Contract Interpretation

SERVICE OF SUIT CLAUSE PRESERVING INSURER’S RIGHT TO “SEEK A TRANSFER” DID NOT PERMIT INSURER’S REMOVAL TO FEDERAL COURT

September 11, 2013 by Carlton Fields

An insurer’s bid to remove a lawsuit to federal court was stymied. The case involved a “service of suit” paragraph in an insurance policy permitting the insured to select the venue and forum of a dispute under the policy. The court found that the insurer waived the right to remove an action from state to federal court, notwithstanding a provision purporting to preserve the insurer’s right to “seek a transfer” of the case. The court interpreted consecutively each sentence of the relevant paragraph “like the concentric rings of a target.” Among other things, the court considered whether the phrase “seek a transfer” contemplated seeking removal of the action to federal court. That phrase did not include seeking removal, notwithstanding caselaw that had reached a different result in the context of a different forum selection clause employing the word “transfer” in a grammatically and substantively different way. Hanover Insurance Group, Inc. v. Chartis Specialty Insurance Co., Case No. 4:12-cv-40156 (USDC D. Mass. Aug. 19, 2013).

This post written by Michael Wolgin.

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FEDERAL COURTS TACKLE STATUTE OF LIMITATIONS ISSUES IN RESPA CAPTIVE REINSURANCE CLASS ACTIONS

September 6, 2013 by Carlton Fields

We have reported on several putative class actions brought by purchasers of private mortgage insurance who allege that insurers, lenders, and captive reinsurers unlawfully entered into reinsurance arrangements in violation of the federal Real Estate Settlement Procedures Act (“RESPA”) and other laws. There have been some recent developments in such cases involving RESPA’s one-year statute of limitations.

In Munoz, as we reported in May, a federal magistrate judge in California recommended certification of a class of purchasers of private mortgage insurance whose insurance was included in defendants’ captive reinsurance arrangements. The magistrate judge recently granted a motion to intervene brought by a putative class member who was excluded from the recommended class because her claims were time-barred. The magistrate had not included such persons in the recommended class because their claims were atypical and class plaintiffs, whose claims were not similarly time-barred, had no interest in asserting tolling of the statute of limitations. In the order granting the motion to intervene the parties were instructed to conduct discovery on and brief the issue of whether certification of a tolling subclass is appropriate. Munoz v. PHH Corp., Case No. 1:08-cv-00759 (USDC E.D. Cal. July 29, 2013).

In Menichino, a Pennsylvania federal district court dismissed without prejudice plaintiff’s putative class action complaint alleging RESPA violations premised on alleged kickbacks relating to defendants’ private mortgage insurance and captive reinsurance arrangements. The court held that plaintiff’s complaint was time-barred by RESPA’s one-year statute of limitations and that plaintiff had failed to allege sufficient facts which, taken as true, would have established that RESPA’s limitations period should be tolled. Menichino v. Citibank, N.A., Case No. 12-0058 (USDC W.D. Pa. July 19, 2013).

The court reached the identical conclusion in Manners, a related case, and similarly dismissed the putative class plaintiff’s claims without prejudice. Manners v. Fifth Third Bank, Case No. 12-0442 (USDC W.D. Pa. July 19, 2013).

This post written by Ben Seessel.

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NEW YORK COURT PREDICTS THAT CALIFORNIA COURTS WOULD RECOGNIZE BAD FAITH EXCEPTION TO NOTICE-PREJUDICE RULE IN REINSURANCE CONTEXT

September 4, 2013 by Carlton Fields

The Insurance Company of the State of Pennsylvania sued its reinsurer Argonaut for liability arising from underlying asbestos litigation. ICSOP issued excess umbrella coverage to its insured, Kaiser, which manufactured products containing asbestos and faced underlying liability from lawsuits alleging asbestos-related injury. ICSOP obtained facultative reinsurance from Argonaut covering a percentage of the Kaiser excess policy. ICSOP received notice in 2001 that Kaiser had exhausted primary coverage, implicating the umbrella coverage. Kaiser ultimately brought ICSOP into a coverage lawsuit in California in 2002, which was litigated extensively until a 2009 mediation. However, ICSOP did not notify Argonaut until 2009 of the potential exposure under the facultative reinsurance, long after the court had made a number of rulings adverse to ICSOP. Argonaut denied ICSOP’s claim citing, among other things, untimely notice. ICSOP filed suit and the parties cross-moved for summary judgment on the late notice issue.

