Brokers / Underwriters

JURY RETURNS DEFENSE VERDICT FOR AON RE, INC. IN SIX-YEAR BATTLE WITH RELIASTAR LIFE INSURANCE COMPANY

April 21, 2009 by Carlton Fields

Reliastar Life Insurance Company (“Reliastar”) sued Aon Re, Inc. (“Aon”) in state court, alleging, under various legal theories, that Aon misled Reliastar to believe that Reliastar continued to be reinsured through a reinsurance pool (“the Pool”), when in fact it had less coverage than it had been led to believe. Reliastar alleged that Aon, and an individual broker working with Aon, were Reliastar’s agents responsible for administering Reliastar’s reinsurance needs through the Pool, and fraudulently misrepresented the level and extent of reinsurance protecting Reliastar.

Aon’s defense was two-fold. First, it asserted that another broker exclusively handled Reliastar’s reinsurance placement, and thus Aon was not Reliastar’s agent relative to the conduct at issue in the suit, and thus Aon had no duty to ensure Reliastar had any particular reinsurance protection through the Pool. Second, Aon contended that Reliastar was an active participant in the administration of reinsurance through the Pool, and as such was fully aware that certain other Pool members had withdrawn from participation, leaving Reliastar with a greater share of the overall risk. After a lengthy trial, the jury returned a verdict in favor of Aon. Reliastar Life Insurance Company v. Aon Re, Inc., No. 3916-03 (N.J. Super. Ct. March 26, 2009). Details of the case are available in the Final Joint Pre-Trial Order.

This post written by John Pitblado.

COURT APPROVES ANOTHER SETTLEMENT IN BROKERAGE ANTITRUST MDL ACTION

March 31, 2009 by Carlton Fields

The court in the MDL action involving allegations of improper “contingent commissions” has approved a settlement with the Marsh companies, the preliminary approval of which was reported in a September 4, 2008 post. Marsh is at least the third broker to settle such allegations. The settlement provides for a $69 million fund to be distributed to class members. Marsh may use up to $5 million of the fund to resolve and settle claims of state officials representing policyholders who are potential members of the settlement class. In addition, Marsh may use up to $7 million of the fund to resolve and settle claims of individual plaintiffs in pending actions relating to the same matters that are at issue in the class action. The approved settlement is described in the court’s Memorandum Opinion. At the same time, the court issued a separate Memorandum Opinion granting class counsels’ application for an award of attorneys’ fees, reimbursement of expenses and incentive award payments. Class counsel in the federal proceedings were awarded $14.5 million; class counsel in a concurrent state court class action were awarded $4.5 million. The court entered a Final Judgment on February 17, 2009. An objector has filed a Notice of Appeal to the Third Circuit, appealing the settlement approval.

Shortly thereafter, Marsh filed a motion to enforce the final judgment and order, and to specifically enjoin the pursuit of two state court litigations by settlement class members pursuant to the Anti-Injunction Act and All Writs Act. The grounds for the motion are detailed in Marsh’s Memorandum of Law. In re Insurance Brokerage Antitrust Litigation, Case No. MDL 1663 (USDC D.N.J. Feb. 17, 2009).

This post written by Brian Perryman.

COURT RULES ON DIRECT ACTION ISSUES RELATING TO TWO LEVEL REINSURANCE RELATIONSHIPS

March 3, 2009 by Carlton Fields

Guarantee Trust Life Insurance Company (“GTL”) sells health insurance to college students, and obtained reinsurance from First Student Programs, LLC (“FSP”). The reinsurance agreement required that FSP obtain reinsurance, and it purportedly reached an agreement to reinsure its risks with American United Life Insurance Company (AUL), which also provided excess reinsurance directly to GTL. When AUL failed to pay claims, GLT sued FSP for breach of the reinsurance requirement of their agreement, and FSP filed a third-party complaint against AUL. AUL moved to dismiss. In an earlier dispute between GTL and AUL, which was arbitrated, an arbitrator found that AUL was not contractually bound to provide excess reinsurance to GTL. AUL contended that this prior adjudication precluded FSP’s claim against it based upon the doctrine of res judicata.

Applying Pennsylvania law, the US District Court for the Northern District of Illinois granted AUL's motion to dismiss in part, and denied it without prejudice in part. The court determined that FSP's breach of contract action should not be dismissed because it was not clear, as a matter of law, that FSP was acting merely as an agent for GTL when it allegedly contracted with AUL so the rule that agents may not sue for contracts entered into on behalf of a principal should not be applied here. The court further held that FSP sufficiently pleaded a claim for promissory estoppel but applied Pennsylvania's “gist of the action” doctrine to dismiss the fraud claim. The court surmised that the fraud claim was inextricably tied to the breach of contract claim so it was barred as a matter of law under the doctrine. The court also dismissed the indemnification and contribution claims as they were expressly conditioned upon a finding that FSP is liable to GTL, and those parties had settled the matter as between them.

Finding that the third party excess reinsurance agreement was not actually intended to benefit FSP, the court dismissed FSP's Third-Party Beneficiary claim. AUL’s res judicata defense remains pending. Guarantee Trust Life Ins. Co. v. First Student Programs, LLC, Case No. 05-1261 (USDC N.D.Ill. Jan. 28, 2009).

This post written by John Black.

AON RECEIVES FINANCIAL SERVICES AUTHORITY’S LARGEST FINANCIAL CRIME RELATED FINE TO DATE

February 18, 2009 by Carlton Fields

The UK’s Financial Services Authority has imposed a fine on Aon Limited of £5.25 million. FSA contended that Aon failed to take reasonable care to establish and maintain effective systems to counter the risks of bribery and corruption associated with making payments to overseas firms and individuals. As a result, between January 2005 and September 2007, Aon failed to properly assess the risks involved in its dealings with firms and individuals in Bahrain, Bangladesh, Bulgaria, Burma, Indonesia and Vietnam who helped it win business. In total, the firm made suspicious payments amounting to approximately $7 million. This is the largest financial crime related fine imposed by the FSA to date. The FSA published a press release and a Final Notice relating to this fine.

This post written by Brian Perryman.

U.K. COURT FINDS IN FAVOR OF INSURER ON CLAIMS AGAINST ROGUE AGENTS

February 11, 2009 by Carlton Fields

A British commercial court tried claims on December 8 and 9, 2008 made by Markel International Insurance Company (“Markel”) and QBE Insurance (Europe) Limited and Amalfi Underwriting Limited as against certain allegedly rogue agents who devised a scheme to defraud the plaintiffs of premium. The agents signed a number of unauthorized bonds on behalf of the principals, and shielded the receipt of premium through a complex accounting scheme.

The court found certain of the agents more or less culpable depending on their level of involvement in the conspiracy. The court also analyzed the appropriate quantum of damages in reference to the amount of premium concealed, and declined to entertain a number of failure-to-mitigate arguments raised by the defendants as untimely, having first been raised after trial. Markel International Insurance Company Limited v. Surety Guarantee Consultants Limited, [2008] EWHC 3087 (Comm. Ct. Queens Bench Div. Dec. 17, 2008)

This post written by John Pitblado.