Brokers / Underwriters

JURY AWARDS $23.87 MILLION VERDICT IN DAMAGES RESULTING FROM PARTIAL RESCISSION OF REINSURANCE OBLIGATIONS

December 15, 2008 by Carlton Fields

A court entered an Order on a jury verdict of $23.87 million in favor of several of the United National group of insurance companies and against Aon Limited and certain of its predecessors. The verdict was composed of $16.87 million in damages and $7 million in attorneys’ fees.

United National brought the action seeking indemnification from Aon for damages it sustained as a result of an arbitration award that partially rescinded the reinsurance obligations of an Italian reinsurer, Riunione Adriatica di Sicurta, to United National. The partial rescission was made in connection with a program providing insurance coverage to United States contractors and allied trades for risks arising out of residential and commercial construction projects. The arbitration award stemmed out of Aon’s improper conduct in soliciting RAS’s participation in this program without disclosing to RAS material information relating to, among other things, the program’s loss reserve methodology, premium discounts, and the frequency of claims. In the arbitration, RAS alleged that the program – which was placed and managed by Aon as the agent for United National – had been misrepresented by Aon to RAS as a successful program with low loss ratios. RAS also alleged that Aon failed to disclose until after the negotiations over RAS’s participation in the program were complete that RAS’s underwriter had solicited a $250,000 kickback from Aon. Due to the partial rescission, United National was obligated to pay RAS’s damages. United National then brought the indemnity suit against Aon to recover not only those damages United National paid to RAS, but also its attorneys’ fees and costs paid in defending the arbitration initiated by RAS. United National Insurance Co. v. Aon Limited, Case No. 04-CV-539 (USDC E.D. Pa. Dec. 4, 2008).

This post written by Brian Perryman.

UK COMMERCIAL COURT DENIES BROKER’S APPLICATION TO WITHDRAW ADMISSIONS REGARDING MARKET ISSUES

December 11, 2008 by Carlton Fields

We previously reported on problems in the London Personal Accident Reinsurance market in the 1990s, including an extensive Commercial Court opinion involving Sphere Drake Insurance Limited and its broker, Stirling Cooke Brown. In the present action, American Reliable Insurance Company, one of the participants in that market, sued its reinsurance broker in the UK Commercial Court, seeking to recover damages. Prior to the case management conference, after admitting certain factual findings made by the court in the prior Sphere Drake case, the defendant broker, Willis Limited (“Willis”), sought to withdraw some of those admissions, including admissions regarding the nature of the Personal Accident Reinsurance market. Willis had also been sued by another one of its former clients, CNA Insurance Company Limited, and had made admissions in that case which were inconsistent with those it had made in the American Reliable case.

The Court denied Willis’ application to withdraw its admissions. In support of the denial, the Court explained that Willis neither presented new evidence nor made any positive challenges to the prior admissions. This opinion demonstrates some of the substantial differences between civil case management in US and UK courts. American Reliable Insurance Company v. Willis Limited [2008] EWHC 2677 (Comm. Oct. 24, 2008) (Note: Carlton Fields has represented American Reliable Insurance Company in disputes in the Personal Accident Reinsurance market).

This post written by Dan Crisp.

SECOND CIRCUIT VACATES DECISION GRANTING THE DISMISSAL OF CONTINGENT COMMISSION CLASS ACTION

December 3, 2008 by Carlton Fields

On October 14, 2004, the Office of the New York State Attorney General filed a lawsuit against Marsh, Inc. for the practice of accepting contingent commissions and cited a number of insurers, including The Hartford, in the complaint. The following day, Appellant Staehr filed his complaint against The Hartford on behalf of a putative class of shareholders. Staehr’s complaint alleged that shareholders were misled into investing in The Hartford based on the strength of its business, which was in part due to paying contingent commissions to brokers, which The Hartford failed to disclose. The district court found that the Plaintiffs’ claims were time-barred by the Sarbanes-Oxley two-year statute of limitations based on publicly available information that placed the Plaintiffs on inquiry notice in July of 2001.

