Contract Interpretation

REINSURER BREACHED CONTRACT TO AVIATION INSURER CONCERNING 9/11 LOSSES

July 10, 2013 by Carlton Fields

In a case on which we have previously posted, following a bench trial, a court held that a reinsurer breached its contract to an aviation insurer by overbilling the insurer after entering into commutation agreements. These agreements sought to save the insurer from bankruptcy following massive losses it sustained in connection with the terrorist attacks of September 11, 2001. The court sided with the insurer’s interpretation limiting the insurer’s liability to either 48% or 43.2% of the total amount paid by the reinsurer, following the commutations. Moreover, the insurer was able to maintain that it was not liable for more than a portion of reinstatement premiums paid by the insurer, despite extrinsic evidence casting doubt on the contract itself. Aioi Nissay Dowa Insurance Co. Ltd. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. June 20, 2013).

This post written by Brian Perryman.

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SUMMARY JUDGMENT DENIAL AFFIRMED AGAINST MAURICE GREENBERG AND HOWARD SMITH IN ALLEGED SHAM FINITE REINSURANCE CASE

July 9, 2013 by Carlton Fields

In affirming the appellate division’s order against former American International Group, Inc. executives Maurice Greenberg and Howard Smith, the New York Court of Appeals held that claims brought by the State’s Attorney General had enough support to withstand summary judgment. The case, which began in 2005, centers on reinsurance transactions between AIG and General Reinsurance Corporation. The Attorney General alleges that Greenberg and Smith entered AIG into transactions which did little to actually allocate risk amongst the parties but, instead, were used by AIG to increase certain financial metrics. These transactions would benefit AIG’s stock price once better financial numbers were reported in their insurance business. The Attorney General alleges Greenberg and Smith violated the Martin Act and engaged in common law fraud by entering AIG into these contracts.

New York’s high court decided two questions: first, whether the information known by Greenberg and Smith presented an issue of fact for trial; and second, whether the Attorney General was barred from attaining equitable relief from Greenberg and Smith. The court acknowledged that previous criminal proceedings against the two defendants did find enough evidence for conspiracy based on telephone conversations between Greenberg and the General Reinsurance’s CEO. The court also found sufficient evidence in the record to proceed to trial, and allowed for equitable relief to proceed as well. People v. Greenberg, No. 63 (N.Y. June 25, 2013).

This post written by Brian Perryman.

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SECOND CIRCUIT VACATES ORDER DENYING PETITION TO CONFIRM INTERNATIONAL ARBITRATION AWARD

June 10, 2013 by Carlton Fields

VRG Linhas Aereas, a subsidiary of GOL Linhas Aereas, initiated an arbitration administered by the International Court of Arbitration for the International Chamber of Commerce (ICC) against MatlinPatterson, a New York private equity firm. The dispute concerned the calculation of the price for VRG in VRG’s purchase from two of MatlinPatterson’s affiliates. MattlinPatterson argued before the ICC arbitration panel that it was not a party to any arbitration agreement because it had not signed the purchase agreement—it had only signed an addendum. The arbitral tribunal disagreed, holding that MatlinPatterson was bound to arbirate and, furthermore, sided with VRG on the merits of the dispute.

VRG petitioned to confirm the award in federal district court. The district court denied the petition on the basis that, even if MatlinPatterson had agreed to arbitrate certain disputes, the arbitration agreement clearly did not extend to VRG’s purchase price. The Second Circuit vacated the district court’s order. It held the district court erred by failing to make the threshold determination whether the arbitrators or the court should decide the issue of arbitrability before interpreting the arbitration clause. The court held that, under Supreme Court precedent, if the parties clearly and unmistakably had agreed to arbitrate, then the decision as to arbitrability was properly for the arbitrators and the award should be confirmed. VRG Aeras S.A. v. Matlin Patterson Global Opportunities Partners II L.P., No. 12-593-cv (2d Cir. June 3, 2013).

This post written by Ben Seessel.

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INSURER’S MOTION TO DISMISS DENIED DUE TO EQUITABLE TOLLING

June 6, 2013 by Carlton Fields

United Guaranty sought reconsideration of its motion to dismiss, which the Court denied in part due to Plaintiffs’ successful equitable tolling argument. United Guaranty again argued that equitable tolling was inappropriate as Plaintiffs “did not sufficiently allege that United Guaranty committed an act of fraudulent concealment that prevented him from discovering his claim during the limitation period.” Broome, one of the original plaintiffs, obtained a mortgage from First Horizon. First Horizon then selected United Guaranty to act as Broome’s insurer. United Guaranty in turn then selected FT Reinsurance, a subsidiary of First Horizon, to provide reinsurance. Broome alleges this relationship represented a “captive reinsurance scheme,” with referral payments used to circumvent the kickback prohibitions of the Real Estate Settlement Procedures Act (“RESPA.”)

Once again, the Court found that Broome’s allegations were sufficient under the doctrine of equitable tolling, and therefore, the one-year statute of limitations did not bar his claim. The Court noted that the extent of cooperation between the bank, insurer, and reinsurance companies, while currently unknown, are better left to discovery. The Court also denied United Guaranty’s motion to certify the February 27, 2013 Order for immediate appeal as the previous court order did not represent a controlling question of law. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. April 4, 2013).

This post written by Rollie Goss.

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SUMMARY JUDGMENT GRANTED FOR REINSURER DUE TO LACK OF PRIVITY WITH DIRECT INSURED

June 5, 2013 by Carlton Fields

Plaintiff Backups Plus Computer Services, LLC (Backups) owned hard drives which failed. Plaintiff GF&C Holding Company (GF&C) was a client of Backups and stored its data on Backup’s servers. After the failure of the hard drives, Backups and GF&C both submitted claims to Harford Casualty Insurance Company (Hartford), which had issued policies to both companies. Hartford submitted a claim to its reinsurer, Hartford Steam Boiler Inspection & Insurance Company (HSB). HSB then engaged an independent analyst, LWG, to examine the hard drives and determine the cause of the failure. LWG determined that the damage was the result of normal wear and tear, not a covered risk under the policy. HSB advised Hartford that it would not pay a claim under the reinsurance agreement, and Hartford denied the claims submitted by Backups and GF&C.

Plaintiffs sued both Hartford and HSB. The district court granted the reinsurer’s motion for summary judgment on all claims. The court noted that plaintiffs’ counsel acknowledged at oral argument that there was no privity between the plaintiffs and the reinsurer. Consequently, there was no contract that could be breached and no implied covenant of good faith and fair dealing or bad faith. GF&C Holding Co. v. Hartford Casualty Insurance Co., Case No. 11-236 (USDC D. Idaho March 15, 2013).

This post written by Rollie Goss.

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