The Southern District of New York, applying California law, held that notice had been untimely, but that in order to be excused from paying claims Argonaut had to prove that it had been prejudiced by the late notice. Although it found that Argonaut had submitted sufficient evidence to raise a genuine issue of fact as to whether it had been prejudiced by the untimely notice, in anticipating evidentiary burdens at trial, the court considered whether Argonaut might be excused from showing prejudice if it demonstrated that ICSOP had acted in bad faith in providing untimely notice. The bad faith exception to the prejudice requirement has been adopted in New York and some other states. Acknowledging that California courts had not addressed whether to recognize the bad faith exception, the court predicted that California courts would recognize the exception. The court permitted Argonaut to take discovery on ICSOP’s alleged bad faith before proceeding to trial. Insurance Co. of the State of Pennsylvania v. Argonaut Insurance Co., No. 12 Civ. 6494 (USDC S.D.N.Y. Aug. 6, 2013).

This post written by John Pitblado.

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COURT DECLINES TO STAY LITIGATION OF CLAIMS UNDER GUARANTEE DESPITE COMMON ISSUES WITH PENDING REINSURANCE ARBITRATION

September 3, 2013 by Carlton Fields

This case concerns overlapping reinsurance agreements, retrocession agreements related to the rinsured risks, and guarantees of the retrocession agreements. The reinsurance and retrocession agreements all contain arbitration provisions, but the guarantees do not. Disputes arose, an arbitration commenced concerning the retrocession agreements and a lawsuit was filed on the related guarantees. On a motion to dismiss, the court held that the claimant did not have to “exhaust” efforts to collect under the reinsurance or retrocession agreements before bringing suit under the guarantees. The court denied a request to stay the claims based on the guarantees pending the arbitration of disputes under the retrocession agreements, because the party seeking the stay had failed to establish that there were issues common to the arbitration and the court action which would be finally determined by the arbitration. While liabiity under the reinsurane and retrocession agreements might be considered an issue common to the arbitration and court action, the court found this factor overcome by evidence that the defendants had delayed and abused the arbitration process. Finally, the court rejected arguments that the guarantee claims failed to state a claim. Greenlight Reinsurance, Ltd. v. Appalachian Underwriters, Inc., Case No. 12-8544 (USDC S.D. N.Y.July 25, 2013).

This post written by Rollie Goss.

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BRITISH COURT VOIDS REINSURANCE COVERAGE FOR BREACH OF TYPHOON WARRANTY IN MASS-CASUALTY SHIP-SINKING OFF PHILIPPINES

August 21, 2013 by Carlton Fields

Plaintiffs sued defendant primary insurer, Oriental Assurance Company, under a reinsurance contract covering underlying risk of a Philippines shipping company, including 22 scheduled vessels. Among them was the Princess of the Stars, a ferry built in 1984 which, on June 21, 2008, set out from Manila on a trip to Cebu, with 2978 tons of cargo, including cars and SUVs, 713 passengers and 138 crew. It capsized when a typhoon struck, killing 851 people and leaving only 32 survivors. The reinsurance contract contained a “Typhoon Warranty” clause prohibiting a ship setting sail in waters after issuance of a typhoon warning, violation of which voids the policy. After hearing expert testimony and other evidence regarding the ship captain’s and shipping company’s knowledge of typhoon warnings, and decision to nonetheless sail, the UK court held the warranty breached, and the reinsurance cover void. Amlin Corporate Member, Ltd. v. Oriental Assurance Corp., [2013] EWHC 2380 (Comm) (British High Court of Justice, Queen’s Bench, July 31, 2013).

This post written by John Pitblado.

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