Contract Interpretation

NO REINSURANCE COVERAGE FOR CEDENT’S EXTRACONTRACTUAL LIABILITY FOR BAD FAITH

April 1, 2013 by Carlton Fields

USF&G settled underlying asbestos coverage claims for nearly a billion dollars, and looked to its reinsurers for coverage. The reinsurers, including American Re, challenged the claims, and USF&G brought suit. A New York state trial court granted USF&G summary judgment, and the intermediate appellate court affirmed. American Re petitioned to New York’s high court, arguing (1) summary judgment was improper because USF&G improperly calculated its share of the losses; and (2) USF&G improperly attempted to allocate the portion of the underlying settlements attributed to bad faith claims against USF&G to the reinsurers.

As to issue (1), the Court of Appeals affirmed, citing the “follow the settlements” doctrine. As to issue (2), the Court agreed with American Re that summary judgment was improper as to the issue of allocating a portion of the settlements that could reasonably have been attributed to extracontractual bad faith claims against USF&G. It remanded with instructions for the trial court to determine if, and by how much, it should reduce allocation to the reinsurers of any portion of the underlying settlements attributable to USF&G’s settlement of the underlying bad faith claims against it, for which the reinsurers are not responsible. United States Fidelity & Guaranty v. American Re-insurance Co., 2013 NY Slip Op 00784 (N.Y. Feb. 7, 2013).

This post written by John Pitblado.

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BRITISH COURT AFFIRMS REINSURANCE ARBITRATION AWARD ON NUMBER OF OCCURENCES IN 9/11 ATTACKS

March 19, 2013 by Carlton Fields

Plaintiff cedent and defendant reinsurers were parties to certain reinsurance treaties providing cover for aviation-related risks, with threshold triggers of $200 million and $500 million, respectively. A coverage dispute arose regarding whether the terrorist attacks in New York City on September 11, 2011 constituted one, or two separate occurrences, as the term was defined in the underlying policies. Defendants contended there were two occurrences, and thus twice as much of the $1.2 billion in underlying settlements should be borne by the cedent. The parties submitted the dispute to arbitration, and a three-judge panel held that there were two occurrences, based on particular factual details unique to the September 11 attacks. Citing the applicable standards for overturning arbitration awards, the UK’s High Court of Justice affirmed the award, concluding that the tribunal “accurately identified the applicable law pursuant to which they undertook an exercise of judgement. The decision they came to was one which was open to them to reach and in making it they: (i) correctly applied the law; (ii) had regard to all materially relevant matters; and (iii) did not take into account impermissible considerations.” Aioi Nissay Dowa Insurance Co. Ltd v. Heraldglen Ltd, [2013] EWHC 154 (Comm) (High Court of Justice, Queen’s Bench, Comm. Div. Feb. 8, 2013).

This post written by John Pitblado.

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UNAVAILABILITY OF A DESIGNATED ARBITRATION FORUM DOES NOT PROVIDE AN IMPOSSIBILITY DEFENSE

February 13, 2013 by Carlton Fields

On appeal, a circuit court’s denial of a motion to compel arbitration was reversed for several reasons. First, the circuit court erred by allowing submission of parol evidence after determining that language in the arbitration agreement requiring the parties to select their arbitrators from a “nationally recognized arbitration association” was unambiguous. Second, the circuit court erred by finding the arbitration agreement to be invalid based on the argument that the contractually designated nationally recognized arbitration association would not take on the pre-dispute arbitration agreement case and the arbitration agreement was therefore impossible to perform. The appellate court found the impossibility argument to be without merit since the FAA authorizes a court to appoint arbitrators when the parties fail to name them, making arbitration possible even in the event that a designated forum will not take the case. Spring Lake NC, LLC v. Figueroa, No. 2D12-1202 (Fla. Dist. Ct. App. Dec. 14, 2012).

This post written by Abigail Kortz.

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COURT DENIES MOTION TO DISMISS WHERE DEFENDANT RETROCEDED RESERVES HELD ON VEHICLE SERVICE CONTRACTS

February 5, 2013 by Carlton Fields

Operators of vehicle dealerships filed suit alleging breach of contract, conversion, breach of fiduciary duty, and money had and received against an administrator of vehicle service contracts that the plaintiff dealerships had sold to customers in connection with vehicle sales. Plaintiffs complained that defendants had improperly retroceded funds that had been reserved as reinsurance for payments to be made under the vehicle services contracts. The court denied defendant’s motion to dismiss, holding that plaintiffs had stated a plausible claim for relief that the administrator had breached reinsurance agreements that were neither attached to the complaint nor to defendant’s motion to dismiss. The court also held that the economic loss rule did not bar plaintiffs’ conversion and breach of fiduciary duty claim because there was a possibility that plaintiffs could establish with certain (undescribed) facts that a fiduciary relationship existed between the parties. Hoffpauir v. Interstate National Dealer Services, Inc., Case No. A-12-CA-263 LY (USDC W.D. Tex. Jan. 24, 2013).

This post written by Ben Seessel.

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REINSURER WINS $16.5 MILLION VERDICT ON TORTIOUS INTERFERENCE CLAIMS AGAINST AUTO INSURER AND AGENTS

February 4, 2013 by Carlton Fields

Lincoln General Insurance Company entered into certain quota share reinsurance agreements with U.S. Auto Insurance Services. It brought suit in 2007 for alleged unpaid premium. The parties entered into a settlement agreement, requiring the parties to enter new reinsurance agreements, provide partial security for the risks defendant sought to transfer, fund costs of investigations of underlying claims, and pay $1.5 million to Lincoln General. In 2010, Lincoln General again brought suit, against U.S. Auto and its agents/guarantors, alleging that the defendants breached the settlement agreement. The latter suit alleged, among other things, that the defendants tortiously interfered with, and aided and abetted the breach of, the reinsurance agreements and other related agreements, by submitting fraudulent claims and making misrepresentations. After a four-day bench trial in early January 2013, the Court found for Lincoln, and ordered the defendants, jointly and severally, to pay Lincoln $16.5 million on the tortious interference claim. The Court also found in Lincoln’s favor on the defendants’ counterclaims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 3:10-cv-2307 (N.D. Tex. Jan. 25, 2013).

This post written by John Pitblado.

See our disclaimer.