Reinsurance Focus

A British retrocessionaire sued its retroceding reinsurer in a coverage dispute regarding the “follow the settlements” doctrine. The primary insurer at issue, ACE INA Overseas Insurance Company, insured Tesco, which operated 212 commercial premises in Thailand that were destroyed in a flood in late 2011. The loss was initially estimated by adjusters to result in £90-100 million ultimate loss payout. Tesco initially demanded and made claim for £125,300,000 in losses. After interposing coverage defenses, ACE ultimately settled the claim for £82,400,000.

Tokio Marine Europe Insurance participated in an excess of loss reinsurance treaty that was triggered by the claim, and had retroceded a portion of that risk to Novae Corporate Underwriting, Ltd. Novae challenged whether it was bound by the “follow the settlements” clause, which typically precludes challenges to the cedent’s settlement on reasonableness grounds. It refused Tokio’s claim and Tokio brought suit. Novae interposed a legal defense that the “follow the settlements” clause is understood to import both a “reasonableness” of the settlement component, and a “professionalism” in adjusting component. Novae’s defense was based on the latter. It alleged ACE had failed to have the underlying coverage issues properly vetted under Thai law. Tokio moved for summary judgment on the defense. The Court granted Tokio’s motion, finding that “notwithstanding that ACE did not further investigate the coverage afforded by the Local Policy, including the scope for deductibles, and did not delve more deeply into the question whether the high rain fall was the sole source or original cause of Tesco’s loss before concluding the settlement, Novae’s defence that ACE, in failing to take these steps, failed to act properly or in a businesslike manner has no prospect of success.” Tokio Marine Europe Insurance Ltd v. Novae Corporate Underwriting Ltd., [2014] EWHC 2105 (U.K..High Ct. Justice, Comm. Div., July 2, 2014)

This post written by John Pitblado.

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In this case, plaintiffs sought leave to renew their motion to dismiss certain retention-related and assignment affirmative defenses based on provisions of certain Loss Portfolio Transfer (LPT) agreements, and to re-argue the motion to dismiss based on their contention that the court: (1) overlooked arguments raised by the parties; (2) determined issues sua sponte without factual and legal support; and (3) misapplied precedent to the undisputed facts at issue.  The court denied plaintiffs’ motions.  The court determined that plaintiffs had failed to refute defendant’s assertion that the LPT may have transferred all of the plaintiffs’ relevant interests and constituted an impermissible assignment because plaintiffs failed to provide documentation showing that the cap in the LPT agreements could be exceeded.  The court also decided that plaintiffs failed to meet their burden of showing that the defendant’s retention defenses were without merit as a matter of law.  The court determined that the LPT did not satisfy the definition of treaty insurance because it was not obtained in advance of coverage. Furthermore, the court determined that the parties’ statements concerning the extent of plaintiffs’ assignment of their interests in the insurance certificates in question were not fatal to defendant’s assignment defenses as a whole.  Granite State Ins. Co. v. Transatlantic Reinsurance Co., Index No. 652506/2012 (Sup. Ct of N.Y., County of N.Y. June 18, 2014).

This post written by Kelly A. Cruz-Brown.

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A Florida jury rejected all claims made by Instituto Nacional de Seguros (“INS”), a Costa Rican insurer, against two reinsurance brokers, Hemispheric Reinsurance Group, LLC and Howden Insurance Brokers, Ltd. As previously reported, INS sued the reinsurance brokers following INS’ award of its reinsurance business under a “beauty contest” bid process which did not separately disclose the $2 million reinsurance brokers’ commissions and which only quoted a total bid price of $12 million. The jury rejected each of INS’ claims of breach of contract, breach of implied contract, and breach of fiduciary duty. The jury also found in favor of Hemispheric on its counterclaim for breach of contract, awarding that reinsurance broker $771,855.31. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33-653 CA 04 (Fla. Cir. Ct. Mar. 17, 2009).

This post written by Leonor Lagomasino.

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The case involved two facultative reinsurance contracts, each of which covered excess liability for similar umbrella liability insurance policies, and each of which contained a “follow the settlements” provision. After the insurer agreed to pay a percentage of the insured’s asbestos injury claims and defense expenses, the insurer began billing the reinsurer, but the reinsurer disputed liability. The reinsurer contended that it was not required to pay defense expenses in the same fashion as indemnity for one of the reinsurance certificates, arguing that the underlying insurance policy covered by that certificate lacked a reference to “defense expense” in the policy limit provision.

The court, however, rejected the reinsurer’s argument and entered summary judgment in favor of the insurer, finding that the reinsurer failed to demonstrate that the cedent was seeking coverage beyond the scope of the agreements. “It may be,” the court explained, “that defendant believes that defense expenses should not be included in the settlement because [the policy] does not use the phrase ‘defense expenses’ when defining the total limits of liability. However, … the provision does not affect the type of expenses that are covered, only the amount.” The court also considered two issues raised in later briefing: (1) whether the cedent proved the extent to which it exceeded the retention amounts; and (2) whether the cedent calculated prejudgment interest correctly, but reserved ruling on those issues, pending supplemental briefing. Employers Insurance Co. of Wausau v. R & Q Reinsurance Co., No. 13-cv-709 (USDC W.D. Wisc. May 16, 2014).

