Contract Interpretation

SOUTH CAROLINA DISTRICT COURT FINDS THERE IS NO SEPARATE CAUSE OF ACTION FOR APPORTIONMENT UNDER SOUTH CAROLINA’S CONTRIBUTION AMONG TORTFEASORS ACT

June 28, 2016 by Carlton Fields

Plaintiff Companion Property and Casualty Insurance Company (“Companion”) participated in a fronted insurance program with Redwood and Freestone. Reinsurance collateral trusts were established for Companion’s benefit and maintained by defendant U.S. Bank as trustee. Companion authorized Redwood and Freestone to administer the trusts’ assets by giving direction to U.S. Bank. One such direction was to authorize certain third-parties who could act for Redwood and Freestone with regard to each trust account. Through the direction of Redwood, Freestone and their authorized third-parties, U.S. Bank made certain investments which were ultimately to the detriment of the trusts. U.S. Bank then made claims against the third-parties for apportionment, contribution and indemnification for its liability to Companion. The third-party defendants moved to dismiss all of U.S. Bank’s claims.

U.S. Bank asserted that third-party defendants are responsible for damages alleged by Plaintiff Companion pursuant to South Carolina Code § 15-38-15 which addresses apportionment of percentages of liability among tortfeasors responsible for less than fifty percent of total fault.

Analyzing South Carolina’s Contribution Among Tortfeasors Act (“SCCATA”), the Court noted that “apportionment” as it appeared in the statute occurred only after the jury “(a) has awarded damages to a plaintiff, (b) has determined any comparative negligence by the plaintiff, and then (c) only after motion by the defendant.” Unlike SCCATA’s statutory language for other causes of action – for example contribution – which described the relief as an action or right to contribution, such verbiage was not present in the provision of SCCATA concerning apportionment. The Court also noted SCCATA referred to “the total percentages of fault attributed to the plaintiff and the defendants must be one hundred percent” – but there was no mention of any fault allocation to third-party defendants. U.S. Bank’s claim for contribution was therefore dismissed.

Companion Property and Casualty Insurance Company v. U.S. Bank National Association, 3:15-cv-01300 (USDC D.S.C. May 27, 2016)

This post written by Nora A. Valenza-Frost.

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PENNSYLVANIA FEDERAL COURT REMANDS LITIGATION AGAINST BROKER BACK TO STATE COURT, FINDING THAT PARTY WAS NOT FRAUDULENTLY JOINED

May 17, 2016 by Carlton Fields

The background of this case is that Boomerang Recoveries LLC, a reinsurance program review company, investigated Farmers Insurance Company’s reinsurance contracts to identify any premiums Farmers had been overcharged in exchange for a percentage of any recoveries. Boomerang allegedly found that Farmers had been overcharged $2,246,014.65 in reinsurance premiums from 2003 to 2013. Guy Carpenter & Company LLC, the reinsurance broker, conducted its own review in response to Boomerang’s, and found that Farmers owed reinsurers over two million dollars in premium that had not been paid, thus reducing the amount owed to Farmers to $273,989.97. According to Boomerang, Guy Carpenter had no justification for performing the audit and disputing Boomerang’s findings, that Guy Carpenter disparaged Boomerang, and induced Farmers not to pursue a substantial portion of the recoveries.

On December 9, 2014, Boomerang brought a litigation against Guy Carpenter and two of its officers for various torts, including intentional interference with contract, unfair competition, commercial disparagement and other claims in Pennsylvania state court. The case was removed and then later remanded back to the state court. Boomerang then added Marsh & McLennan Cos. Inc. (MMC) as a defendant in a fifth amended complaint, and MMC again removed the case. Boomerang then moved to remand on the basis that removal was improper given the forum defendant rule, 28 U.S.C. § 1441(b)(2), and that one of the defendants is a citizen of Pennsylvania. The defendants argued that the one officer who is a Pennsylvania citizen was fraudulently joined to defeat removal. The Pennsylvania federal court, however, concluded that the officer was not fraudulently joined, and that the case was improperly removed from state court. Thus, the court remanded the action back to Pennsylvania state court for lack of federal subject matter jurisdiction. Boomerang Recoveries, LLC v. Guy Carpenter & Co., LLC, Case No. 16-0222 (USDC E.D. Pa. Apr. 21, 2016).

This post written by Jeanne Kohler.
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FOLLOWING REVERSAL OF ARBITRABILITY RULINGS ON APPEAL, COURT DISMISSES REINSURANCE LITIGATION BASED ON FORUM SELECTION

February 29, 2016 by Carlton Fields

On August 15, 2014, we reported on a Tennessee district court finding unenforceable an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer. The insured had filed a lawsuit seeking to reform the RPA, and the reinsurer sought to compel arbitration. The court refused to compel arbitration, finding that the arbitration clause was invalid. Subsequently, the Sixth Circuit vacated this ruling, finding that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court. On remand to arbitration, the arbitrator then determined that the matter was not arbitrable based on the RPA’s forum selection clause. In response to that ruling, the reinsurer moved to vacate it, and to dismiss the lawsuit altogether based on the choice of a Nebraska forum in the RPA’s forum selection clause.

