Brokers / Underwriters

Florida Federal Court Dismisses Reinsurer’s Agent From Breach of Contract Lawsuit

August 14, 2018 by John Pitblado

In this case, the ceding company, VIP Universal Medical Insurance Group Ltd. (“VIP”), brought an action in Florida federal court against its reinsurer, BF&M Life Insurance Company Ltd. (“BF&M”), and International Reinsurance Managers LLC (“IRM”), BF&M’s agent, alleging breach of a reinsurance contract, in which BF&M reinsured VIP for medical claims in excess of $200,000. It was alleged that BF&M refused to pay a claim for $139,000 and that IRM had “directed the non-payment” of such claim. IRM moved to dismiss, arguing that it cannot be held liable for breach of contract, where it is not party to a contract.

The Florida federal court agreed with IRM, noting that under Florida law, “an agent for a disclosed insurer is not liable to the insured on the insurance contract.” The court noted that even taking the allegations — that IRM acted as agent and “directed” the non-payment of the claim — as true, they do not state a claim for breach of contract against IRM. The court then held that IRM, as agent to the reinsurer, was not a proper party in VIP’s breach of contract claim because IRM was not a party to the reinsurance contract at issue. Thus, IRM’s motion to dismiss was granted.

VIP Universal Medical Insurance Group Ltd. v. BF&M Life Insurance Company Ltd., et al., No. 17-24633 (USDC S.D. Fla. July 18, 2018).

This post written by Jeanne Kohler.

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S.D.N.Y. DISMISSES INSURER’S CLAIMS AGAINST REINSURANCE BROKER UNDER ECONOMIC LOSS DOCTRINE, FINDS NO SPECIAL RELATIONSHIP

February 6, 2018 by John Pitblado

A New York federal court has dismissed a ceding insurer’s counterclaims against its reinsurance broker, finding the insurer’s claims for negligence and breach of fiduciary were barred by New York’s economic loss doctrine, and that there was no special relationship between the parties.

Sawgrass Mutual Insurance Company (Sawgrass) alleged that Holborn Corporation (Holborn) breached a fiduciary duty by failing to recommend that Sawgrass purchase a specific reinsurance product that Sawgrass claimed would have saved it hundreds of thousands of dollars. Holborn moved to dismiss the claims under the economic loss doctrine, which bars tort-based actions premised on purely economic injury that resulted from a breach of contract. Arguing that the law of the state in which the tort occurred should apply, Sawgrass contended that New York’s version of the economic loss doctrine was inapplicable because Florida law governed the dispute. But the court rejected this argument, holding that New York has the greatest interest in the litigation since it is the only state in which the wrongful conduct allegedly took place. The court also rejected Sawgrass’ argument that the “special relationship” exception to the economic loss doctrine applied. The court noted that, under New York law, brokers “have no continuing duty to advise, guide or direct a client to obtain additional coverage.” Therefore, absent allegations that the parties engaged in conversations regarding the specific reinsurance product at issue, general discussions between them about “the most advantageous” coverage for Sawgrass were insufficient to create a special relationship.

Holborn Corp. v. Sawgrass Mutual Insurance Co., No. 16-09147 (USDC S.D.N.Y. Jan. 17, 2018)

This post written by Alex Silverman.

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ENGLISH HIGH COURT OF JUSTICE ORDERS DISCLOSURE OF BANK’S RECORDS RELATED TO MISDIRECTED REINSURANCE PREMIUMS

January 24, 2018 by Michael Wolgin

In a proceeding seeking an order for disclosure of documents from Barclays Bank, the English High Court of Justice considered the scope of the agency involved in a run-off agreement between a reinsurance broker and another entity (“SMP”) in connection with collecting and transmitting of premiums under an Excess of Loss reinsurance policy issued by a Lloyd’s consortium. After SMP allegedly failed to pay $541,884.90 in premiums that it had received, a dispute arose whether the broker was responsible to repay the missing funds, or alternatively, whether the broker itself was damaged by SMP’s misuse of the funds. The consortium contended that the SMP was the agent of the broker, while the broker contended that SMP was simply entitled to collect the premiums due under the policy and pay them to the consortium, but that no agency relationship existed in that regard.

The court analyzed the run-off agreement and determined that the broker was entitled to assert that it was the beneficial owner of the premiums held in the account, even if it held those premiums on trust for the reinsured or was itself subject to obligations to pay them to the Consortium. The court therefore ruled that the order of disclosure from the bank was needed to enable the broker to identify the persons responsible for instructing the bank to pay the monies away, and to defend itself from the consortium’s potential claim. The court further found that the bank may have some culpability, which further supports its production of the documents. Miles Smith Broking Ltd. v. Barclays Bank PLC [2017] EWHC 3338 (Ch) (Dec. 15, 2017).

This post written by Michael Wolgin.

