Contract Interpretation

Federal Court Denies Bifurcation of Contract Claims and Uberrimae Fidei and Late Notice Defenses in Reinsurance Dispute

January 7, 2019 by John Pitblado

A Michigan federal court declined to bifurcate a case involving a contract dispute between a ceding insurer, Amerisure, and its reinsurer, Transatlantic Re, in a case arising from underlying asbestos claims dating back to the early 1980’s.

Amerisure sued TransRe alleging that it failed to reimburse Amerisure under a facultative reinsurance agreement covering losses and loss expenses arising from underlying asbestos claim liabilities insured by Amerisure. For its part, TransRe alleged that Amerisure breached the “duty of utmost good faith” by failing to apprise TransRe of all relevant information in its underwriting of the facultative agreement, thereby voiding the agreement. TransRe also claimed that Amerisure’s claim is barred due to late notice.

Amerisure filed a motion to bifurcate the proceedings to address the contract issues first. TransRe opposed the motion arguing that even if the contract issues were resolved, the breach of duty of utmost good faith and late notice issues would remain to be addressed, and thus bifurcation would not result in a more efficient proceeding.

The trial judge referred the issue to a special master, who found that bifurcation was inappropriate, as a phased proceeding would not result in convenience to the parties or judicial efficiency. The report noted that much of the discovery involved on the contract issues would overlap with the issues involved in TransRe’s defense based on breach of the duty of utmost good faith, such as the underwriting intent and meaning of the applicable policy or reinsurance language. The report concluded, therefore, that phasing the proceedings might ultimately be less efficient, rather than more efficient, and recommended denial of the motion.

The judge accepted the special master’s recommendation and denied Amerisure’s motion.

Amerisure Mut. Ins. Co. v. Transatlantic Reinsurance Co., No. 2:18-cv-11966 (USDC E.D. Mich., Nov. 29, 2018 (Report and Recommendation of Special Master), Dec. 20, 2018 (adopting report)).

This post written by John Pitblado.

See our disclaimer.

Applied Underwriters Defeats Motion for Summary Judgment in Suit Over Breach of Reinsurance Participation Agreement

December 26, 2018 by Benjamin Stearns

Applied Underwriters Captive Risk Assurance Company, Inc. (Applied) defeated a motion for summary judgment filed by Beemac Driver Management, LLC (Beemac), in a lawsuit precipitated by Beemac’s alleged failure to pay either the $142,797.91 due under a “reinsurance participation agreement,” or the $253,287 early cancellation fee that resulted when Beemac refused to pay the amount due. The court stated it was “apparent that calculation of the amount due pursuant to the parties’ agreement is not [] simple … [nor was it] at all apparent from the pleadings and evidence how the plaintiff calculated the amount due – only that the plaintiff claims there is an amount due and owing.” The court noted that Beemac’s argument rested on the premise that miscalculating the amount due “was a prior material breach of the agreement, excusing their own subsequent failure to perform,” but that Beemac offered no authority to support that position. In addition, Beemac offered no calculation of the correct amount it contended was due under the contract. On these facts, the court could not conclude as a matter of law that Applied’s billing, even if inaccurate, was a material breach.

Beemac also sought to strike the affidavit of Applied’s chief actuary regarding the factors Applied used to determine the amount due under the reinsurance participation agreement. Beemac argued that Applied either failed to disclose the expert witness prior to the expert disclosure deadline or, if the witness was not an expert, that her testimony concerned contract interpretation, which is determined by the court as a matter of law. The court disagreed, stating that although Applied’s chief actuary might be an expert, in this particular matter she was not providing her opinions and conclusions based on her experience, skill and training, as an “expert witness” would testify. Rather, she was testifying regarding her personal knowledge of her employer’s business practices, rendering her a lay opinion witness. As a result, the motion to strike her affidavit was denied. Applied Underwriters Captive Risk Assurance Co., Inc. v. Beemac Driver Mgmt., LLC, Case No. 8:16-CV-382 (USDC D. Neb. Dec. 6, 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

Court Declines to Reconsider Summary Judgment Decision in Latest Development in Ongoing Asbestos Liability Reinsurance Litigation

December 13, 2018 by Rob DiUbaldo

The Northern District of New York declined to reconsider a September 2018 decision on competing motions for partial summary judgment we previously reported on in a long-running reinsurance dispute related to asbestos liability exposure. Subsequent to the court’s decision, Century Indemnity Co. moved for reconsideration of the court’s denial of summary judgment on its collateral estoppel defense and denial of its motion to dismiss for lack of standing because the court allegedly overlooked “controlling” evidence and decisions on these issues.

First, on the collateral estoppel claim, the court rejected Century’s argument that the court’s September decision improperly relied on a similar decision in a case involving Utica because that decision was issued after the summary judgment briefing was complete and the court cited the decision “without the benefit of briefing” on the decision’s impact. The court explained the September decision merely recognized the similar decision as involving a “similar estoppel argument” and did not improperly “adopt” the decision’s conclusions or impute a controlling effect to the decision.