The court has now granted dismissal, holding that the forum selection clause was unambiguous, and it was mandatory. The court also found that the insured failed to demonstrate that the clause was obtained by fraud, duress or other unconscionable means, that a Nebraska court would not handle the suit properly, or that Nebraska was seriously inconvenient to the insured. The insured also failed to show that “public-interest” factors disfavored a dismissal. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Feb. 2, 2016).

This post written by Barry Weissman.

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COURT HOLDS THAT SERVICE-OF-SUIT CLAUSE WAIVES RIGHT TO SEEK REMOVAL

January 11, 2016 by Carlton Fields

The Northern District of Illinois recently granted a motion to remand filed by an insolvent insurer’s assignee because the removal contravened the forum-selection clauses of the reinsurance agreements at issue. Pine Top Receivables of Illinois LLC (PTRIL) sued Transfercom Ltd. (Transfercom) in Illinois state court for breach of contract and certain state law claims. Pine Top Insurance Company’s rights to certain accounts receivable due from reinsurers were assigned to PTRIL when the insurer became insolvent. Transfercom was one of the reinsurers that was indebted to Pine Top Insurance Company.

Transfercom removed the case to the U.S. District Court for the Northern District of Illinois, and PTRIL filed a motion to remand. PTRIL argued, and the court agreed, that the reinsurance agreements contained an agreed-upon clause to accept plaintiff’s choice of forum. The court noted that this clause meant that Transfercom agreed to “submit to the jurisdiction of any Court of competent jurisdiction within the United States.” Further, the court held that “[t]his clause’s ‘plain and ordinary meaning’ constitutes a ‘clear and unequivocal’ waiver of Transfercom’s removal rights.” As a freely negotiated forum selection clause, the court held, the parties must be bound by it. Pine Top Receivables of Illinois, LLC. v. Transfercom, Ltd., No. 15-CV-8908 (USDC N.D. Ill. Dec. 14, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.
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NEW YORK FEDERAL DISTRICT COURT DISMISSES THIRD PARTY CLAIM AGAINST INSURANCE BROKERAGE SERVICE

January 6, 2016 by Carlton Fields

In what the court termed a “risk-free reinsurance scheme [that] proved anything but,” a New York federal court dismissed a third-party claim against the insurance brokerage service that put the two parties to the insurance arrangement in contact and counterclaims against the reinsurer that acquired business through the customers of its insured. The case involves a dispute between AmTrust North America, Inc. and SafeBuilt Insurance Services, Inc., as well as a third-party insurance consulting service, Preferred Reinsurance Intermediaries. AmTrust had retained PreferredRe to help AmTrust find prospective business opportunities, and PreferredRe succeeded in introducing AmTrust to SafeBuilt. As a result, AmTrust and SafeBuilt entered into an agreement in which AmTrust provided reinsurance to SafeBuilt, which SafeBuilt then provided a retrocession through a Montana subsidiary. The idea was that AmTrust was “to provide reinsurance but was not actually to have anything at risk.” Because of undercapitalization in the primary insurer and the retrocessionaire, however, AmTrust ended up shouldering close to $10 million of liability. When faced with the lawsuit, SafeBuilt filed a third-party complaint against PreferredRe, alleging, among other things, that PreferredRe was negligent because it “knew or should have known that . . . the parties were not well-suited for one another.” Having indemnified PreferredRe, AmTrust filed a motion to dismiss the third-party claims against it, which the court granted. In addition, AmTrust faced a counterclaim for breach of fiduciary duty and tortious interference with business relationships that the court dismissed.

Dispatching the claims against PreferredRe, the court found, among other things, that “there [was] no allegation of any agreement between PreferredRe and [SafeBuilt] at all.” Even if SafeBuilt was an intended beneficiary of a contract between AmTrust and PreferredRe, this did not include a duty to conduct due diligence of a relationship between AmTrust and SafeBuilt. The counterclaims against AmTrust centered on allegations that AmTrust used information from auditing the insurance arrangement to provide to a subsidiary, which was able to acquire business from SafeBuilt’s former customers. The fiduciary duty claim centered on allegations that AmTrust was the principal and SafeBuilt was its agent—however, absent specific contractual language, “a principal does not necessarily owe its agent a fiduciary duty.” As to tortious interference, the court ruled that absent a contractual duty to keep information confidential, AmTrust’s did “nothing more than engage in sharp practice” which “may be repugnant, but is not a wrongful means.” AmTrust North America, Inc. v. SafeBuilt Insurance Services, Inc., No. 14-cv-09494-CM-JLC (USDC S.D.N.Y. Dec. 1, 2015).

This post written by Zach Ludens.

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