New reinsurance-related and arbitration developments from Carlton Fields
The follow the fortunes (or follow the settlements) doctrine has been an important part of many reinsurance relationships. This Special Focus article focuses on divergent case law as to whether the doctrine is purely a matter of contract, or whether it should be implied into every reinsurance contract, whether or not the contract refers to the doctrine.
This post written by Rollie Goss.
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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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In an action alleging claims for fraud and conspiracy to commit fraud (among others), a New York appellate court upheld the trial court’s conclusion that the “defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York,” including agreements between defendants relating to Plaintiff.
The conspiracy’s overt acts included defendant Weston Capital Management’s “approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of ‘hush money’ to ignore certain red flags and Gerova, and their failure to correct misrepresentations or disclose material information to the public.” The Court also found that, even if the individual defendants – directors of Gerova – did not themselves include misrepresentations in the public filings, by their positions “one can rationally infer… they knew of the falsity of the facts therein, did not disclose material information, and allowed the misrepresentations to be publicly stated.”
Plaintiff, the alleged target of the conspiracy, had standing to bring the fraud claim, as it sought recovery for damages for the theft of its assets.
Wimbledon Financing Master Fund, Ltd. v. Weston Capital Mgmt. LLC, et al., No. 653468 (N.Y. App. Div. April 26, 2018)
This post written by Nora A. Valenza-Frost.
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by Rob DiUbaldo
In a dispute previously reported on this blog, the Southern District of California overruled a defendant’s objections to subpoenas served on a former expert witness in defendant’s unrelated divorce case and to a bank for account information for a non-party corporate entity.
Regarding the former expert’s subpoenas, the court held that defendant waived her challenges. Plaintiff had served the subpoenas duces tecum to the defendant’s former expert witness in February 2018, with which the witness complied and produced hundreds of thousands of documents in March 2018. Defendant filed her objections in April 2018.
First, the court noted the difference under the Federal Rules between objections permitted by the non-party subject of the subpoena and motions to quash by parties who are not the subject of the subpoena. The defendant was not the subject of the subpoenas and thus could move to quash the subpoena. However, even interpreting defendant’s objections as a motion to quash, the court held they were untimely because they were filed a month after the subpoenas’ compliance date and the date on which the subject produced the documents. Additionally, the court held that even if defendant was technically able to object to the subpoenas, such objections were untimely filed after the statutory 14-day objection period.
The court next found there were no unusual circumstances or good cause to justify the untimeliness of defendant’s objections. Although defendant asserted a work product privilege regarding her former expert’s documents, that privilege was waived because the former expert was a testifying expert in her divorce case whose work is not protected by the privilege (compared to a consulting expert’s work). Defendant also failed to provide any explanation for her significant delay in filing objections.
Lastly, the court concluded that defendant lacked standing to quash a third-party subpoena for the former expert’s deposition testimony. Because it had already rejected defendant’s privilege claim, it found only the non-party witness could move to quash the subpoena prior to the deposition and defendant thus lacked standing to challenge the deposition.
Regarding the bank subpoena, the court overruled defendant’s objection to the subpoena pertaining to the non-party corporate entity’s account on relevance grounds. Although the corporate entity was an “uninvolved corporation,” newly-discovered emails indicated defendant created the corporate entity specifically to shield money from judgment creditors, making them highly relevant.
Odyssey Reinsurance Co. v. Nagby, Case No. 16-3038 (S.D. Cal. Apr. 26, 2018).
This post written by Thaddeus Ewald .
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by Rob DiUbaldo
A California state appellate court recently upheld summary judgment in favor of an insurer in a dispute about the value of fine art paintings over the insured’s attempts to pierce the insurer’s corporate veil. In the course of litigation against XL Specialty and related entities, the Hollanders alleged that XL Capital, the insurer’s parent company, operated as the alter ego of the other entities and operated as a single enterprise. The trial court had previously denied several defendants’ motion for summary judgment on the alter ego, agency, and related liability theories, but those defendants renewed their motion on the grounds that new facts had arisen. Specifically, there was new information concerning XL Specialty’s assets which allegedly doomed the Hollanders’ ability to prove the insurer was incapable of paying a judgment; proof which would satisfy the “inequitable result” element required to pierce the corporate. After the trial court’s initial grant of the renewed motion was appealed and remanded on other grounds, the trial court again granted the motion and this appeal followed.
In its second review of the case, the appellate court affirmed the grant of summary judgment. First, the court found the Hollanders failed to present sufficient evidence (through proper expert witness testimony) that XL Specialty’s assets were inadequate to satisfy a potential judgment or to support their claims for emotional distress and punitive damages. It concluded the expert testimony proffered was “only unsupported and unexplained conjecture” about XL Specialty’s solvency. Even less sufficient were the Hollanders’ claims for emotional distress, supported by “absolutely no evidence,” and punitive damages, a discretionary award for which the lack of evidence fell far short of the clear and convincing evidence required.
Second, the court upheld the decision regarding the agency theory because the Hollanders failed to prove that XL Capital dominated and controlled the activity of its subsidiaries. The Hollanders showed the various defendants shared an employee, but that showing alone was insufficient to prove agency of XL Capital where there was no evidence about other employees, the senior leadership of the companies, or the shared employee inappropriately mixing roles for the respective companies. The Hollanders attempted to demonstrate shared profits and losses by highlighting reinsurance agreements, but failed to show any of the defendants were members or parties to the reinsurance pooling and quota share agreements. Finally, the fact that the defendants shared administrative service agreements did not show agency where there was no right to control or any demonstrated impact by the agreements on day-to-day management of the companies.
Thus, the court affirmed the summary judgment as to the alter ego/single enterprise and agency theories of liability because the Hollanders failed to present triable issues of fact on the legal elements of those theories.
Hollander v. XL Capital, Ltd., Case No. B276621 (Cal. App. Ct. May 1, 2018).
This post written by Thaddeus Ewald .
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