Contract Interpretation

REINSURER’S LIABILITY CAPPED AT AMOUNT STATED IN LIABILITY CLAUSES

December 9, 2014 by Carlton Fields

In a case on which we previously reported on January 29, 2014, a federal court in New York recently ruled that a reinsurer was not required to pay amounts in excess of the sums stated in the Liability Clauses of two facultative certificates, even though the word “limit” was not used. Rather, the reinsurer’s liability was stated as a percentage share of the underlying policy limit. The reinsured argued that certain defense expenses must be reimbursed, even though they exceeded the agreed-upon percentage share, because the facultative certificates were silent on whether defense expenses count toward the amount reinsured. Applying Second Circuit and New York law, the court concluded that the contract was unambiguous and that the reinsurer’s overall liability for both indemnity and defense expenses was capped at the amount stated in the Liability Clauses of the facultative certificates. The Court ruled that a percentage share of an underlying policy limit is itself a limit on liability. The court also denied the reinsured’s request for discovery regarding the “custom and practice” related to limit-of-liability provisions in reinsurance contracts. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Nov. 20, 2014).

This post written by Catherine Acree.

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COURT REJECTS INSURER’S ARGUMENT THAT IT CONTRACTED TO ITS REINSURER ALL OBLIGATIONS OWED UNDER A CEDED POLICY

December 1, 2014 by Carlton Fields

A federal district court has denied an insurer’s motion for summary judgment on a breach of contract claim, rejecting Liberty National Life’s argument that it contracted to its reinsurer all obligations owed under a ceded policy. At issue was a reinsurance and assumption agreement where Liberty ceded to its reinsurer a number of policies. The reinsurer agreed to “assume and carry out all contractual terms, conditions and provisions” in the ceded policies and “assumed the obligations of the liabilities” for all losses and claims arising out of the ceded policies. Liberty argued that the terms of the agreement absolved it from all contractual liability owed to its policyholders. The court disagreed. Though the agreement was an assumption (as opposed to an indemnity) reinsurance agreement and the reinsurer therefore stepped into Liberty’s shoes with respect to the ceded policy, Liberty remained liable unless there was a novation of the ceded policy substituting the reinsurer for Liberty. Finding Liberty had not submitted sufficient evidence to show a novation, the court denied Liberty’s motion for summary judgment on the breach of contract claim. The court did grant Liberty summary judgment on the bad faith claim, finding the plaintiff had failed to show any tortious or unreasonable act on Liberty’s part. The court also rejected arguments as to the inadmissibility of Liberty’s summary judgment evidence, finding that Liberty’s admissions and the agreement itself were admissible and could be considered. Evans v. Liberty National Life Insurance Co., No. 13-CV-0390 (USDC N.D. Okla. Nov. 12, 2014).

This post written by Renee Schimkat.

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NEW YORK APPELLATE COURT DISMISSES CLAIMS AGAINST REINSURER AND ITS CLAIMS ADMINISTRATOR

November 10, 2014 by Carlton Fields

In what began as a dispute between OneBeacon America Insurance Company and its insured, Colgate, over OneBeacon’s asserted right to control the defense of claims against Colgate in connection with numerous personal injury suits, Colgate sued OneBeacon’s reinsurer, National Indemnity Company (“NICO), and its affiliated claims adjuster, Resolute Management. Colgate alleged that OneBeacon’s contractual relationship with NICO and Resolute created a conflict of interest because they served a dual role as both OneBeacon’s reinsurer and the claims adjuster under those policies. Colgate wanted to defend the actions against it, while NICO and Resolute wanted to settle the cases to minimize the legal expenses.

Colgate sued NICO and Resolute under several theories, including declaratory relief, breach of contract, tortious interference, breach of the implied covenant of fair dealing, and a statutory claim under Massachusetts law for unfair deceptive conduct. After the lower court only partially dismissed these claims, NICO and Resolute appealed. The appellate court dismissed all claims against NICO and Resolute. Central to the court’s ruling was the absence of a contract between Colgate and NICO or between Colgate and Resolute. Moreover, the agreement between NICO and Resolute provided that the agreement could not be assigned and that it did not confer any rights on third parties. Absent contractual privity or an assigment, Colgate could not assert any claims against NICO or Resolute despite their dual roles as OneBeacon’s reinsurer and Colgate’s claims administrator. OneBeacon America Insurance Co. v. Colgate-Palmolive, Index No. 651193/11 (N.Y. App. Div. Oct. 28, 2014).

This post written by Leonor Lagomasino.

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SECOND CIRCUIT REFUSES TO HEAR APPEAL BY UNDERWRITER AGAINST REINSURER

October 20, 2014 by Carlton Fields

The Second Circuit refused to hear an appeal in an action brought by Acumen Re Management Corporation, an underwriter, against a reinsurer, General Security National Insurance Company. The crux of the action was Acumen’s allegation that General Security breached the agreement between them by failing to pay Acumen certain commissions which General Security allegedly owed under the parties’ agreement. In the suit, Acumen alleged five distinct theories as to how General Security breached the agreement. The lower court entered partial summary judgment in favor of General Security on four of those theories and further held that, under all five theories, no more than nominal damages were available to Acumen. The lower court certified the partial final summary judgment as to the four counts under Federal Rule of Civil Procedure 54(b) which authorizes, under certain circumstances, entry of a partial final judgment as to one or more, but fewer than all, claims of the parties such that the partial final judgment becomes reviewable on appeal. The Second Circuit determined that the five theories Acumen alleged were not separate and distinct claims; instead, Acumen alleged five various ways in which General Security breached the agreement and the claims were interrelated and dependent upon each other. The Second Circuit concluded that it did not have jurisdiction to review the lower court’s entry of partial summary judgment. Acumen Re Management Corp. v. General Security National Insurance Co., No. 12‐5081‐cv (2d Cir. Oct. 3, 2014).

This post written by Leonor Lagomasino.

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SPECIAL FOCUS: DISMISSAL OF MARIAH RE CAT BOND LAWSUIT

October 13, 2014 by Carlton Fields

We posted previously on the Mariah Re cat bond lawsuit. The court recently dismissed the Amended Complaint in that action with prejudice. Rollie Goss discusses this opinion in a Special Focus article titled Cat Bond Litigation: Unambiguous Bond Documents Cause Court To Dismiss With Prejudice Complaint Seeking to Claw Back Payments Made From a Cat Bond Reinsurance Trust.

This post written by Rollie Goss.

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