Contract Interpretation

PENNSYLVANIA COURT DENIES MOTION FOR SUMMARY JUDGMENT OVER FACULTATIVE REINSURANCE CERTIFICATES

May 4, 2015 by Carlton Fields

The Court of Common Pleas of Philadelphia County denied defendant OneBeacon Insurance Company’s (“OneBeacon”) motion for summary judgment against plaintiffs Century Indemnity Company (“Century”) and Pacific Employers Insurance Company (“Pacific”). Century and Pacific, which held reinsurance policies issued by OneBeacon, sued the reinsurer to recover expenses in addition to the stated policy limits and to recover an award of interest on the payments received. OneBeacon sought summary judgment on two grounds: 1) that the limit stated in the parties’ reinsurance certificates placed a total cap on its liability, and 2) that plaintiffs were not entitled to an award of interest on payments. The court denied OneBeacon’s motion. First, the court determined that certain conditions placed on premiums in the reinsurance certificates meant that the premium was subject to a condition that excluded expenses in calculating the total loss limit. “If anything,” the court noted, “the terms of the certificates may have created a presumption of expense-exclusiveness.”

Second, the court denied defendant’s motion for summary judgment on collateral estoppel grounds. OneBeacon cited two prior district court cases that considered the “limit-of-liability” issue, but the court held that this legal authority did not “hold the necessary weight of final judgments at this juncture in order to apply collateral estoppel against plaintiffs.” Finally, because the court had already granted plaintiffs’ separate motion for summary judgment on payments of interest, it denied OneBeacon’s motion on that issue as well. Century Indem. Co. v. OneBeacon Ins. Co., No. 02928 (Pa. Com. Pl. Mar. 27, 2015).

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

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INSURER LOSES MOTION FOR RECONSIDERATION ON ORDER LIMITING REINSURER’S LIABILITY

April 29, 2015 by Carlton Fields

On a motion for reconsideration of a summary judgment entered against it, on which we previously reported, Century Indemnity Company urged a New York federal court to review its order in light of a subsequent decision by a different judge. The ruling Century sought to reverse concluded that the reinsurance limits set forth in each certificate of insurance issued by its reinsurer, Global Reinsurance Corporation of America, were inclusive of costs and expenses and created an overall cap of liability. The intervening decision Century brought to the Court’s attention was Utica Mutual Insurance Co. v. Munich Reinsurance American, Inc., an unpublished 2014 decision by the Second Circuit. Century’s motion was denied. The Utica decision was not controlling law and Century did not introduce new evidence. In addition, Utica would not require a different conclusion given that it was based on the particular language in the certificates in that case, which differed from the language of the certificates issued by Global. Specifically, the language in the certificates in the Utica case made losses and damages subject to the certificates’ limit of liability, but did not include a similar provision for “loss expenses.” Global’s certificates provided a total cap for liability and did not differentiate between reinsurance accepted for loss versus reinsurance accepted for expenses. Global Reinsurance Corp. of America v. Century Indemnity Co., No. 13 Civ. 06577 (USDC S.D.N.Y. Apr. 15, 2015).

This post written by Brian Perryman.

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APPELLATE COURT RULES ON LOSS ALLOCATION AND NOTICE DISPUTES CONCERNING REINSURANCE CLAIM

March 30, 2015 by Carlton Fields

A New York appellate court affirmed the denial of summary judgment but with modifications. New Hampshire Insurance Company (“New Hampshire”) together with other insurers, settled with Kaiser Aluminum & Chemical Corporation (“Kaiser”) for asbestos personal injury related claims. The settlement allocated 100% of the asbestos liability to New Hampshire and their excess reinsurance carrier, Clearwater Insurance Company (“Clearwater”). New Hampshire sought indemnification from Clearwater pursuant to a reinsurance agreement.

Clearwater challenged the allocation in the settlement arrangement alleging that it forced New Hampshire to bear costs associated with other settled claims including bad faith, which was not covered in the excess policy. Clearwater further alleged that New Hampshire breached its notice and reporting duties under the terms of the reinsurance contract. In the very early stages of discovery, New Hampshire moved for summary judgment, arguing in part that Clearwater was bound by the allocation settlement under reinsurance principles. The trial court denied summary judgment and the appellate court affirmed, finding an allocation decision was not immune from scrutiny. Therefore, New Hampshire’s settlement would be judged on its reasonableness, which at this stage of the litigation was “undeveloped.”

Furthermore, the court found another triable issue as to New Hampshire’s notice to Clearwater on loses sustained by Kaiser. Clearwater alleged that it had been prejudiced by New Hampshire’s late notice resulting in “disadvantageous communication agreements” with its reinsurers. Based on these facts, the appellate court found New Hampshire’s summary judgment motion premature.

New Hampshire Ins. Co. v. Clearwater Ins. Co., No. 12779 (N.Y. App. Div. Mar. 24, 2015).

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

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REINSURANCE EXCLUSION BARS COVERAGE FOR BAD FAITH LAWSUIT

March 23, 2015 by Carlton Fields

A federal judge in North Carolina recently examined a reinsurance policy provision excluding loss “resulting from any claim for . . . any actual or alleged lack of good faith or unfair dealing in the handling of any claim or obligation under any insurance contract.” The case involved a request for coverage under a reinsurance policy for a lawsuit filed by a doctor against his medical malpractice carrier, the reinsured. The doctor, against whom an excess verdict had been entered, asserted a number of causes of action including bad faith refusal to settle within the policy limit. The reinsurer filed a motion for summary judgment arguing that there was no coverage for the doctor’s lawsuit based on the exclusion mentioned above because all potential loss resulted from the reinsured’s alleged lack of good faith in refusing to settle the underlying matter within the underlying policy limit. Applying North Carolina law, the court agreed with the reinsurer, concluding that all the causes of action alleged a single course of conduct involving a lack of good faith in refusing to settle within the limit. Because all potential loss “resulted from” and was “inextricably intertwined” with the bad faith allegations, the reinsurer had no duty to defend or indemnify.

Greenwich Ins. Co. v. Medical Mutual Ins. Co. of North Carolina, No. 5:14-cv-295 (USDC E.D.N.C. Jan. 27, 2015).

This post written by Catherine Acree.

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FIRST CIRCUIT RECOGNIZES UBERRIMAE FIDEI IN ADMIRALTY CONTEXT

March 5, 2015 by Carlton Fields

The First Circuit recently examined, in the admiralty context, the doctrine of uberrimae fidei, a legal doctrine requiring that all parties to an insurance contract deal in good faith and fully disclose all material facts. The case involved a maritime insurance policy in which the insured failed to disclose that its dry dock had substantial, preexisting damage and failed to disclose the dry dock’s actual value. When the insured later made a claim and the facts were revealed, the insurer denied the claim. In subsequent coverage litigation, the district court decided in favor of the insurer, finding that the insurance policy was void ab initio because the insured failed to disclose the true value of the dry dock, its level of deterioration, and other material facts. The First Circuit affirmed, holding that uberrimae fidei is an established admiralty rule within the first circuit. The First Circuit, however, modified the district court’s ruling to reflect that the contract was merely voidable, not void ab initio.

Catlin at Lloyd’s v. San Juan Towing & Marine, No. 13-2491, 2015 WL 500744 (1st Cir. Feb. 6, 2015).

This post written by Catherine Acree.

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