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ODYSSEY REINSURANCE OBTAINS $3.2 MILLION DEFAULT JUDGMENT AND INJUNCTIONS STEMMING FROM FRAUDULENT TRANSFERS MADE BY UNDERWRITER

November 24, 2017 by Michael Wolgin

Odyssey Reinsurance Company obtained a $3.2 million default judgment on October 4, 2017, against Cal-Regent Insurance Services Corporation and Pacific Brokers Insurance Services (“PBIS”) as a result of fraudulent transfers made between the two companies and the owner/officers of both companies, Richard and Diane Nagby. Cal-Regent underwrote a number of insurance risks which were subsequently reinsured by Odyssey. The two companies entered into a series of reinsurance agreements that required an annual “provisional commission” to be paid to Cal-Regent. The provisional commission was “adjusted” at year-end depending on the profitability of the business underwritten by Cal-Regent. After settlement of a lawsuit by another company involved in the transactions, it became clear that the amount of “return commissions” Cal-Regent would owe Odyssey due to the annual adjustments were likely to substantially increase. Recognizing this possibility, the Nagbys “embarked on a plan to strip Cal-Regent of assets.”

Odyssey obtained a judgment against Cal-Regent in 2015 for $3.2 million to recover the amount of return commissions it was owed. The Nagbys, however, had previously formed PBIS and “caused Cal-Regent to transfer substantially all of its assets to PBIS.” Three months after oral argument in Odyssey’s initial action against Cal-Regent and three months before judgment was entered, the Nagby’s “caused PBIS to sell substantially all of its assets to AmTrust for $5 million.” AmTrust made an initial payment of $3 million which was distributed to the Nagbys. Odyssey filed the present action on March 21, 2017, alleging liability under California’s Uniform Voidable Transactions Act and alter ego and successor liability law.

The court granted default judgments as well as preliminary injunctions against the Nagbys enjoining them from disposing of the AmTrust proceeds despite recognizing that such an injunction was an “extraordinary and drastic remedy.” Because the Defendants defaulted on Odyssey’s 2017 complaint, the “well-pleaded factual allegations of the complaint, except those relating to the amount of damages, [were] taken as true.” The Court found that Odyssey had sufficiently pled facts to support each of its causes of action as well as sufficient evidence to support an award of the full amount prayed for, plus post-judgment interest running from the 2015 judgment. Odyssey Reinsurance Co. v. Nagby, Case No. 16-cv-03038 (S.D. Cal. Oct. 4, 2017).

This post written by Benjamin E. Stearns.

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COURT AFFIRMS DISMISSAL OF CLAIM FOR COMMISSIONS FOR PLACEMENT OF PUERTO RICAN PUBLIC LIABILITY INSURANCE

November 23, 2017 by Michael Wolgin

Plaintiffs Berkley Risk Solutions LLC, an insurance and reinsurance management services provider, and Admiral Insurance Co., an excess and surplus lines insurer, sued Industrial Re-International Inc., a New York reinsurance intermediary, and its founder, concerning certain commissions for public liability insurance placed with municipalities in Puerto Rico through American Foreign Underwriters Corp. (AFU), a licensed general agency. The dispute began when AFU filed a lawsuit against Industrial Re and Plaintiffs in Puerto Rico alleging that Industrial Re had agreed to split the commissions on policies written for 2006-2007 equally with AFU. Industrial Re and AFU resolved their dispute and executed a settlement agreement in which they agreed that the commission on any future policies with the municipalities would be split 60 percent to Industrial Re and 40 percent to AFU. Industrial Re obtained a judgment against AFU for the payment of its portion of the commissions that AFU received on subsequent policies according to the settlement; however, Industrial Re’s attempts to collect against AFU were unsuccessful. Industrial Re then claimed that Plaintiffs owed it for the judgment obtained against AFU. Plaintiffs filed the lawsuit underlying this appeal, seeking a declaration that they were not obligated to Industrial Re for the 2008-2009 and 2009-2010 policy commissions. Industrial Re responded by asserting counterclaims based on promissory estoppel, unjust enrichment and tortious interference.

Plaintiffs prevailed in the trial court, and the appellate court has now affirmed the trial court’s ruling. Regarding promissory estoppel, the court held that Industrial Re did “not dispute that plaintiffs were not parties to the Settlement Agreement [with AFU] and have produced no evidence that plaintiffs agreed to be bound by the Settlement Agreement at any time.” Moreover, it found that “[a]lthough plaintiffs acknowledged in an August 2008 email they ‘were previously advised’ to distribute the commission in accordance with the Settlement Agreement, their willingness to do so […] was explicitly dependent upon receiving a written stipulation from both defendants and AFU to that effect,” which never occurred, and thus, never became binding. The court also affirmed the dismissal of Industrial Re’s claim based on the expiration of the statute of limitations of the State of New Jersey; New Jersey had a “substantial interest” in resolving disputes arising out of business dealings between two of its own corporations and no “exceptional circumstances” justified the application of the law of Puerto Rico. Berkley Risk Solutions LLC v. Indus. Re-Int’l Inc., Case No. A-2366-15T1 (N.J. Super. Ct. App. Div. Sept. 20, 2017).

This post written by Gail Jankowski.

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