Second, on standing, the court disagreed with Century’s contention that the September decision relieved Utica of its burden to establish standing. Harkening back to its September decision, the court emphasized Utica submitted evidence “tending to establish” standing and Century failed to “conclusively undermine” that showing.

Thus, the court denied the motion for reconsideration.

Utica Mutual Ins. Co. v. Century Indemnity Co., Case No. 13-995 (USDC N.D.N.Y. Nov. 30, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

D.C. Federal Court Permits Insured to Amend Complaint in Reinsurance Dispute Related to Credit Insurance Policy

December 11, 2018 by Rob DiUbaldo

A District of Columbia federal court partially granted and partially denied a reinsured’s motion to amend its complaint in a dispute over a reinsurance agreement for a credit insurance policy. Assured Risk Transfer (“ART”) extended a credit insurance policy to Vantage. The policy was reinsured under a contract with the reinsurer defendants, which was placed through a broker, the Willis Defendants. ART denied a claim under the credit insurance policy made by Vantage, and Vantage won an arbitration award against ART based on the denial. Vantage sued ART, the Willis Defendants, and the reinsurers after the reinsurers declined to pay under ART’s reinsurance agreement, but the court dismissed for jurisdictional issues. Thereafter, Vantage moved to amend.

First, the court denied Vantage’s effort to amend its complaint regarding its breach of contract and accompanying declaratory judgment claims. Vantage’s proposed amended complaint alleges that the parties created a contractual relationship via credit insurance “binders” which purportedly confirmed that the underlying credit insurance policy was reinsured, but the court concluded such allegations were insufficient because insurance binders describing a reinsurance agreement do not create a binding contractual relationship with the Willis Defendants or reinsurers.

Second, the court accepted Vantage’s proposed amendments related to the breach of implied contract, promissory estoppel, and unjust enrichment claims. On the implied contract claim, the amendments sufficiently alleged that ART and the Willis Defendants acted as agents for the reinsurers by claiming ART facilitated the transaction and the reinsurers delegated their underwriting authority to ART. Additionally, the allegations that reinsurers’ agents gave the insurance binders to Vantage and the reinsurers knew ART was unable to pay Vantage’s loses without reinsurance led he court to conclude it was plausible the reinsurers knew Vantage expected the reinsurers to pay and agreed to that arrangement.

On the promissory estoppel claim, the court interpreted the reinsurers’ agents’ delivery of the binders as a sufficiently alleged “promise” to pay any losses according to the credit insurance policy terms. Furthermore, Vantage plausibly alleged reliance upon the promise and an agency relationship between ART, the Willis Defendants, and the reinsurers. On the unjust enrichment claim, the court found the amendments adequately pleaded that reinsurers indirectly benefited through receipt of premiums to allow the claim to proceed. The court noted that Vantage is unable to prevail on its unjust enrichment and promissory estoppel claims if it prevails on its implied contract claim, but allowed amendment to permit Vantage to pursue all three until a conflict arises.

Lastly, the court granted Vantage’s request for leave to attempt to serve the reinsurers, declined to require the D.C. Department of Insurance, Securities, and Banking to accept service on their behalf, and dismissed Vantage’s complaint as to ART as a defendant where Vantage failed to establish the necessity for ART to remain.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, Case No. 17-1451 (USDC D.D.C. Nov. 16, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

Dismissal of Forced-Placed Insurance Cases Pursuant to Filed-Rate Doctrine Upheld by Eleventh Circuit

October 17, 2018 by John Pitblado

Borrowers’ complaints alleging their mortgage servicers breached loan contracts and the implied covenant of good faith and fair dealing by charging “inflated amounts” for “force-placed” or “lender-placed” insurance and receiving “rebates” or “kickbacks” from the force-placed insurer, which savings were not passed on to the borrowers, were dismissed as the insurance rates were filed with and approved by the relevant state regulators.

“The filed-rate doctrine forbids a regulated entity from charging rates for its services other than those properly filed with the appropriate regulatory authority. As a result, where the legislature has conferred power upon an administrative agency to determine the reasonableness of a rate, the rate-payer can claim no rate as a legal right that is other than the filed rate.” Thus, the filed-rate doctrine precludes suits: (1) directly challenging a filed-rate; and (2) facially-neutral challenges – “i.e., any cause of action that is not worded as a challenge to the rate itself” but where the damages awarded “would, effectively, change the rate paid by the customer… to one below the filed rate by other customers or would, in effect, result in a judicial determination of the reasonableness of that rate.”

Despite the borrowers’ assertions that they are not challenging the reasonableness of the insurance rates, they repeatedly stated they were challenging the premiums charged. As the Court noted, “since these premiums are based upon rates filed with the state regulators, [the borrowers] are directly attacking those rates as being unreasonable as well… Their complaints therefore contain textbook examples of the sort of claims that we have previously held are barred by the non-justiciabilty principle.”

Carlton Fields Jorden Burt, P.A. represented American Security Insurance Company in this matter.

Patel v. Specialized Loan Servicing, LLC, 16-12100, 16-6585 (USCA 11th Cir. Sept. 24, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.