Contract Interpretation

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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RETROCESSIONAIRE’S RESCISSION COUNTERCLAIM THAT REINSURER FAILED TO ACT IN UTMOST GOOD FAITH SURVIVES SUMMARY JUDGMENT

October 15, 2012 by Carlton Fields

Munich Re sued retrocessionaire ANICO based on ANICO’s refusal to pay over $4 million allegedly due under excess loss policies issued to Munich Re to provide retrocessional cover on Munich Re’s reinsurance of Everest National’s workers compensation program. After discovery closed, ANICO counterclaimed for rescission, alleging that facts revealed in discovery demonstrated that Munich Re failed to abide by its duty of utmost good faith or uberrimae fidei by failing to disclose its own internal loss calculations that ANICO claimed would have been material to ANICO’s decision to issue the retrocessional policies. The parties cross-moved for summary judgment on ANICO’s counterclaim for rescission and Munich Re moved for summary judgment on aspects of its breach of contract and declaratory judgment claims.

The federal district court denied the parties’ cross-motion on ANICO’s rescission counterclaim, holding that there were issues of fact regarding whether ANICO reasonably would have considered Munich Re’s internal loss calculations material and, further, whether Munich Re should have known that ANICO would have deemed this information material. With respect to Munich Re’s breach of contract claim, the court rejected ANICO’s argument that Munich Re’s alleged failure to provide timely notice precluded recovery, finding that timely notice was not required under the parties’ agreements and, further, that ANICO could show no prejudice. The court granted Munich Re summary judgment with respect to its interpretation of the agreements’ retention provisions. As none of these decisions entirely disposed of the case, it remains pending in federal district court. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. Sept, 28, 2012).

This post written by Ben Seessel.

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Court Finds Reinsurance Brokerage Contract Ambiguous

October 3, 2012 by Carlton Fields

Homeowners Choice, Inc. entered into a brokerage relationship with Aon Benfield, whereby Aon agreed to place reinsurance for Homeowners, as the broker of record, and that Aon would receive a commission from premium written. The parties later amended the agreement to include a revenue sharing provision, whereby Aon agreed to perform claim services for an annual fee. Homeowners then notified Aon that it was changing its broker of record, effective approximately one year from the notice. At the end of the notice period, Homeowners then demanded from Aon approximately $660,000 in revenue sharing fees it claimed were owed under the service agreement aspect of the contract. Aon disputed the claim, and Homeowner’s brought suit. The parties filed cross-motions for summary judgment, both making claims as to the correct interpretation of the contract. The court denied both motions, finding relevant provisions of the contract to be ambiguous, and that issues of fact remained pertaining to resolution of the ambiguities. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 10 C 7700 (N.D. Ill. Sept. 10, 2012).

This post written by John Pitblado.

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COURT DENIES DISMISSAL OF PUTATIVE CLASS ACTION ALLEGING KICKBACKS ACCEPTED BY LENDER VIA ITS CAPTIVE REINSURER

September 27, 2012 by Carlton Fields

A breach of contract claim survived dismissal in a potential class action lawsuit by homeowners against a mortgage lender for alleged kickbacks obtained when the lender required the homeowners to pay for force-placed insurance (FPI) on mortgaged properties. The homeowners contended that the lender breached its contractual duty of good faith and fair dealing by funneling back to itself a portion of the premiums paid by the homeowners for the FPI by, among other things, providing reinsurance through its own captive insurance company. While the court held that the contract claim could proceed against the lender, the court dismissed other claims for unfair and deceptive trade practices, and for unjust enrichment. Montanez v. HSBC Mortgage Corp. (USA), Case No. 11-4074 (USDC E.D. Pa. July 18, 2012).

This post written by Michael Wolgin.

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FACT QUESTIONS PREVENT SUMMARY JUDGMENT IN INDEMNITY ACTION BY ACQUIRER OF REINSURER OF AIRPLANES INVOLVED IN 9/11 ATTACK

September 24, 2012 by Carlton Fields

An acquirer of a reinsurance company sued the former parent company of the reinsurer under the relevant stock purchase agreement (SPA) for indemnification of $13.1 million in “losses” allegedly owed in connection with reinsurance contracts that covered the airplanes that were involved in the attack on the World Trade Center on 9/11. The acquirer contended that the reinsurer misrepresented the extent of its 9/11 liabilities by setting its reserves based on one “terrorism” event under the governing contracts, rather than a higher liability for two “hijacking” attacks. The acquirer argued that the reinsurer was required to reserve for two attacks because the cedents had done so, and because the reinsurer had received broker advices for two losses. 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 SPA, and if it does, whether the “loss” was caused by the falsity of the reinsurer’s misrepresentations. The court’s findings included: (1) that the SPA’s provisions providing indemnity for “loss” were ambiguous, such that the court could not determine whether indemnity was limited to only amounts paid in excess of the reinsurer’s reserves; and (2) that conflicting testimony of the parties’ experts as to whether the reinsurer misrepresented that its reserving practices complied with “U.S. generally accepted actuarial standards” created disputed issues of fact. The court also held that benefit of the bargain damages were not available under the SPA, which contained broad waivers of “all causes of action related to the transactions contemplated” by the agreement, and of consequential, indirect, and incidental damages. WT Holdings, Inc. v. Argonaut Group, Inc., Case No. 600925/2009 (N.Y. Sup. Ct. July 10, 2012).

This post written by Michael Wolgin.

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