On appeal, the main issue to be decided was whether the publicly available facts amounted to a “storm warning,” which triggered a duty to inquire and started the running of the limitation period. For a duty of inquiry to exist, the facts must “relate directly to the misrepresentations and omissions the Plaintiffs later allege in their action against the defendants,” analyzed under an objective standard. The Hartford contended that a duty to inquire arose based upon media reports, regulatory filings, and state court complaints. The circuit court determined that the media reports would not put an ordinary investor on notice because the reports primarily contained industry information, not information specific to The Hartford, the regulatory filings were not specific enough with respect to contingent commissions, and an unpublicized lawsuit containing similar allegations that was filed against subsidiaries of The Hartford in a California state court would not put an ordinary investor on notice. The Second Circuit vacated the decision granting the motion of dismiss as time-barred and remanded the case to the district court. Staehr v. The Hartford Financial Services Group, Inc., No. 06-3877-cv (2d Cir. Aug. 18, 2007).

This post written by Dan Crisp.

INSURANCE UNDERWRITER LACKED THIRD-PARTY BENEFICIARY STATUS UNDER REINSURANCE AGREEMENT; COUNTERCLAIMS DISMISSED

November 18, 2008 by Carlton Fields

TIG Insurance entered into an agreement with Titan Underwriting for Titan to act as managing general underwriter, soliciting and procuring stop-loss health and life insurance insureds for policies to be issued by TIG. Titan was also obligated to obtain reinsurance to cover the stop-loss policies issued by TIG. Chubb Re reinsured TIG, and TIG received a percentage of the ceding commission of the gross premiums ceded to the reinsurer, a portion of which Titan received as compensation. Subsequently, TIG terminated the stop-loss program and sued Titan for, among other things, breach of contract and fraud. TIG also sent a letter to state insurance commissioners requesting information that Titan refused to produce to TIG. In response, Titan counterclaimed for breach of the Chubb reinsurance agreement, tortious interference with a contract, tortious interference with its business relationships with policyholders, defamation and negligence. The trial court dismissed each of the counterclaims and the court of appeals affirmed the dismissal.

The appellate court found that Titan, which was not a party to the reinsurance agreement, could not sue in the capacity of a third-party beneficiary. Although Titan was entitled to receive a percentage of the ceding commission, the contract contained a provision disclaiming any intent to create a third-party beneficiary. The tortious interference with a contract claim failed because it was legally impossible for TIG to interfere with its own contract (the reinsurance agreement). The tortious interference with business relationships claim failed because Titan failed to establish that it had existing relationships with the policyholders, whose relationships were insurance policies with TIG. The defamation claim, which was based on TIG’s letter to the insurance commissioners, also failed since the letter was not alleged to contain statements that could be “reasonably construed to disgrace or injure Titan’s reputation in the community or subject Titan to public ridicule and contempt.” Finally, the negligence claim failed since Titan failed to establish, as it was required to do, that TIG owed Titan a duty of care. TIG Insurance Co. v. Titan Underwriting Managers, LLC, No. M2007-01977-COA-R3-CV (Tenn. Ct. App. Nov. 7, 2008).

This post written by Brian Perryman.

UPDATE ON EVIDENCE ISSUES IN REINSURANCE BROKER NEGLIGENT MISREPRESENTATION CASE

November 6, 2008 by Carlton Fields

After a failed bid to take an interlocutory appeal from a federal district court’s denial of its motion for summary judgment in a case alleging that the broker negligently presented incomplete and misleading information to the plaintiff reinsurer, the court considered a number of evidentiary motions in limine. On October 9, 2008 we reported the US District Court for the Eastern District of Pennsylvania’s ruling on those motions. Some of the proffered testimony and exhibits were excluded with the caveat that the proponent could undertake to cure the defect and seek admission a second time. Plaintiffs sought reexamination of five pieces of excluded evidence. The court generally found the proffered evidence admissible. The most notable exhibits in this category were two extensive financial tables purportedly generated from the reinsurer’s financial system, and a summary of various “bordereaux” and other information included in the financial tables. The court originally excluded these for lack of foundation, but Plaintiff proffered a detailed affidavit describing the computer system, the witnesses' knowledge and oversight of its operation, and his attestation of authenticity. The court determined that the witness was qualified to authenticate the documents and that his sworn affidavit was sufficient. Accordingly, the exhibits were found to be admissible at trial. United National Insurance Co. v. Aon Ltd, Case No. 04-539 (E.D. Pa. Aug. 7, 2008).

This post written by John Black.