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New reinsurance-related and arbitration developments from Carlton Fields

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Contract Interpretation

COURT STRIKES PORTION OF AFFIRMATIVE DEFENSE RELATING TO PREJUDICE FROM LATE CLAIM NOTICE

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We previously reported on May 5, 2010, June 21, 2010 and January 7, 2011 about litigation between Pacific Employers Insurance Company and Global Reinsurance, relating to their dispute over a facultative reinsurance agreement covering certain underlying asbestos-related injury claims. After discovery, Pacific Employers moved to strike certain portions of Global’s affirmative defenses. Global opposed the motion. The court invoked its discretion to hear the untimely Rule 12(f) motion, but limited review to the pleadings only. The court granted the motion in part and denied it in part. The court ordered stricken a paragraph pertaining to prejudice arising from Pacific Employer’s late claim notice, as Global had since abandoned any claim of prejudice. The court, however, did not strike paragraphs relating to Global’s affirmative defense of breach of the duty of utmost good faith. Global did not waive the defense, and that the defense was inextricably linked with Global’s late notice defense, the case’s central issue. Pacific Employers Insurance Company v. Global Reinsurance Corp. of America, No. 09-6055 (USDC E.D. Pa. Apr. 18, 2011).

This post written by John Pitblado.

INTERPRETATION OF TREATY’S “ACT-AS-ONE” PROVISION HELD TO BE A PROCEDURAL ISSUE FOR ARBITRATORS TO DECIDE

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National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).

This post written by Ben Seessel.

COMMUTATION AGREEMENT EXTINGUISHES REINSURANCE LIABILITIES, BUT REINSURER CANNOT RECOUP VOLUNTARY PAYMENTS MADE POST-COMMUTATION

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Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).

This post written by Ben Seessel.

BRITISH COURT ANALYZES TRIGGER FOR EXCESS FACULTATIVE REINSURANCE COVER

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A Justice of the UK Commercial Court (Queen’s Bench Division) has issued an opinion as a result of a trial of a “preliminary issue about the proper construction and the operation of an excess reinsurance policy of professional liability insurance, and more specifically about how it is determined whether the “excess point” that triggers the reinsurance cover has been reached.” Teal Assurance Company Limited alleged that its facultative reinsurance agreement with W.R. Berkeley Insurance (Europe) Limited and Aspen Insurance UK Limited covered certain claims arising from the operations of Teal’s insured, Black & Veatch Holding Company (Teal is a captive insurer subsidiary of Black & Veatch, a large international engineering firm), that were in excess of Black & Veatch’s primary layers of professional liability insurance. The primary insurance covered all of Black & Veatch’s claims, geographically, while the excess facultative reinsurance excluded from coverage all American liabilities. The Court held, contrary to Teal’s position, that the order in which claims should be aggregated for purposes of determining when the reinsurance was triggered (and thus, whether any non-American liabilities exceeded the primary layer), should be based on when those liabilities originated, not when they were paid to the policy limits by the primary insurer. Teal Assurance Co. Ltd. v. W.R. Berkeley Ins. (Europe) Ltd., [2011] EWHC 91 (Comm. Ct. Jan. 31, 2011).

This post written by John Pitblado.