Contract Interpretation

PREMATURE TO RULE ON EFFECT OF UNUTILIZED REINSURANCE ON OTHER INSURANCE CLAUSE BEFORE LOSSES ESTABLISHED

November 23, 2011 by Carlton Fields

In ruling on cross motions for summary judgment, the U.S. District Court for the Western District of Michigan considered a request for a declaration regarding the application of an “Other Insurance” clause in a Directors and Officers liability insurance policy. The insurer (F&D) requested a declaration that any coverage available under the policy is limited to the amount in excess of the $1.25 million of unutilized reinsurance coverage available to the insured (Michigan Millers) from its reinsurer (Employers Reinsurance Corporation). The District Court denied the request for declaration, finding it premature. The court explained that because of the different nature of the F&D and ERC policies, the Other Insurance clause may have to operate as a reimbursement scheme rather than an outright excess insurance provision. So, prior to losses being established, it is premature to rule on the effect of the Other Insurance clause. Michigan Millers Mutual Insurance Co. v. Fidelity and Deposit Co. of Maryland, No. 09-596 (W.D. Mich. Aug. 15, 2011).

This post written by John Black.

INSURED’S CONTRACT WITH MUTUAL ASSOCIATION NOT SUFFICIENTLY AKIN TO A REINSURANCE AGREEMENT TO ESCAPE A LATE NOTICE DEFENSE

September 28, 2011 by Carlton Fields

Weeks Marine, a member of non-profit mutual insurance association, American Club, brought suit seeking a declaration that it had complied with the terms of its insurance contract and seeking damages. One of Weeks’s former employees had suffered a concussion at work and sued Weeks. Weeks defended the claim on its own; American Club only learned of it after a jury rendered a $3.7 million plaintiff’s verdict. The certificate evidencing the relationship between Weeks and American Club provided that Weeks was responsible for investigation, settlement, and defense of claims, but required Weeks to give prompt notice of claims to American Club.

American Club defended against Weeks’s coverage suit, arguing that governing New York law provided that Weeks’s late notice, even absent a showing of prejudice, vitiated the contract. This late notice rule, however, did not apply to reinsurance agreements. Weeks argued that its relationship with American Club was like a reinsurance contract because Weeks had the duty to investigate and resolve claims and, further, Weeks had self-insured the first million dollars of risk. The court rejected this argument, reasoning that the contract was not sufficiently like a reinsurance contract for the exception to the late notice rule to apply. The court therefore granted summary judgment for American Club, based upon Weeks’s late notice of the claim. Weeks Marine, Inc. v. Am. Steamship Owners Mut. Prot. & Indem. Ass’n, Inc., Case No. 08-9878 (USDC S.D.N.Y. Aug. 25, 2011).

This post written by Ben Seessel.

COURT FINDS UNJUST ENRICHMENT CLAIM INAPPROPRIATE IN REINSURANCE CLAIM BREACH OF CONTRACT LAWSUIT

September 27, 2011 by Carlton Fields

A federal district court dismissed Lexington Insurance Company’s unjust enrichment claim against reinsurer Tokio Marine, holding that the parties’ dispute was governed by their reinsurance contract. Lexington had issued two layers of excess property coverage to the Port Authority, which owned the World Trade Center. Tokio Marine reinsured 100% of the risk. Tenants of the World Trade Center successfully argued to a jury that the September 11, 2001 attacks constituted two separate occurrences and the judgment was affirmed by the Second Circuit. Lexington paid its policy limits for one occurrence and was fully reimbursed by Tokio Marine. After engaging in coverage litigation over whether the Port Authority could recover for a second occurrence, Lexington and the primary carrier, American Home, settled with the Port Authority for a second payment. Lexington sued Tokio Marine after it rejected Lexington’s claim as to the second payment, arguing that the primary carrier should have paid a larger share. The court held that Lexington’s dispute was governed by the parties’ reinsurance agreement and not properly brought as an unjust enrichment claim. The breach of contract claim is still pending. Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., Case No. 11-391 (USDC S.D.N.Y. Sept. 7, 2011).

This post written by Ben Seessel.

COURT RULES FOR REINSURER IN ASBESTOS COVERAGE DISPUTE

September 13, 2011 by Carlton Fields

OneBeacon sued Commercial Union of Canada, based on its contention that Commercial Union agreed to reinsure successive renewals of a primary policy issued by OneBeacon to Harrisons & Crossfield (America) Inc. and affiliates. Harrisons faced lawsuits for asbestos-based personal injury claims. One of the OneBeacon primary policies at issue was renewed for three successive one-year terms in 1980, 1981, and 1982. Commercial Union issued a Facultative Certificate covering the policy period from March 28, 1980 through April 1, 1981. OneBeacon took the position that the parties intended for the reinsurance cover to be renewed as well. The court disagreed, finding as a matter of law that the Facultative Certificate was unambiguous, covered only the single year described in the contract, and that OneBeacon had not demonstrated with competent evidence any intent on the part of Commercial Union to extend the reinsurance cover beyond its stated term. The Court granted both parties’ motions to strike certain evidence (including a so-called “sham affidavit” proferred by OneBeacon that contradicted sworn testimony), denied OneBeacon’s motion for summary judgment, and granted Commercial Union’s motion for summary judgment. OneBeacon America Insurance Co. v. Commercial Union Assurance Co. of Canada, Case No. 10-10164 (USDC D. Mass. Aug. 18, 2011).

This post written by John Pitblado.

ONGOING REINSURANCE DISPUTE SURVIVES MOTION TO DISMISS

September 8, 2011 by Carlton Fields

A court granted in part and denied in part a motion to dismiss in a case involving the alleged miscalculation and underpayment of amounts owed to plaintiff Lincoln General Insurance Company by defendant U.S. Auto Insurance Services, Inc. We covered this litigation in a May 11, 2009 post. Lincoln General was the reinsurer of a variety of auto insurance policies sold by U.S. Auto, as managing general agent for State and County Mutual Fire Insurance Company. U.S. Auto sought dismissal on variety of grounds, including that a memorandum of understanding entered by the parties in a 2007 lawsuit between the parties necessitated dismissal of claims not raised in that earlier suit. The court, however, found that the memorandum did not limit the available causes of action in the later suit to those delineated in the 2007 suit, so the motion to dismiss on this ground was denied. Defendants also claimed that an “Assignment of Rights” between State and County and Lincoln General was invalid because it contained a “revocability clause.” The court noted, however, the absence of any case or statute saying a court must ignore the manifested intent of the parties in declaring the assignment void on revocability grounds. The court did dismiss Lincoln General’s claims of alter ego liability against others for U.S. Auto’s breaches of contract, fiduciary duty, and conversion because Lincoln General voluntarily withdrew these claims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 10-CV-2307-B (USDC N.D. Tex. Aug. 18, 2011).

This post written by Brian Perryman.