Contract Interpretation

Court Grants Summary Judgment to Reinsurer on Claims Brought by Underwriting Agent

September 17, 2012 by Carlton Fields

Acumen Re Management Corporation brought suit against General Security National Insurance Company, claiming that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied that it breached those agreements. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. It was granted with respect to each of Acumen’s three claims that (1) Acumen was damaged by General’s failure to provide quarterly reports; (2) Acumen was damaged by General’s failure to consult Acumen prior to entering into the commutation agreements; and (3) Acumen was damaged by General’s improper calculation of commutation loss allocation and contingency commission allocation. As to the first issue, Acumen waived its contractual right to receive quarterly reports by failing to require them over a period of several years. As to the second claim, while General failed to consult Acumen on commutation settlements with reinsurers through whose business Acumen was receiving contingent commissions, the contract only required such consultation in situations inapplicable to the dispute. Finally, as to the third claim, the court also agreed that General properly computed the commutation loss allocation and contingency commission allocation. The court, however, denied General’s motion on Acumen’s additional claim that it was damaged by General’s improper use of erroneous data in calculating the contingent commission, finding genuine issues of material fact as to whether General’s calculation relied on erroneous data. Acumen Re Management Corp. v. General Security National Insurance Co., Case No. 09-CV-01796 (USDC S.D.N.Y. Sept. 7, 2012)

This post written by John Pitblado.

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COURT DETERMINES REINSURANCE AGREEMENT AND GENERAL AGENCY AGREEMENT OBLIGATIONS STRICTLY GOVERNED BY CONTRACT

September 10, 2012 by Carlton Fields

Lincoln General Insurance Company and U.S. Auto Insurance Services, Inc., as managing general agent for State and County Mutual Fire Insurance Company, entered into general agency agreements and reinsurance agreements. Disputes arose as to the amount due to Lincoln under the agreements, and litigation ensued. Lincoln brought a variety of claims, including breach of contract, misappropriation and conversion, breach of trust and/or fiduciary duties, aiding and abetting breach of trust and/or fiduciary duties and tortious interference with contract. The court found that there was no fiduciary duty involved in these relationships, and essentially found that the relationship was governed by the terms of the written agreements, without any implied torts. It dismissed all of the claims except for the breach of contract and tortious interference with contract claims. Lincoln General Insurance Company v. U.S. Auto Insurance Services, Inc., Case No. 10-2307 (USDC N.D. Tex. Aug. 30, 2012).

This post written by Rollie Goss.

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MAGISTRATE RECOMMENDS SUMMARY JUDGMENT FOR REINSURER ASSERTING NONCOMPLIANCE WITH PROMPT NOTICE PROVISION

August 29, 2012 by Carlton Fields

On April 5, 2010, we reported on a federal district court’s decision to decline a magistrate judge’s report and recommendation on defendant TIG Insurance Company’s motion for partial summary judgment. The dispute involved a reinsurance claim made by plaintiff AIU Insurance Company in 2007 after settling litigation brought in 2001 involving the underlying insurance coverage. TIG responded by denying the claim, citing the reinsurance certificates’ prompt notice provision. The court declined the magistrate’s report as premature to the extent it sought rulings that: (1) Illinois law governed its reinsurance coverage dispute with AIU and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; and (2) AIU breached the reinsurance contracts at issue by providing late notice of the 2001 claim.

Upon conclusion of discovery and TIG’s renewal of its motion for summary judgment, the magistrate judge has found again that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. AIU breached the reinsurance certificates by failing to provide prompt notice, notwithstanding AIU’s contention that TIG had notice of the potential claims from other sources. The magistrate explained, “although notice from third parties can satisfy policy requirements under Illinois law, reinsurers are not charged with notice based merely on receipt of non-specific information that might lead to discovery of a potential claim.” AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 16, 2012).

This post written by Michael Wolgin.

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SECOND CIRCUIT REVERSES DENIAL OF SETTLEMENT CLASS CERTIFICATION IN AIG/GEN RE FINITE REINSURANCE SECURITIES LITIGATION

August 22, 2012 by Carlton Fields

In a case we have reported on previously, AIG purported to settle class action securities law claims arising from alleged finite reinsurance transactions between it and Gen Re. The district court, however, denied the parties’ joint motion for approval of the settlement, finding that it could not certify a settlement class because the “fraud-on-the-market” theory used to prove reliance was not viable under the facts of the case, resulting in a failure to satisfy the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). The Second Circuit reversed, however, finding that the failure of the fraud-on-the-market theory was relevant only to a manageability analysis, and not to a predominance analysis. Since a court need not engage in a manageability analysis to certify a settlement class under the Supreme Court’s Amchem case, a settlement class could be certified. In re American International Group Securities Litigation, No. 10-4401-cv (2d Cir. Aug. 13, 2012)

This post written by John Pitblado.

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SEEK REINSURANCE WITH CARE: THE REINSURED BEARS THE BURDEN OF PROVING COVERAGE

August 14, 2012 by Carlton Fields

Reiterating that Massachusetts law requires the insured to bear the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage, the First Circuit affirmed an award of summary judgment to a Canadian reinsurer in an action in diversity brought by an American insurer seeking indemnification of amounts incurred in defending its insured against asbestos-related claims. The court parsed through three years of insurance and reinsurance policies, endorsements thereto, as well as the flow of premium payments, to find corroborative of the parties’ intents both the plain language of the documents and extrinsic evidence, including premium payments and the existence of only an initial-year facultative certificate. The court held that the reinsurance arrangement that existed in the first policy year terminated at the end of that year. OneBeacon Am. Ins. Co. v. Commercial Union Assurance Co. of Canada, No. 11-2072 (1st Cir. July 11, 2012).

This post written by Brian Perryman.

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