Contract Interpretation

SOUTH CAROLINA FEDERAL COURT GRANTS IN PART, DENIES IN PART, TRUSTEE’S MOTION TO DISMISS CLAIMS BROUGHT BY FRONTING INSURER IN DISPUTE INVOLVING REINSURANCE TRUST AGREEMENTS

January 5, 2016 by Carlton Fields

Plaintiff Companion Property and Casualty Insurance Company (“Companion”) brought suit against U.S. Bank National Association (“US Bank”) arising from its role as trustee under various reinsurance collateral trusts that secured certain reinsurers’ obligations to Companion for its participation in a fronted insurance program. Companion asserted the following claims against US Bank: breach of contract (the trust agreements); breach of fiduciary duty; negligence/gross negligence; negligent misrepresentation; equitable estoppel; and violation of the South Carolina Unfair Trade Practices Act (“SCUTPA”). US Bank moved to dismiss each cause of action for failure to state a claim.

The U.S. District Court for the District of South Carolina granted in part, and denied in part, US Bank’s motion. First, the Court found that Companion adequately pled a cognizable claim for breach of the trust agreements, rejecting US Bank’s argument that this claim (as pled) was premised on duties not expressed in those agreements. Next, Companion’s breach of fiduciary duty and negligence claims were ruled actionable, even though they involved US Bank’s purported breach of its contractual duties, because Companion sufficiently alleged the existence of an independent duty of good faith and care owed to it as beneficiary of the trusts. Finally, while Companion adequately pled sufficient facts to establish that US Bank is liable for negligent misrepresentation, the claims for equitable estoppel and for violating SCUTPA failed as a matter of law, because the former cannot be brought affirmatively in a complaint under South Carolina law, and the latter failed to allege facts demonstrating that US Bank’s conduct was the result of “standard procedures or business practices that have an adverse impact on public interest”, as required by SCUTPA. Companion Property & Casualty Insurance Co. (n/k/a Sussex Ins. Co.) v. U.S. Bank NA, No. 3:15-cv-01300 (USDC D.S.C. Nov. 24, 2015).

This post written by Rob DiUbaldo.

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EXCESS WORKERS’ COMPENSATION AND EMPLOYERS’ LIABILITY POLICY HELD NOT TO BE REINSURANCE

December 16, 2015 by Carlton Fields

The United States District Court for the Middle District of Louisiana recently granted an insurer’s motion for summary judgment, finding that an excess workers’ compensation and employers’ liability policy was not reinsurance and that the limit of liability of an underlying insurance policy was not relevant to the amount owed. Louisiana Commerce and Trade Association Self Insurers Fund sued National Union Fire Insurance Company of Louisiana for breach of contract. The district court to which the case was removed described the case as “a dispute between two insurance companies over the limits of liability resulting from the settlement of an intentional tort case.” LCTA provided indemnity for workers’ compensation benefits and employers liability and issued coverage to Gee Cee Group Inc. and Gee Cee Enterprises. An employee of Gee Cee was injured and filed a workers’ compensation claim and claim for intentional tort damages against Gee Cee. Gee Cee settled the intentional tort action and LCTA filed a proof of claim with National Union for $1 million, the policy limits of the National Union/LCTA policy. Of that amount, National Union paid $800,000 and then asserted that it had overpaid by $300,000 because the policy limit was actually only $500,000. Both parties moved for summary judgment. LCTA asserted that it was entitled to judgment in its favor for $200,000, and National Union asserted that it is a reinsurer that has no greater liability to LCTA than LCTA has to Gee Cee, which is $500,000. Finding the terms of the National Union/LCTA policy to be clear and unambiguous, and not reinsurance, the district court held for LCTA. Louisiana Commerce and Trade Association Self Insurers Fund v. Nat’l Union Fire Insurance Co. of Pittsburgh, No. 13-773-JJB-RLB (USDC M.D. La. Nov. 3, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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COURT GRANTS MOTION TO DISMISS IN ROW BETWEEN INSURED, INSURER, AND THIRD-PARTY CLAIM ADMINISTRATORS

