclaimer.

The United States District Court for the Southern District of New York granted partial summary judgment to plaintiff reinsurer seeking a declaration that the dollar amount stated in the “Reinsurance Acceptance” section of each of nine certificates of reinsurance caps the maximum amount that the reinsurer can be obligated to pay for combined loss and expenses.

The reinsurance certificates at issue in this case contained a “Subject to Clause” stating that the reinsurance was in consideration of the payment of premium and subject to the terms, conditions and amount or limits of liability set forth in the certificate and a “Reinsurance Accepted” section that stated a dollar amount of liability. The court relied upon the plain language of the certificates of reinsurance and the Second Circuit’s binding precedent in Bellefonte Reinsurance Co. v. Aetna Cas. And Sur. Co., 903 F.2d 910, 913 (2d Cir. 1990) and Unigrad Security Ins. Co. v. North River Ins. Co., 4 F.3d 1049, 1070-71 (2d Cir. 1993).

The court noted that the relevant language in the certificates of insurance at issue in this case were nearly identical to the language relied upon by the Second Circuit in Bellefonte and that the Bellefonte and Unigard courts made clear that all other contractual language must be construed in light of the certificate limit because to do otherwise would negate the reinsurance certificate language that the reinsurance is subject to the terms, conditions, and amount of liability set forth in the certificate. The court further noted that if the parties intended to exclude expenses from the total liability cap, the parties could have made that clear in the certificate language.

The court also rejected the defendant’s arguments that the “follow the fortunes” doctrine or the “in addition thereto” language in the reinsurance certificates obligated plaintiff reinsurer to pay for expenses above the certificate limit. The court again relied on Bellefonte, which held that neither the “follow the fortunes” doctrine nor the “in addition thereto” language in the reinsurance certificates exempted defense costs from the clauses limiting the reinsurers’ overall liability under the certificates, as all costs were subject to the express caps on liability set forth in the certificates. Global Reinsurance Corporation of American v. Century Indemnity Company, 1:13-cv-06577-LGS (USDC S.D.N.Y. August 15, 2014).

This post written by Kelly A. Cruz-Brown.

See our disclaimer.

The United States District Court for the Southern District of New York denied a reinsurer’s motion to intervene in an interpleader action in which Battenkill Insurance Company argued it had an 85% interest in the funds at stake in an action involving a dispute over distribution of funds from a residential mortgage-backed securitization trust. Battenkill reinsured 85% of the risk under certain policies issued by one of the defendants in the interpleader action, Assured Guaranty Municipal Corp. Wales, LLC, one of the other defendants, counterclaimed against Wells Fargo, an interpleading plaintiff, arguing Wells Fargo misinterpreted the trust provisions and argued that Assured should be ordered to repay $47.7 million, plus interest, of the disputed distributions which Wells Fargo had held in escrow as a result of the dispute and then interplead. Because Battenkill would be required to reinsure 85% of the amounts which Assured would have to repay, Battenkill sought to intervene.

The court rejected the motion to intervene, reasoning that Assured would also lose a significant amount of money if it did not prevail, despite holding a smaller interest in the amount at stake, such that Battenkill and Assured had identical interests in the litigation. Assured would therefore adequately protect Battenkill’s interest and Battenkill thus did not have a right to intervene in the litigation. The court also rejected Battenkill’s argument that it should be allowed to intervene so that it could litigate the interpretation of the reinsurance agreement between it and Assured. Because the reinsurance agreement was not at issue in the in the interpleader action, Battenkill’s intervention would unnecessarily complicate the litigation and introduce immaterial issues to the trust’s interpretation. Wells Fargo Bank, NA v. Wales, LLC, et. al., 13 Civ. 6781 (PPG) (USDC S.D.N.Y. Sept. 19, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

A Pennsylvania appellate court has affirmed the liquidator’s determination that a group excess insurance policy issued by Reliance is a reinsurance policy and thereby entitled to a low level of priority of payment from the now insolvent Reliance estate. At issue was a claim by the Alabama Insurance Guaranty Association for reimbursement from the estate for a claim it had paid to a general contractors fund. The Association argued that the Reliance policy was a direct insurance policy, thereby entitled to a high priority for re-payment, and that the liquidator was obligated to follow an Alabama Supreme Court ruling that the claim arose under a policy of direct insurance.

The Pennsylvania court rejected all of the Association’s claims that the liquidator was bound by the Alabama Supreme Court ruling, including the application of the Full Faith and Credit doctrine and principles of collateral estoppel. The court also rejected any choice of law analysis favoring Alabama over Pennsylvania and concluded that the policy at issue was one of reinsurance under Pennsylvania’s governing law. The material characteristics the court looked to in order to determine that the policy was one of reinsurance included the language of the policy itself referring to a “reinsurance premium” and the obligations of Reliance to “reinsure” the Alabama Reinsurance Trust. The opinion generated a strong and lengthy dissent that criticized the majority for rejecting the Alabama Supreme Court’s holding and for otherwise finding that the policy was a contract of reinsurance and not a group insurance policy that covered catastrophic workers’ compensation claims of the self-insurers that were members of the group. Alabama Insurance Guaranty Association v. Reliance Insurance Co. in Liquidation, No. 6 REL 2012 (Pa. Commw. Ct. Sept. 12, 2014).

This post written by Renee Schimkat.

See our disclaimer.

