Reinsurance Focus

We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. Defendants in that case filed a motion for partial judgment on the pleadings asserting that plaintiff-intervenor, and all others similarly situated, failed to plead sufficient facts to state a claim for application of equitable tolling and/or equitable estoppel to the one-year statute of limitations for alleged violations of the Act. The court granted defendants’ motion for equitable tolling and equitable estoppel/fraudulent concealment pleadings. The loan document disclosures adequately placed plaintiff on notice of her claim and that she failed to allege extraordinary circumstances that prevented her from timely filing. In particular, the disclosures explained the requirement of mortgage insurance, the purpose of the mortgage insurance, the borrower’s rights and responsibilities under mortgage insurance, and the potential occurrence of captive insurance. The court also found that plaintiff failed to plead an act of concealment separate and apart from an underlying RESPA claim. The court, however, is allowing plaintiff one opportunity to file and serve an amended complaint to cure deficiencies within 20 days from date of the court’s order. Munoz v. PHH Corp., No. 1:08-CV-0759 (USDC E.D. Cal. Aug. 11, 2014).

This post written by Kelly A. Cruz-Brown.

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A New York federal court recently was presented with a reinsurance dispute about the amount a reinsurer was required to pay under certain reinsurance Certificates. The issue was whether the reinsurer’s obligation was capped at the stated limit, or whether the reinsurer was also liable for defense costs in excess of the limit that the direct insurer had reimbursed. The court ruled that the “Certificate Limits” stated in the “Reinsurance Accepted” section of the Certificates capped the maximum amount that the reinsurer could be obligated to pay for combined loss and expenses.

The court rejected the direct insurer’s argument that the reinsurer should have to pay additional sums for defense costs above the amount of the “Certificate Limits,” ruling that “the unambiguous language in the ‘Reinsurance Accepted’ sections of the Certificates does not differentiate between reinsurance accepted for loss versus reinsurance accepted for expenses, but simply provides a total cap on liability. If the parties intended to exclude expenses from the total liability cap, they could have made that clear in the language of the Certificates.” Under New York law, for costs to be excluded from the liability cap in a reinsurance certificate, language in the certificate must expressly state that such costs were excluded from the indemnification limit. Because nothing in the Certificates that expenses were to be excluded from the Certificate Limits, the court entered summary judgment in favor of the reinsurer. Global Reinsurance Corp. of America v. Century Indemnity Co., Case No. 1:13-CV-6577 (USDC S.D. N.Y. Aug. 15, 2014).

This post written by Catherine Acree.

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A court denied dismissal of a putative class action involving claims against Suntrust Bank subsidiaries and a captive reinsurer for an alleged illegal kickback scheme arising out of captive reinsurance covering Suntrust’s lender-placed insurance. The plaintiffs alleged violations of the Real Estate Settlement Procedures Act, unjust enrichment, and unfair trade practices. The defendants attempted to dismiss the case on the basis of the expiration of the statutes of limitations, but the court denied dismissal, finding that it could not “conclusively determine at [that] time that the claims contained with” the complaint could survive due to tolling. The court permitted discovery on that issue, as well as on the issue of whether plaintiffs’ could “pierce the corporate veil” and sue certain Suntrust subsidiaries. The court did dismiss one plaintiff’s unjust enrichment claim against Suntrust due to the existence of an express insurance agreement between those parties. Finally, the court found that a co-obligor on one of the plaintiff’s loans must be joined to the case as an indispensible party in order to avoid the potential for duplicative or inconsistent judgments. Thurmond, et al. v. Suntrust Banks, Inc., et al., Case No. 11-1352 (USDC E.D. Pa. June 26, 2014.

This post written by Michael Wolgin.

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Odyssey Reinsurance Co. petitioned the court to appoint an umpire to serve in arbitration with its retrocessionaries, certain Lloyd’s underwriters and Reliastar Reinsurance Group, over a disputed reinsurance claim. Odyssey argued that arbitration had been unduly delayed due to what it contended were poorly qualified candidates proposed by the retrocessionaires. The court held that Odyssey’s arguments were insufficient to obtain relief from the court at that time, and that in its view, there had “not been a breakdown in the process that justifies court intervention.” The court directed the parties “to proceed to the next stage of arbitrator selection” as described in the agreements between them. Odyssey Reinsurance Co. v. Certain Underwriters at Lloyd’s London Syndicate 53, et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. June 30, 2014) (Opinion & Order and Judgment).

This post written by Michael Wolgin.

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Public Risk Management of Florida, an intergovernmental risk management association that functions as a primary insurer for certain government entities in Florida, ceded some of its risk to One Beacon under a reinsurance policy. Public Risk’s insured, the City of Wintergarden, made a claim for defense and indemnity for an underlying lawsuit against it by a contractor who performed public works, but was claimed it was underpaid as a result of delays arising from the City’s failure to provide accurate plans and maps. Public Risk defended under a reservation of rights. It also tendered the claim to One Beacon, which disagreed there was a duty to defend. Ultimately, Public Risk was not required to indemnify its insured, but sustained over $286,941.07 in loss for legal fees above the $200,000 retention, which it believed were owed by One Beacon pursuant to the reinsurance agreement. Public Risk sued One Beacon, but the district court found no duty to defend and dismissed the claim. Public Risk appealed, and the Eleventh Circuit reversed the coverage ruling, finding that the underlying claims did not sound entirely in intentional tort, and therefore there was a duty to defend. Public Risk Management of Florida v. One Beacon Insurance Co., No. 13-15254 (11th Cir. June 24, 2014).

