Contract Interpretation

THIRD CIRCUIT REFUSES TO RECONSIDER DECISION DENYING REINSURANCE COVERAGE DUE TO INSURER’S LATE NOTICE

November 26, 2012 by Carlton Fields

Pacific Employers Insurance Company petitioned for rehearing of a Third Circuit decision ordering that judgment of non-liability be entered in favor of Global Reinsurance Corporation of America regarding a coverage dispute under the parties’ facultative reinsurance contract. As we earlier reported, the Third Circuit reversed a lower court decision in favor of Pacific under Pennsylvania law. The Third Circuit reversed and, applying New York law, held that Pacific’s late notice of underlying asbestos-related litigation that would likely give rise to claims precluded coverage, even absent a showing of prejudice to Global.

Moving for rehearing, Pacific argued that the court misapprehended and overlooked three points of New York law. First, Pacific argued that the court misapprehended New York law on contract interpretation by, in effect, rewriting the parties’ reinsurance contract to require Pacific to submit a definitive statement of loss even where no liability for a claim had yet been incurred, which could not be read harmoniously with a provision requiring Global to promptly pay Pacific after receiving a definitive statement of loss. Pacific further argued that the court overlooked that there had been no determination that the asbestos-related lawsuits the court held should have been promptly reported by Pacific were claims or occurrences for which Pacific later sought indemnity. Finally, Pacific argued that Global waived its late notice defenses by failing to raise them in its initial brief on appeal. The court denied the petition for panel rehearing without opinion. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, No. 11-3234 (3d Cir. Oct. 3, 2012).

This post written by Ben Seessel.

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PARTIES FILE STIPULATED FACTS AFTER DENIAL OF SUMMARY JUDGMENT IN INDEMNITY ACTION BY ACQUIRER OF 9/11 REINSURER

November 20, 2012 by Carlton Fields

On September 24, 2012, we reported on the denial of summary judgment in a lawsuit brought by an acquirer of a reinsurer against the former parent company of the reinsurer, for an alleged $13 million intentional understatement of case reserves in connection with reinsurance of airplanes involved in the 9/11 attacks. The dispute surrounded the reinsurer’s setting of its reserves based on one “terrorism” event, rather than a higher liability for two “hijacking” attacks, despite the fact that the cedents and brokers treated the loss as two attacks. The court denied the parties’ cross-motions for summary judgment, holding that factual questions existed as to whether the reinsurer’s alleged fraud constitutes a “loss” under the under the relevant stock purchase agreement and, if so, whether the “loss” was caused by the reinsurer’s misrepresentations. The parties recently filed a joint stipulation of undisputed facts wherein the parties set forth agreed facts relating to the reinsurance industry and details of their dispute, including that the reinsurer’s case reserves at the time of acquisition totaled over $12 million, and that the reinsurer has thus far received and paid claims totaling approximately $9.66 million. WT Holdings, Inc. v. Argonaut Group, Inc., Index No. 600925/2009 (N.Y. Sup. Ct. Oct. 26, 2012).

This post written by Michael Wolgin.

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U.S. INSURER AND BERMUDA CAPTIVE REINSURER NOT CONSIDERED ALTER EGOS

November 19, 2012 by Carlton Fields

In a dispute over a long-term care insurance contract, a court rejected the plaintiff’s allegation that five defendants “are an association of entities acting together for the purpose of providing long term care insurance under the name Ability Insurance and also act as the alter egos and/or agents of each other.” The defendants are Ability Reinsurance Holdings (a Bermuda-based holding company) and 4 subsidiaries, including Ability Resources Holdings, Ability Insurance (U.S. insurer), Ability Reinsurance (Bermuda-based captive reinsurer) and Ability Resources, Inc. The court granted a motion for judgment on the pleadings in favor of the Bermuda-based holding company, the Bermuda-based captive reinsurer, and Ability Resources Holdings for lack of personal jurisdiction based on the determination that they do not act as an alter ego for Ability Insurance. The court held that while regulators permitted Ability Insurance to purchase reinsurance from a member of the same corporate family, that fact “does not render the contractual relationship a ‘sham’ or otherwise make Ability Reinsurance (Bermuda) susceptible to suit in Iowa.” The court also dismissed the claims against Ability Resources, Inc., holding that simply alleging that Ability Resources is the alter ego of Ability Insurance, “without more,” failed to satisfy federal pleading requirements. Schultz v. Ability Insurance Co., Case No. 2:11-cv-01020-JSS (USDC N.D. Iowa Oct. 9, 2012).