December 9, 2015 by Carlton Fields

A district court in Ohio granted defendants National Indemnity Company (“National”) and Resolute Management, Inc.’s (“Resolute”) motion to dismiss in an asbestos coverage dispute. Plaintiff, industrial manufacturer the William Powell Company (“Powell”), bought 60 million dollars in primary and excess product and liability coverage, eventually assumed by OneBeacon Insurance Company (OneBeacon), with additional coverage for claim defense. OneBeacon procured reinsurance protection through National. National subsequently delegated its claim responsibilities to various companies including Resolute. In 2001, Powell became embroiled in asbestos injury claims to which it sought defense. Powell alleged that National and Resolute “combined to form a racketeering enterprise for the purpose of depriving Powell of its insurance coverage and to profit at Powell’s expense” by rejecting claims and improperly intervening in the defense of those claims. National, OneBeacon, and Resolute sought dismissal of Powell’s various federal and state law claims. The court first rejected plaintiff’s federal RICO claim as it would impede Ohio insurance law to contravene McCarran-Ferguson. In particular, the court noted that an insured my not sue a third-party claims administrator for bad faith nor unfair claims handling. Additionally, a RICO claim “would upset and impair [Ohio’s] regulatory scheme and impede its ability to detect insurance fraud.” Considering next state specific claims, the court found that, without privity, Ohio does not recognize a bad faith claim for the handling of insurance claims. For these and other reasons the court granted defendants’ motion to dismiss. The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-807 (USDC S.D. Ohio Sept. 30, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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COURT FINDS THAT FOLLOW THE FORTUNES DOCTRINE DOES NOT APPLY TO CLAIMS AGAINST A REINSURANCE PROGRAM’S TPA, BUT DISMISSES SUIT AGAINST IT ON OTHER BASES

November 24, 2015 by Carlton Fields

A New York federal district court recently held that the follow the fortunes doctrine does not govern certain claims brought against a third-party administrator of a reinsurance program, but otherwise granted the administrator’s motion to dismiss on various grounds. AmTrust North America, Inc. and its affiliate, Technology Insurance Company, Inc., brought suit against certain individuals and companies in which those individuals were purportedly involved (the “Third-Party Plaintiffs”) seeking a declaratory judgment and monetary damages arising from a reinsurance venture. The gist of the insurers’ claims was that the Third-Party Plaintiffs fraudulently induced the insurers to act as “middle men” in a reinsurance program that was supposed to be structured so that the insurers avoided risk, when in fact they were exposed. The Third-Party Plaintiffs, in turn, sued Network Adjusters, Inc., the claims administrator for the program, alleging that its conduct inflated the insurers’ purported losses.

The factual background discussing the complex transactions involved in the lawsuit is described here. Network moved to dismiss the third-party complaint. The court denied the prong of Network’s motion that sought dismissal under the follow the fortunes doctrine, finding the doctrine inapplicable to the claims alleged against Network, which did not arise from a cedent/reinsurer relationship. Dismissal was nonetheless warranted because: (a) the Third-Party Plaintiffs’ breach of contract claim was not actionable, as they were not parties to or third-party beneficiaries of the contract under which the claims against Network arose; (b) Network owed no duty of care to the Third-Party Plaintiffs, defeating the cause of action for negligence; (c) the Third-Party Plaintiffs’ contribution claim sought only economic/contract damages, and was not cognizable under New York law; and (d) the causes of action for common law and contractual indemnification failed because Network owed no independent duties to the Third-Party Plaintiffs, nor did they plead facts alleging that Network’s contractual duty to indemnify was triggered. Amtrust North America, Inc. v. Safebuilt Insurance Services, Inc., No. 1:14-cv-09494 (USDC S.D.N.Y. Oct. 28, 2015).

This post written by Rob DiUbaldo.

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CONNECTICUT FEDERAL COURT GRANTS REINSURER’S MOTION FOR SUMMARY JUDGMENT, ENTITLING IT TO COMMISSION ADJUSTMENT PAYMENTS

November 11, 2015 by John Pitblado

In a diversity action arising out of a series of reinsurance agreements, a reinsurer, Odyssey Reinsurance Company, alleged that it was owed sliding scale commission adjustment payments from Cal-Regent Insurance Services Corporation, and sought summary judgment on its breach of contract and declaratory judgment claims. On August 20, 2015, a district court in Connecticut denied Odyssey’s motion for summary judgment without prejudice, and allowed Cal-Regent to amend its answer to comply with the Federal Rules of Civil Procedure and to properly plead that Odyssey breached the reinsurance agreements (which we reported on September 21, 2015). Thereafter, Cal-Regent did not amend its answer, and Odyssey renewed its motion for summary judgment. On October 14, 2015, the Court held that there was no genuine issue of material fact, and that Odyssey is entitled as a matter of law to a declaratory judgment that Cal-Regent breached the reinsurance agreements, allowing Odyssey to recover over $2.7 million in the commission adjustment payments, plus prejudgment interest.

Odyssey Reinsurance Co. v. Cal-Regent Insurance Services Corp., No. 3:14-cv-00458 (USDC D.Conn. Oct. 14, 2015).

This post written by Jeanne Kohler.

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