Action by Greenberg against Spitzer for defamation based on public statements by Spitzer about Greenberg’s stewardship of AIG regarding, among other things, Spitzer’s assertion that Greenberg engaged in fraudulent accounting. Spitzer’s motion to dismiss as to those statements was denied. The court found no documentary evidence sufficient under New York procedural rules to conclude on motion to dismiss that Spitzer’s statements were substantially true as a matter of law. Greenberg v. Spitzer, 44 Misc. 3d 1202 (N.Y.S.C., June 24, 2014).

This post written by Kelly A. Cruz-Brown.

See our disclaimer.

A New Jersey appellate court recently addressed that state’s “direct action statute,” concluding that it did not prevent judgment creditors from pursuing a coverage action arising out of an LMX reinsurance spiral. The plaintiffs in the underlying action were former shareholders of certain insurance companies, and they sued the insurers’ managing general agent for professional negligence. The MGA, now defunct, failed to answer. On the eve of the damages hearing, the MGA’s professional liability and excess carriers (Travelers and ERSIC) asserted a variety of coverage defenses, and denied the claim. The plaintiffs obtained a $92 million judgment against the MGA.

After obtaining their judgment, the plaintiffs filed suit in New Jersey against Travelers and ERSIC seeking coverage under the two policies. The trial court dismissed the coverage case due to lack of standing. The trial court based its decision, in part, on New Jersey’s so-called “direct action statute,” N.J.S.A 17:28-2. That statute requires that certain types of policies (those addressing injury to a person and certain loss or damage to property) contain a provision “that the insolvency or bankruptcy of the person insured shall not release the insurance carrier from the payment of damages for injury sustained or loss occasioned during the life of the policy, and stating that in case execution against the insured is returned unsatisfied in an action brought by the insured person because of the insolvency or bankruptcy, then an action may be maintained by the injured person against the [insurer] under the terms of the policy.” The trial court accepted the defendants’ argument that the statute authorizes a direct action against an insurer only for the particular personal injury and property damage risk specified in the statute.

The appellate court disagreed, first noting the general principle that after an injured plaintiff obtains a judgment against an insured tortfeasor that remains unsatisfied due to insolvency, the plaintiff “stands in the shoes” of the insured with respect to the insurance policy and thus acquires standing to pursue an action against the insurer. The court rejected the “direct action statute” argument, holding that just because the statute mandates that certain specifically identified types of policies must contractually provide for the right to a post-judgment action, it does not follow that no such right exists in connection with other types of policies. The appellate court noted that “direct action statute” is a misnomer because the statute does not actually authorize direct actions. Rather, it prohibits insurers from contractually disclaiming, in the specifically enumerated policy types, an injured party’s right to sue the insurer for an unsatisfied judgment. The statute does not provide that derivative or post-judgment actions are available only in regard to those certain types of policies. Accordingly, the plaintiffs had standing to pursue their coverage action. Ferguson v. Travelers Indem. Co., Case No. A-3530-12T3 (N.J. Super. Ct. App. Div. August 4, 2014).

This post written by Catherine Acree.

See our disclaimer.

A New York state court approved a stipulation entered into among the parties in a reinsurance dispute which set forth the terms and conditions upon which the parties agreed produce and exchange confidential and/or proprietary documents and information. The agreement permitted the parties to designate documents and information as confidential and thereby restrict their use and dissemination outside the scope of the litigation. Granite State Insurance Co. v. R&Q Insurance Co., Index No. 654494/2013 (N.Y. Sup. Ct. Aug. 4, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

The Court of Appeals for the Second Circuit affirmed a lower court’s ruling in favor of TIG Insurance Company, finding that AIU Insurance Company’s belated notice of claim to TIG under nine certificates of facultative reinsurance issued by TIG barred AIU’s claim. AIU submitted its claim almost four years after it settled with its insured regarding numerous asbestos-related lawsuits. Central to the Second Circuit’s ruling was its conclusion that, under New York’s choice of law rules, the substantive law of Illinois – and not New York – applied to the question as to the legal effect of the late notice. Under Illinois law, TIG was not required to prove it was prejudiced resulting from AIU’s late notice. AIU Insurance Co. v. TIG Insurance Co., No. 13-1580-cv (2d Cir. Aug. 27, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

A judgment found that certain Lloyd’s reinsurers were not liable to cover the destruction of cargo on board a vessel that capsized in the Philippines during a Typhoon. The trial court relied on a typhoon warranty clause contained in both the reinsurance policy and the underlying insurance policy, which deemed the policy void if a vessel sailed out of port (1) “when there is a typhoon or storm warning at that port”; or (2) when the destination or intended route “may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.” The trial court had found that there was a typhoon or storm warning at the port of sailing, and that the vessel’s route was within the possible path of the typhoon or storm announced at the port.

On appeal, the cedent argued that the first condition of the typhoon warranty clause was not breached under a four-step analysis: (1) the reinsurance policy contained a follow the settlements clause, (2) which required the reinsurance coverage to be interpreted like the underlying insurance policy, (3) the insurance policy should be construed in accordance with what an experienced insured would have understood the storm notice to mean, and (4) in this case, the storm notice would not be understood by an experienced insured as a sufficient warning against embarking. The court rejected this argument, holding that the clause must be understood according to only its plain meaning, both with respect to the clause in the insurance policy and the parallel clause in the reinsurance policy, and here it was undisputed that a storm warning had been issued. The court also rejected the cedent’s contention that the intended path of the vessel would not have crossed the possible path of the typhoon, finding that it was proper for the trial court to determine that the intended route was within the typhoon’s path. Amlin Corporate Member Ltd. v. Oriental Assurance Corp., [2014] EWCA Civ 1135 (Royal Courts of Justice, July 8, 2014).

This post written by Michael Wolgin.

See our disclaimer.