This post written by Abigail Kortz.

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COURT AFFIRMS JUDGMENT FOR REINSURER IN COMMUTATION DISPUTE

October 29, 2012 by Carlton Fields

Plaintiff, a reinsurer, and defendant, a holding company of several primary insurers, were parties to reinsurance agreements covering certain liabilities of the defendant’s member companies. In 2004, the parties entered into a commutation agreement. The agreement required the plaintiff to make a payment of $15,248,338 to the defendant “in full satisfaction of the Reinsurer’s past, present and future net liability” under the reinsurance agreements. Thereafter, the defendant continued to pay premiums under one set of the reinsurance agreements, and the plaintiff continued to make claims payments to the defendant under those agreements, despite the commutation. The plaintiff discovered its error in 2008, stopped claims payments and refused further premium. However, the defendant took the position that the commutation did not cover the agreements under which it continued to pay premiums and under which plaintiff had continued to pay claims. The plaintiff filed suit seeking a declaration that the subject agreements were covered by the commutation, and seeking recoupment of the approximately $500,000 in claims payments it believed it made in error from 2004 to 2008. The trial court granted judgment to the plaintiff, including the monetary relief, and the defendant appealed, arguing that the commutation agreement was ambiguous. The Connecticut Appellate Court disagreed, affirming the verdict in favor of the plaintiff. Trenwick America Reinsurance Corp. v. W.R. Berkley Corp., No. AC 33388 (Conn. App. Ct. Oct. 23, 2012).

This post written by John Pitblado.

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CITING FOLLOW-THE-FORTUNES CLAUSE, COURT ORDERS REINSURER TO PAY FOR SETTLEMENT OF INSURED’S BAD FAITH CASE

October 17, 2012 by Carlton Fields

Arrowood issued a liability policy insuring Greenwood Terrace, a nursing home and rehab center which was sued following the death of one of its residents, Joseph Mark. Under the parties’ reinsurance treaty, defendant Assurecare was responsible for the first $250,000 of Arrowood’s net liability and a percentage of loss adjustment expenses. Arrowood contributed $1,000,000, the policy limits, to a $1,750,000 settlement reached between Mark and its insured Greenwood Terrace. After the Mark settlement, Greenwood Terrace sued Arrowood for breach of contract, alleging that Arrowood should have paid a greater portion of the settlement because the Mark lawsuit involved more than one “medical incident” and that Arrowood had acted in bad faith. Arrowood settled with Greenwood Terrace for $325,000.

Assurecare paid Arrowood $250,000 plus a portion of loss adjustment expenses associated with the settlement of the Mark litigation. It refused, however, to pay for any portion of the settlement of the subsequent suit by Greenwood Terrace against Arrowood. Arrowood sued Assurecare, alleging breach of contract and seeking a declaratory judgment that it was entitled to payment for the Greenwood Terrace settlement, including the first $250,000 of net liability. The district court granted Arrowood’s motion for summary judgment holding that the Greenwood Terrace settlement constituted a covered “loss settlement” under the parties’ treaty, an interpretation that the court stated was supported by the treaty’s follow-the-fortunes clause. Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11 CV 5206 (USDC N.D. Ill. Sept. 19, 2012).

This post written by Ben Seessel.

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