Brokers / Underwriters

COURT HOLDS THAT UNDERWRITER CONVERTED PREMIUM THAT IT FAILED TO REMIT TO INSURER

September 20, 2012 by Carlton Fields

Everest Reinsurance Company entered into an agreement with International Aerospace Insurance Services, Inc. (“Inter-Aero”) whereby Inter-Aero would underwrite space and aviation risks, submit premium to Everest, less commission, and, in addition, share in a percentage of Everest’s profit from the business Inter-Aero generated. A dispute arose regarding Inter-Aero’s entitlement to profit sharing. Inter-Aero responded by withholding a substantial purported “profit share payment” from premiums due to Everest. Everest filed an action in federal court claiming conversion and breach of fiduciary duty. The court granted Everest’s motion for summary judgment, holding that Inter-Aero converted the portion of premiums that it withheld and that it must remit them to Everest. It denied Everest’s motion on its breach of fiduciary duty claim as duplicative of the conversion count. Everest Reinsurance Co. v. International Aerospace Insurance Services, Inc., Case No. 3:11-cv-05332 (USDC D.N.J. Aug. 22, 2012).

This post written by Ben Seessel.

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COURT DETERMINES REINSURANCE AGREEMENT AND GENERAL AGENCY AGREEMENT OBLIGATIONS STRICTLY GOVERNED BY CONTRACT

September 10, 2012 by Carlton Fields

Lincoln General Insurance Company and U.S. Auto Insurance Services, Inc., as managing general agent for State and County Mutual Fire Insurance Company, entered into general agency agreements and reinsurance agreements. Disputes arose as to the amount due to Lincoln under the agreements, and litigation ensued. Lincoln brought a variety of claims, including breach of contract, misappropriation and conversion, breach of trust and/or fiduciary duties, aiding and abetting breach of trust and/or fiduciary duties and tortious interference with contract. The court found that there was no fiduciary duty involved in these relationships, and essentially found that the relationship was governed by the terms of the written agreements, without any implied torts. It dismissed all of the claims except for the breach of contract and tortious interference with contract claims. Lincoln General Insurance Company v. U.S. Auto Insurance Services, Inc., Case No. 10-2307 (USDC N.D. Tex. Aug. 30, 2012).

This post written by Rollie Goss.

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COURT DISMISSES INSURANCE AGENCY’S CLAIMS THAT INSURER FAILED TO DISCLOSE TROUBLED FINANCIAL CONDITION

August 2, 2012 by Carlton Fields

In a bankruptcy adversary proceeding arising out of claims made by an insurer against the debtor insurance agency/reinsurer, a court dismissed the debtor’s counterclaims for breach of fiduciary duty and fraud. The agency contended that the insurer, which itself was in rehabilitation, concealed and misrepresented its poor financial condition and austerity measures that it was taking to address it, which the agency claimed caused it to suffer financial harm and loss of good will. The court held that the agency failed to state claims beyond breach of contract because (1) the insurer was not in a “superior position” of a fiduciary simply by possessing greater knowledge of its internal operations and financial status, and (2) the agency failed to allege facts demonstrating that the insurer owed a separate legal duty to it beyond the obligations of the agency agreement. In re Black, Davis, & Shue Agency, Inc., Case No. 11-00160 (USDC Bankr. M.D. Pa. June 28, 2012).

This post written by Michael Wolgin.

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COURT DENIES DISMISSAL OF CLAIMS BY RISK MANAGEMENT ADMINISTRATOR AGAINST INSURER

June 27, 2012 by Carlton Fields

In 2006, the Plaintiff, Tethys Health Ventures, LLC (“Tethys”), an administrator of organ transplant risk management services, entered into an agreement with the defendant, Zurich, which provided that Zurich would pay Tethys commissions for producing insurance business. During the course of the agreement, Tethys earned commissions for its part in producing new excess insurance and reinsurance business for Zurich. In 2011, Zurich gave notice that it was terminating the agreement. Tethys sued, on a contract theory, as well as on an unjust enrichment theory. Zurich moved to dismiss the claims. The court denied Zurich’s motion, finding that the agreement was ambiguous as to the definition of “produce” and left unclear what the parties’ intent was with respect to the classification of Tethys’s producer commissions. For similar reasons, the court also declined to dismiss the unjust enrichment count. Tethys Health Ventures, LLC v. Zurich American Ins. Co., No. WDQ-11-2761 (USDC D. Md. May 31, 2012).

This post written by John Pitblado.

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MODIFICATION OF REINSURANCE AGREEMENT BY REINSURER AND AGENT WITHOUT INSURER’S CONSENT UPHELD WHERE IT DID NOT EFFECT INSURER

May 21, 2012 by Carlton Fields

Arch Reinsurance Company entered into a three-party agreement with a homeowners insurer and insurance agent, Underwriters Service Agency, under which Arch agreed to reinsure all of the risk associated with the underlying insurance policies, and Underwriters agreed to accept commissions based on the extent of the losses taken on the policies. During the agreement’s term, an Arch representative, who subsequently resigned, agreed with Underwriters to amend the reinsurance agreement to raise the minimum commission available to Underwriters by “capping” Arch’s reinsurance at a specified amount of loss.

When Arch’s chairman belatedly learned of the amendment, he unsuccessfully attempted to revoke it, and then sued Underwriters, contending that the amendment was void for want of the cedent insurer’s consent. After a jury verdict was entered in Underwriters’s favor, the appellate court affirmed, holding the reinsurance agreement could be amended even without the consent of the cedent insurer. Despite language in the agreement and state law requiring the insurer’s consent, the court held that a modification could stand if it did not materially affect the cedent insurer. Arch’s apparent agreement to “cap” the insurer’s reinsurance coverage notwithstanding, an indemnity provision in Underwriters’s agency agreement could be construed to permit the insurer to continue to seek unlimited reinsurance coverage from Arch, who could then, in turn, seek indemnity from Underwriters for losses above the cap. The insurer’s status quo was preserved, the amendment would not shift any risk back to the insurer, and the modification would stand. Arch Reinsurance Co. v. Underwriters Service Agency, Inc., Case No. 02-10-00365-CV (Tex. Ct. App. Apr. 26, 2012).

This post written by Michael Wolgin.

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