This post written by Michael Wolgin.

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A federal district court has awarded Munich Re $5.6 million in damages in its breach of contract action against American National Insurance Company for ANICO’s nonpayment of certain claims the court previously determined were covered by the parties’ retrocession agreements. In previous opinions, reported here on March 10 and May 29, 2014, the court concluded that ANICO breached its payment obligations to Munich Re for claims properly and timely ceded to ANICO under those agreements. In awarding damages, the court determined that Munich Re was entitled to a sum certain based on all claims previously identified and billed by Munich Re at the time of trial, along with the appropriate amount of prejudgment interest. The court also determined that ANICO was entitled to (1) offset some damages claimed by Munich Re by the amount of outstanding premium ANICO was owed and (2) “particulars and estimates” under the reporting obligations of the retrocession agreements which obligate Munich Re, when reporting claims, to provide information sufficient for ANICO to determine that the claims fall within the scope of its obligations.  The court denied ANICO’s request that the court to take judicial notice of certain alleged admissions Munich Re made in prior litigation. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. May 27, 2014).

This post written by Renee Schimkat.

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A final judgment was recently entered on a jury verdict awarding $5.8 million to Stonebridge Casualty Insurance Company. The case involved a reinsurer’s failure to pay reinsurance claims arising out of an automobile tire loyalty rewards program insured by Stonebridge. The reinsurer was a motor club that had entered into a contractual arrangement with certain Lloyd’s syndicates under which the motor club agreed to be financially responsible for reinsurance claims.

Under the insured program, automobile dealerships offered their customers a reward certificate entitling the customer to two free sets of tires if they returned to the dealership for all of the manufacturer’s recommended service. Stonebridge insured the program and obtained reinsurance coverage in the event that claims exceeded $46 per certificate. After the reinsurance threshold was exceeded and Stonebridge filed reinsurance claims, the motor club and Lloyd’s contended that the tire claims were invalid and sued Stonebridge for a declaration that they were not liable. Stonebridge counterclaimed, and after seven days of trial, the jury returned a verdict in favor of Stonebridge, awarding the full amount of damages sought in the amount of $5.8 million. Stonebridge has also filed a motion seeking additional prejudgment interest of $813,226. Stonebridge Casualty Ins. Co. v. Nation Motor Club, Inc., Case No. 9:10 cv 81157 KLR (USDC S.D. Fla. Mar. 24, 2014).

This post written by Michael Wolgin.

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A federal district court has amended its opinion and order that held in favor of cedent Munich Re on its breach of contract action against American National Insurance Company to add a covered insurance claim to the list of claims previously deemed properly ceded to ANICO and payable to Munich Re under the parties’ retrocession agreements. In that opinion and order, reported here on March 10, 2014, the court rejected all of ANICO’s claims as to rescission of those agreements and held that Munich Re was entitled to contractual damages in the form of payment on all claims that the court found were properly ceded. The court granted Munich Re’s unopposed motion to amend that opinion and order to include a claim that, by clerical oversight, was previously omitted. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. Mar. 25, 2014).

This post written by Renee Schimkat.

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A reinsurance dispute between Guarantee Trust and American Medical has been ongoing for some time; we posted prior updates in March 2011 and July 2013. Most recently, Guarantee Trust filed motions seeking to file a second amended complaint to add a request for specific performance and seeking a preliminary injunction requiring American Medical to post a bond to prevent a potential insolvency from impeding Guarantee Trust’s collection of any future judgment. The court denied both motions. No amended complaint would be allowed because Guarantee Trust could not show “excusable neglect” for having waited so long after its “need” for the equitable remedy first arose – months after the deteriorated financial strength of American Medical was publicized. Because Guarantee Trust had no equitable relief in its complaint and only a claim for money damages, the court ruled that it had no power to enjoin American Medical’s use of its property by requiring it to post a bond. Guarantee Trust Life Insurance Co. v. American Medical & Life Insurance Co., Case No. 10 C 2125 (USDCN.D. Ill. May 5, 2014).

This post written by Kyle Whitehead.

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A dispute over two facultative reinsurance certificates pending in the United States District Court for the Northern District of Illinois was voluntarily dismissed on March 26, 2014. The parties, R&Q Reinsurance Company, as plaintiff, and Sentry Insurance, as defendant, stipulated to the dismissal of that case with prejudice. We previously reported on this case in a February 22, 2013 post, discussing a December 12, 2012 ruling on this matter ordering R&Q to provide copies of the certificates at issue. R&Q Reinsurance Co. v. Sentry Insurance, Case No. 12 C 9788 (USDC N.D. Ill. Mar. 26, 2014).

This post written by Leonor Lagomasino.

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A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).