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Contract Interpretation

YOU SNOOZE YOU LOSE: “ACCOUNT STATED” DOCTRINE BARS RECOUPMENT OF PAST AMOUNTS PAID UNDER VOIDED FACULTATIVE AGREEMENT

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Seaton Insurance Company sued its reinsurer, Yosemite Insurance Company, for breach of contract. Seaton alleged that Yosemite breached two facultative reinsurance agreements the parties entered into in the 1970s. Yosemite paid claims under the agreements until 2008, when it notified Seaton of its belief that the agreements were void because Seaton had violated the agreements’ retention warranties. When Seaton sued, Yosemite counterclaimed, seeking repayment of funds paid since inception. Both parties moved for summary judgment. The court agreed with Yosemite as to one of the facultative agreements, finding that Seaton breached the retention warranty, voiding that agreement and precluding any future payments due. Disputed factual questions, however, impacted proper interpretation of the other agreement, so summary judgment was improper. However, citing California’s “account stated” doctrine – a waiver principle applied to certain contractual arrangements – the court denied that aspect of Yosemite’s counterclaim seeking repayment of past amounts paid under both agreements, noting that “acquiescence to the debt arises from a failure to object within a reasonable time such that the law implies an agreement that the account is correct as rendered.” Yosemite did not identify any issue with its liability until 2007, and thus could not recoup payments made under either agreement before that time. Seaton Ins. Co. v. Yosemite Ins. Co., No. 08-542-S (USDC D.R.I. Nov. 4, 2010).

This post written by John Pitblado.

STATE STATUTORY BAD FAITH CLAIM AGAINST INSURER DENIED ON BASIS OF CHOICE OF LAW PROVISION REQUIRING APPLICATION OF MEXICAN LAW

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Deep Sea Financing, LLC filed suit against British Marine as an alleged loss payee under a policy of marine hull insurance issued by British Marine to Dragados Mundiales del Caribe S.A. de C.V., covering a dredge and other equipment owned by Dragados. When the dredge ran aground on an environmentally sensitive reef near Puerto Cancun, Mexico, various claims were made under the policy, including a claim by Deep Sea. When Deep Sea’s written demand was not accepted by British Marine, it filed suit in Georgia state court seeking statutory bad faith penalties. British Marine removed the case to federal court and filed a separate interpleader action naming Dragados and Deep Sea. In Deep Sea’s action, Deep Sea moved for partial summary judgment on its statutory bad faith claim. The contract — which was originally negotiated as reinsurance to a Mexican primary policy that later became unnecessary, and so was converted to a primary policy under British Marine’s typical “London terms,” — nevertheless still included (whether inadvertently or not) a choice-of-law provision requiring application of Mexican law. British Marine argued this provision precluded the statutory claim under Georgia law, and the court agreed. Deep Sea moved for reconsideration, but the court stuck by its initial decision. Deep Sea Financing, LLC v. British Marine Luxembourg, S.A., CV 409-022 (USDC S.D. Ga. Sept. 1, 2010).

This post written by John Pitblado.

TREATY TIP: THE IMPORTANCE OF SPECIFYING A NON-PAYMENT INTEREST RATE

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How important is it to specify the rate at which unpaid amounts will accrue interest under a reinsurance agreement? In a Treaty Tip, Tony Cicchetti provides two examples from recent court opinions that illustrate the importance of covering this topic in a reinsurance contract.

This post written by Tony Cicchetti.

NINTH CIRCUIT AFFIRMS ATTORNEY’S FEE AWARD FOR ARBITRATION, CONFIRMATION, AND COLLECTION, BUT NOT FOR LITIGATION WITH REINSURERS

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In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).

This post written by Michael Wolgin.