This post written by John Pitblado.

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A Wisconsin federal district court granted summary judgment in favor of plaintiff, Employers Insurance Company of Wausau, and against its reinsurer, R&Q Reinsurance Company, on Employers’ claim that R&Q breached its agreement by failing to pay Employers for those claims paid Employers to its insureds. R&Q unsuccessfully maintained that Employers could not combine its indemnity payments and defense expenses and that it should have calculated the defense expenses using the ratio terms provided on the certificate of insurance. The Court disagreed, finding that the reinsurance agreement did not distinguish between indemnity and defense expenses, which were covered under the agreement, such that Employers was not required to calculate the defense expenses differently from the way it calculated the indemnity payments. The court also rejected R&Q’s argument that Employers had failed to produce sufficient evidence to demonstrate that its payments exceeded the retention amount. The court found that R&Q’s argument was precluded by R&Q’s failure to present contrary evidence on summary judgment where a party must do more than speculate that other evidence supporting its case may exist. The court did, however, find a factual issue existed as to the calculation of prejudgment interest and denied Employer’s motion for summary judgment accordingly. Employers Insurance Company of Wausau v. R&Q Reinsurance Company, Case No. 13-cv-709-bbc (USDC W.D. Wis. July 28, 2014).

This post written by Leonor Lagomasino.

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Greenlight Reinsurance brought suit against Appalachian Underwriters (“AUI”), Appalachian Reinsurance (“App Re”) and Insurance Services Group (“ISG”) alleging it had been shortchanged more than $40,000,000 pursuant to three types of agreements it entered into with the respective defendants (1) a reinsurance agreement between Greenlight and AIU, where AIU acted as managing general agent, and was obliged to refund ceded premium beyond contractually defined amounts based on loss ratios; (2) a similar retrocession agreement with App Re; and (3) a guarantee agreement with ISG. Greenlight claimed that, based on loss ratio thresholds, it was owed a return of premium under the reinsurance and retrocession agreements, and that ISG had guaranteed those payments.

The court analyzed the agreements, and, based on the minimum loss ratios, and the undisputed calculations of ceded premium, held that AUI owed Greenlight $16,986,516 under the reinsurance agreement, and App Re owed Greenlight $24,456,213 under the retrocession agreement. The court held, however, that Greenlight failed to demonstrate that the guarantee from ISG was a guarantee of payment. Rather, the court found that it was a parental guarantee, which required ISG, as a parent corporation, to ensure that its subsidiaries, AIU and App Re, remained solvent, but did not require it to make direct payments on their behalf. The court thus granted summary judgment on Greenlight’s claims against AUI and App Re, but denied summary judgment as to ISG. Greenlight Reinsurance, Ltd. V. Appalachian Underwriters, Inc., Case No. 12-CV-8544 (JPO) (USDC S.D.N.Y. July 28, 2014).

This post written by John Pitblado.

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In two related cases, Travelers has settled its claims against Excalibur Reinsurance. A number of prior posts have addressed the substance of the parties’ disputes – for example, discovery issues (sealing portions of deposition testimony) and procedural issues (denying consolidation; requiring pre-hearing security). Stipulations of Dismissal were filed in both cases on May 23, 2014. The Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 3:11-CV-1209 and 3:11-CV-1793 (USDC D. Conn. May 23, 2014).

This post written by Renee Schimkat.

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A putative class of mortgage consumers sued Flagstar Bank and its captive reinsurer alleging that they engaged in an illegal “kickback” scheme with private mortgage insurers, which scheme artificially inflated the price of such insurance for the plaintiffs, in violation of the Real Estate Settlement Procedures Act (“RESPA”). The defendants claimed plaintiffs failed to file suit within RESPA’s one year statute of limitations. Plaintiffs claimed the statute was equitably tolled because defendants actively concealed the “scheme.”

After declining to grant a motion to dismiss on the pleadings, and allowing the parties to make an adequate factual record on the statute of limitation issue for summary judgment, the court granted the defendants’ summary judgment motion. The statute ran “from the date of the occurrence of the violation,” which commences upon the closing of the loan, and that each of the plaintiffs’ claims were filed in excess of a year from closing. The court rejected the plaintiffs’ equitable tolling argument, noting that in RESPA cases, “silence is insufficient to toll the statute of limitations; the defendant must have performed an independent act of concealment upon which the plaintiff justifiably relied.” The record included no evidence of active concealment on the defendants’ part. Hill v. Flagstar Bank, Case No. 12-2770 (USDC E.D. Pa. June 26, 2014).

This post written by John Pitblado.

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On April 8, 2014, we reported on National Indemnity Company’s (“NICO”) attempt in a Nebraska federal district court to enjoin Transatlantic Reinsurance Company from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York.

The Illinois district court recently refused to compel arbitration against NICO, finding that NICO was a not a signatory to the underlying reinsurance agreement containing the arbitration agreement between Transatlantic Re and the cedent, Continental Insurance Company. The court also found that the language of the arbitration clause was not broad enough to include nonsignatories, and further found that NICO, by its conduct, never assumed the obligation to arbitrate. The court also interpreted the agreements between Continental and NICO and determined that the Transatlantic Re’s arbitration provisions were never incorporated in those agreements by reference. Finally, the court held that NICO was not estopped from disclaiming an obligation to arbitrate because it never asserted any rights of its own for its direct benefit under Transatlantic Re’s reinsurance agreement, notwithstanding the fact that NICO did derive certain indirect benefits. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 1:14-cv-01535 (USDC N.D. Ill. June 24, 2014).

This post written by Michael Wolgin.

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