Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Contract Interpretation

Contract Interpretation

COURT APPLIES ENGLISH LAW TO RETROCESSION AGREEMENTS, FINDING SOME CLAIMS OWING AND OTHER CLAIMS BARRED BY STATUTE OF LIMITATION, WITH NO BREACH OF RETENTION WARRANTY

by

U.S.-based insurers wrote risks and obtained reinsurance from a syndicate of reinsurers, for which Republic Insurance was a fronting company. The syndicate obtained retrocessional coverage in the London market through LMX quota share contracts which ran for a number of years. The retrocessional coverage required that the reinsured retain a certain percentage of the risk, which is not an unusual warranty. Claims statements were submitted and paid over several years without dispute, but due to a change in the administration of the retrocessional coverage claims statements were not submitted on the retrocession contracts for about ten years, even though claims had been paid on the underlying coverages. Billings then resumed and a dispute arose. On motions for summary judgment, the trial court held: (1) English law applied to the retrocession contracts since the place of negotiations, contracting, obligations, subject matter, and arbitration situs for the retrocession contracts were primarily focused on London (the fact that the underlying risks were located around the world made that factor of little significance); (2) claims arising during the ten year period of non-billing were barred by the six year English statute of limitation; and (3) later claims were not contested, and were established and owing on an account stated basis. The court found that there was no breach of the retention warranty, even though Republic did not retain the requisite amount of the risk, because the warranty provided for retention by the reinsured, which was defined to be the syndicate rather than the fronting company, and the syndicate did retain the warranted amount of risk. Republic Ins. Co. v. Banco de Seguros del Estado, Case No. 10-C-5039 (USDC N.D. Ill. July 26, 2013).

This post written by Rollie Goss.

See our disclaimer.

DISTRICT COURT TRANSFERS BREACH OF CONTRACT ACTION INVOLVING REINSURANCE AGREEMENT

by

In a dispute between an insurance company and a reinsurance company over sums paid pursuant to a reinsurance agreement, the Southern District of New York granted defendant’s motion to transfer to the Northern District of New York (“NDNY”) where a similar dispute involving the same parties, but a different reinsurance agreement, is pending. The court determined that transfer was appropriate because the only witnesses reside in the NDNY, the relevant documents exist in defendant’s headquarters located in the NDNY, and plaintiff’s choice of forum is entitled to little deference since plaintiff is located in New Jersey, not in the forum. The fact that the sister case pending in the NDNY involves common witnesses and documents, and therefore might generate duplicative discovery, also weighed in favor of transfer. Munich Reinsurance America, Inc. v. Utica Mutual Insurance Company, Case No. 13-cv-238 (USCD S.D.N.Y. June 18, 2013).

This post written by Abigail Kortz.

See our disclaimer.

MOTIONS TO DISMISS CAPTIVE REINSURANCE LAWSUIT DENIED

by

A federal district court granted in part and denied in part various motions to dismiss filed by defendants HSBC and private insurers Genworth, Republic, and Mortgage Guaranty. Plaintiffs alleged that HSBC Mortgage, through HSBC Reinsurance, conspired with various private mortgage insurers to create a captive reinsurance scheme. The scheme, which involved private insurers paying HSBC reinsurance premiums for little, if any, assumption of risk allegedly circumvented the kickback prohibitions of the Real Estate Settlement Procedures Act. Plaintiffs further alleged that the premium payments were made by the private insurers for business referrals. Though the RESPA allegations would otherwise be barred by the statute of limitations, the court declined to dismiss those claims, citing the doctrine of equitable tolling. The court also declined to dismiss plaintiffs’ additional claim for unjust enrichment. Only United Guaranty’s motion to dismiss was granted, as plaintiffs failed to show that United Guaranty actually insured the mortgages in question. Moriba BA v. HSBC USA, Inc., Case No. 2:13-cv-00072-PD (USDC E.D. Pa. June 27, 2013).

This post written by Brian Perryman.

See our disclaimer.

APPEALS COURT HOLDS REINSURER’S UNLAWFUL AGREEMENTS AND CONSPIRACIES ARE NOT CLAIM HANDLING ACTIVITIES

by

Wellpoint, Inc. sued a number of defendants, chief among them reinsurers Continental Casualty Company and Twin City Fire Insurance Company, for denying coverage for Wellpoint’s defense and settlement of a number of medical reimbursement-related lawsuits against it. Wellpoint’s predecessor, Anthem, was the subject of a class action lawsuit in 1999 that alleged that Anthem’s subsidiary failed to timely and adequately reimburse for medical services. Beginning in 2001, Anthem became the subject to a series of over ten additional state and federal lawsuits alleging improper denial of reimbursement and other wrongful acts, including alleged violations of the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Anthem sought coverage from its insurers for defense and settlement of the CUTPA and RICO claims, and the reinsurers counterclaimed seeking declaration that these claims were not covered by the reinsurance agreement. The trial court granted the reinsurers’ motion for summary judgment on the issue.

The reinsurance agreement at issue covered claims against the insured for a wrongful act “only if such Wrongful Act . . . occurs solely in the rendering of or failure to render Professional Services.” (emphasis added) The reinsurance agreement states that “Professional Services” are “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” In a divided panel vote, the appeals court affirmed the lower court’s summary judgment ruling for the reinsurers finding professional services only included those rendered in the conduct of Wellpoint’s handling or adjusting of claims submitted on the policies that it had issued. Coverage was available only if the alleged wrongful acts that gave rise to the underlying litigation happened “solely” in the conduct of Wellpoint’s claims handling and adjusting. The court held the alleged acts did not, interpreting “solely” to mean “exclusively” or “entirely.” Thus, the alleged violations of CUTPA and RICO were not claims handling activities and could not be covered. Wellpoint, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 49A05-1202-PL92 (Ind. Ct. App. June 19, 2013).

This post written by Brian Perryman.

See our disclaimer.

SUMMARY JUDGMENT DENIED ON ISSUE OF WHETHER COMPANY WAS PARTY TO REINSURANCE AGREEMENT

by

In a long running dispute concerning reinsurance, which we posted on in March 2011, a court was asked to find that Guarantee Trust was a party to a reinsurance agreement that it never signed. Acknowledging that it was a well established principle of Illinois contract law that “a party may, by his acts and conduct, assent to contravct terms and become bound by them even though he has not signed the contract, if it is clear that his conduct relates to the specific contract in question,” the cour found that there were disputed issues of material fact as to whether American Medical had demonstrated the types of acts and conduct which would bind Guarantee Trust to a reinsurance agreement it had not signed. The court therefore denied American Medical’s motion for summary judgment. Guarantee Trust Life Ins. Co. v. American Medical and Life Ins. Co., Case No. 10-2125 (USDC N.D. Ill. Mar, 27, 2013).

This post written by Rollie Goss.

See our disclaimer.