Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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

Contract Interpretation

EQUITABLE TOLLING ALLOWED IN ALLEGED SCHEME REINSURING PRIVATE MORTGAGE INSURANCE

by

Plaintiff homeowners filed a putative class against Bank of America Corp. (“BOA”), Bank of America Reinsurance Corp. (“BOARC”) and three primary insurers that issued private mortgage insurance covering plaintiffs’ mortgages with BOA. Plaintiffs allege they were required by BOA, the mortgage lender, to have private mortgage insurance to cover the risk of default which, under the mortgage agreement, BOA retained the right to place on plaintiffs’ behalf. BOA then allegedly placed the insurance with carriers that had previously agreed to cede a portion of the premium to BOARC, a captive of BOA, for reinsurance. Plaintiffs allege no actual risk was transferred, the reinsurance is illusory, and it therefore constitutes a prohibited “kickback” under the Real Estate Settlement Procedures Act. Defendants moved to dismiss citing the Act’s statute of limitations, but the court accepted plaintiffs’ equitable tolling argument that plaintiffs did not, and could not have, discovered the alleged “kickback” scheme because it was allegedly fraudulently concealed. Riddle v. Bank of America Corp., No. 12-1740 (USDC E.D. Pa. April 11, 2013).

This post written by John Pitblado.

See our disclaimer.

INSURER PREVAILS IN BREACH OF CONTRACT ACTION AGAINST REINSURER IN DISPUTE REGARDING ASBESTOS BODILY INJURY CLAIMS

by

ACE Property & Casualty Insurance Company, as successor in interest to Central National Insurance Company of Omaha, sued Global Reinsurance Corporation of America for breach of a facultative reinsurance certificate issued by Global’s predecessor in interest reinsuring a portion of an umbrella policy issued by Central National. Central National’s insured incurred significant asbestos bodily injury claims that Central National and other umbrella insurers settled. ACE brought suit for breach of contract and declaratory judgment after Global refused to honor remittances submitted by Central National under the reinsurance certificate.

Global asserted several defenses to ACE’s claims. First, Global asserted that a substantial part of Central National’s settlement included defense costs where the policy arguably did not cover such costs. Citing the follow-the-fortunes doctrine, the court rejected this defense, holding that Global failed to meet its burden of demonstrating that Central National’s payment of defense costs was not arguably covered by the policy. The court similarly discarded Global’s argument that, under the language of the reinsurance certificate, Global was only required to pay defense costs where an indemnity payment had been made, holding that the reinsurance certificate must be construed in keeping with underlying policy language which included no such restriction. The court refused to accept Global’s argument that an endorsement extending the expiration date of the certificate created a separate $10 million retention limit for Central National. After a bench trial, the court entered judgment in ACE’s favor. ACE Property & Casualty Insurance Co. v. Global Reinsurance Corp. of America, Case No. 11-2838 (USDC E.D. Pa. Mar. 31, 2013).

This post written by Ben Seessel.

See our disclaimer.

FEDERAL COURT RECONSIDERS SUMMARY JUDGMENT DECISIONS IN FEDERAL ACTION BY REINSURER AGAINST RETROCESSIONARE

by

We reported earlier on decisions rendered on the parties’ cross motions for summary judgment in an action brought by reinsurer Munich Re against retrocessionaire ANICO relating to retrocessional cover issued by ANICO to Munich Re in connection with Munich Re’s reinsurance of an Everest National workers’ compensation program. The federal court has reconsidered two of its summary judgment decisions and affirmed one and reversed one of its prior rulings. The court affirmed that ANICO had failed to present sufficient evidence to create a genuine issue of material fact as to whether Munich Re’s late notice of claims prejudiced ANICO by affecting ANICO’s decision to commute liabilities to Max Re. The court, however, reversed itself by holding that ANICO had established that sunset provisions in the Munich Re-ANICO agreements precluded certain claims submitted after December 31, 2007 and that there were genuine issues of material fact regarding whether claims submitted after December 31, 2008 were similarly barred. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC Mar. 28, 2013).

This post written by Ben Seessel.

See our disclaimer.

COURT AWARDS REINSURER REVENUE-SHARING UNDER BROKER AUTHORIZATION CONTRACT

by

Reinsurer Homeowner’s Choice Property and Casualty Insurance Company entered into a one-year broker authorization contract with Aon Benenfield. The contract contained a revenue-sharing agreement (“RSA”) under which Aon was to pay Homeowners a portion of the commissions it earned from placing Homeowners’ reinsurance. Homeowners declined to renew the contract when the one-year term expired. Aon refused to pay Homeowners revenue-sharing, claiming that the RSA was contingent upon Homeowners renewing the contract. Homeowners sued, seeking payment under the RSA. An Illinois federal court granted summary judgment in Homeowners’ favor, awarding Homeowners what it was due under the RSA. After holding that the RSA should be construed against drafter AON under Illinois law, the court found that there was no clear intent by the parties to make revenue-sharing payments contingent upon Homeowner’s renewal. Homeowners Choice, Inc. v. AON Benfield, Inc., Case No. 10 C 7700 (USDC N.D. Ill. Mar. 29, 2013).

This post written by Ben Seessel.

See our disclaimer.

BRITISH HIGH COURT FINDS FOR CEDENTS IN DISPUTE OVER COVERAGE FOR A DEFECTIVE KUWAITI OIL TANK

by

A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

See our disclaimer.