Contract Interpretation

BURDEN RESTS WITH REINSURER TO SHOW LESSER LIABILITY UNDER RETROCESSIONAL INSURANCE AGREEMENT

July 31, 2012 by Carlton Fields

On January 23 and April 12, 2012, we reported on orders concerning liability and damages in a suit involving disputed payment obligations under reinsurance and retrocessional agreements between Munich Re and Tower Insurance. The court recently addressed the parties’ motions in limine designed to determine whether Munich must affirmatively prove that Tower was 100% liable for claims under one of the retrocessional agreements at issue, or whether a burden rested with Tower to show that it was obligated to pay only 10% under certain conditions provided in the agreement. The court interpreted the agreement’s language and found that the burden of proof belonged to Tower because the 10% indemnity provisions constituted policy exclusions, which, under state law, must be “construed narrowly with the onus on the insurer to bring the case within the exclusion.” Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-02598 (USDC D.N.J. July 17, 2012).

This post written by Michael Wolgin.

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SECOND CIRCUIT FINDS NO DIRECT ACTION RIGHT AGAINST REINSURER

July 18, 2012 by Carlton Fields

The Second Circuit handed down a summary order affirming the dismissal of Callon Petroleum’s complaint in a reinsurance dispute against National Indemnity. The court found that because the reinsurance agreement made clear that third parties had no rights under the agreement, Callon did not have a right of action against National Indemnity. Thus, this case did not qualify for New York state’s exception (in cases where the agreement contains a “cut through” provision) to the general rule that, as contracts of indemnity, reinsurance agreements give the original assured no right of action against the reinsurer. The court also affirmed the denial of Callon’s request to amend its complaint. Callon Petroleum Co. v. National Indemnity Co., No. 11-241 (2d Cir. July 3, 2012).

This post written by John Black.

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COURT GRANTS DECLARATION IN FAVOR OF LEXINGTON INSURANCE; PARTIES SUBSEQUENTLY SETTLE

June 20, 2012 by Carlton Fields

Several important developments have occurred in a reinsurance dispute we last reported on in a September 27, 2011 post. The dispute is between Lexington Insurance and Tokio Marine & Nichido Fire Insurance. On March 28, the federal district court granted Lexington’s motion for judgment on the pleadings seeking a declaration that its obligations to provide excess insurance coverage to the Port Authority was not contingent upon exhaustion of the limits of the underlying primary insurance policy. The court, examining the agreement between the parties, found that nothing in the contract language contained any express or implied requirement that the underlying policy be exhausted in order to trigger Lexington’s obligation to pay its share of covered damages. Following this decision, the parties entered into settlement discussions. On May 31, the parties stipulated to the dismissal of the action with prejudice. Lexington Insurance Co. v. Tokio Marine & Nichido Fire Insurance Co. Ltd., No. 11-cv-00391 (USDC S.D.N.Y. May 31, 2012).

This post written by John Black.

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INSURANCE POLICIES CONTROL CALCULATION OF “LOSS” APPLICABLE TO “EXCESS OF LOSS” REINSURANCE

June 19, 2012 by Carlton Fields

In a case involving disputed claims made under “excess of loss” facultative reinsurance certificates, a court recently held that the reinsurer’s liability for “losses” should follow the meaning of “loss” and “expense” in the underlying insurance polices, rather than the meanings of those terms as used in the reinsurance certificates. The dispute surrounded whether the reinsurance covered litigation expenses, in addition to the indemnity paid under the underlying insurance policies. The court analyzed the certificates and determined that the liability of the reinsurer in this case should be determined by the scope of liability provided by the underlying insurance policies. Because the reinsurer “had copies of the underlying insurance polices, or at the very least had access to the underlying insurance policies” the reinsurer could be charged with knowledge of the policies’ terms. The court distinguished reinsurance expressly designated as “non-current,” or reinsurance that limits in the certificates coverage to only specific delineated risks. In that scenario, the court explained, “loss” and “expense” would be determined by the certificate, as opposed to the underlying policies. ACE Property & Casualty Insurance Co. v. R & Q Reinsurance Co., Case No. 11081920 (Pa. Ct. Comm. Pl. May 15, 2012).

This post written by Michael Wolgin.

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COURT GRANTS, DENIES SUMMARY JUDGMENT IN TRAVEL REINSURANCE ACTION

May 23, 2012 by Carlton Fields

Liberty Travel (and affiliated travel and leisure companies) and Travel Re-Insurance filed cross-motions for summary judgment on a dispute related in part to reinsurance of travel insurance products sold by Liberty to its customers. Liberty and Travel Re’s relationship was complex, and involved both reinsurance and direct insurance. Among other things, Travel Re contracted with Liberty to be its exclusive provider of travel insurance products. Essentially, Travel Re provided reinsurance on travel products, and would also collect “Salvage” from Liberty, meaning the excess money collected when a travel supplier did not issue a cancellation penalty or issued a credit or reimbursement to Liberty following a customer’s trip cancellation. After some time, Liberty sought to end the parties’ exclusive arrangement, and Travel Re filed suit.

The United States District Court for the District of New Jersey granted in part Liberty’s motion for summary judgment. The court ruled that (a) Liberty was not liable for damages unforeseeable at the time the contract was entered; (b) the existence of a valid contract barred Travel Re’s claim for unjust enrichment; and (c) Travel Re’s breach of the implied covenant of good faith and fair dealing should be dismissed as duplicative of the breach of contract claim. The court, however, denied summary judgment as to the breach of contract and also ruled that material issues of fact remained as to whether Travel Re mitigated damages. Finally, the court denied Travel Re’s motion for summary judgment on the exclusivity provision, finding issues of fact as to who was to blame for the failure to engage in a joint determination of reasonable competitiveness under the contract. Travel Re-Insurance Partners, Ltd. v. Liberty Travel, Inc., No. 09-CV-5033 (D. N.J. May 9, 2012).

This post written by John Black.

See our disclaimer.