Contract Interpretation

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.

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MODIFICATION OF REINSURANCE AGREEMENT BY REINSURER AND AGENT WITHOUT INSURER’S CONSENT UPHELD WHERE IT DID NOT EFFECT INSURER

May 21, 2012 by Carlton Fields

Arch Reinsurance Company entered into a three-party agreement with a homeowners insurer and insurance agent, Underwriters Service Agency, under which Arch agreed to reinsure all of the risk associated with the underlying insurance policies, and Underwriters agreed to accept commissions based on the extent of the losses taken on the policies. During the agreement’s term, an Arch representative, who subsequently resigned, agreed with Underwriters to amend the reinsurance agreement to raise the minimum commission available to Underwriters by “capping” Arch’s reinsurance at a specified amount of loss.

When Arch’s chairman belatedly learned of the amendment, he unsuccessfully attempted to revoke it, and then sued Underwriters, contending that the amendment was void for want of the cedent insurer’s consent. After a jury verdict was entered in Underwriters’s favor, the appellate court affirmed, holding the reinsurance agreement could be amended even without the consent of the cedent insurer. Despite language in the agreement and state law requiring the insurer’s consent, the court held that a modification could stand if it did not materially affect the cedent insurer. Arch’s apparent agreement to “cap” the insurer’s reinsurance coverage notwithstanding, an indemnity provision in Underwriters’s agency agreement could be construed to permit the insurer to continue to seek unlimited reinsurance coverage from Arch, who could then, in turn, seek indemnity from Underwriters for losses above the cap. The insurer’s status quo was preserved, the amendment would not shift any risk back to the insurer, and the modification would stand. Arch Reinsurance Co. v. Underwriters Service Agency, Inc., Case No. 02-10-00365-CV (Tex. Ct. App. Apr. 26, 2012).

This post written by Michael Wolgin.

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COURT ENTERS FINAL ORDER APPROVING SETTLEMENT BETWEEN AIG AND MEMBERS OF NATIONAL WORKERS COMPENSATION REINSURANCE POOL

May 3, 2012 by Carlton Fields

A federal district court entered a final order and judgment approving a class action settlement in an action brought against AIG by certain members of the National Workers Compensation Reinsurance Pool (“NWCRP”). Class plaintiffs alleged that AIG had underreported workers compensation premium for the purpose of reducing its share of the workers compensation market and, consequently, increasing the residual market costs of other Pool members. The settlement provides for a $450 million payment to be allocated among class members according to market share. Liberty Mutual and two of its affiliates, Safeco and Ohio Casualty, objected to the settlement but their objections were overruled. American Int’l Group, Inc. v. ACE INA Holdings, Inc., Case No. 07-02898 (USDC N.D. Ill. Feb. 28, 2012).

This post written by Ben Seessel.

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NEW YORK HIGH COURT DISMISSES DONNELLY ACT CLAIMS AGAINST EQUITAS

April 24, 2012 by Carlton Fields

New York’s Court of Appeals reversed the Appellate Division of the Supreme Court and upheld the trial court’s dismissal of plaintiff’s claim against Equitas under the Donnelly Act, New York’s antitrust law. The plaintiff, a cedent under certain retrocessional agreements with various Lloyd’s syndicates covering non-life exposures, alleged that Equitas engaged in antitrust violations because it controlled the market for retrocessional and reinsurance claims adjustment for these types of so-called “long tail” claims, such as asbestos-related injury claims. Equitas was formed and approved by European governmental authorities, as a claims adjustment facility for the Lloyd’s syndicates, in order to manage exposures which threatened the financial stability of syndicates, and the market itself. The high court held that even if there were a “market” for the claims handling function performed by Equitas (which it found dubious), it held that any such market would not have a sufficient nexus with New York State to warrant extra-territorial application of its antitrust law. Global Reinsurance Corp. v. Equitas, Ltd., No. 2012-53 (N.Y. March 27, 2012).

This post written by John Pitblado.

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REINSURANCE POLICY REQUIRES EXCESS CARRIER TO PURSUE SUBROGATION RIGHTS AGAINST PRIMARY CARRIER

March 26, 2012 by Carlton Fields

Excess carrier United Heritage Property and Casualty Company asserted claims for breach of duty to defend and breach of duty to indemnify in a subrogation action against primary carrier Farmers Alliance Mutual Insurance Company (“FAMI”). FAMI moved to exclude evidence of United Heritage’s alleged damages, i.e., the amount that United Heritage had paid the insured under its excess policy. FAMI argued that United Heritage had been reimbursed for the payments by its reinsurer and that obtaining a further recovery would constitute a “windfall” for United Heritage. FAMI further contended that the reinsurance policy did not require United Heritage to reimburse FAMI for any recovery it might obtain in the lawsuit. The court disagreed and denied FAMI’s motion, finding that United Heritage’s reinsurance policy required it to pursue subrogation claims and to credit the proceeds of any such claims to the reinsurer. United Heritage Property & Casualty Co. v. Farmers Alliance Mutual Insurance Co., Case No. 10-cv-00456 (USDC D. Idaho Feb. 27, 2012).

This post written by Ben Seessel.

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