Contract Interpretation

ENGLISH COURT HAS JURISDICTION OVER REINSURANCE CLAIM BY A BERMUDA INSURER AGAINST A SWISS REINSURER

November 12, 2009 by Carlton Fields

The underlying dispute involves claims made by Gard Marine & Energy, Ltd. (“Gard”), a Bermudan company, against its reinsurers in an English court. One reinsurer, Glacier Reinsurance AG (“Glacier”), domiciled in Switzerland, objected to the court’s jurisdiction. Glacier had originally paid Gard the sum Glacier considered due, but later sued Gard in a Swiss court seeking repayment of the sum paid. The present action was stayed until the Swiss Federal Court declined jurisdiction. The English court then addressed the issues of governing law and jurisdiction.

The English court first addressed whether Swiss or English law applied. Following the principles of the Rome Convention, the court found that Gard established a good, arguable case that English law applied for four reasons, which were: (1) the circumstances of the placement; (2) the use of a Lloyd’s slip and policy; (3) a number of London market wordings incorporated in the slip; and (4) the wording included provisions relevant to English law. The court next addressed jurisdiction. Applying the Lugano Convention (the “Convention”), the court found that it had jurisdiction. The Convention permits Gard to sue Glacier in Glacier’s country of domicile; however, certain provisions in the Convention allow for an exception. Pursuant to Article 6(1) of the Convention, since the English court had jurisdiction over the other defendants, the court had jurisdiction over Glacier because litigation in English and Swiss courts would result in irreconcilable judgments. Gard Marine & Energy Ltd. v. Tuncliffe, [2009] EWHC 2388 (Comm. Oct. 9, 2009).

This post written by Dan Crisp.

EASTERN DISTRICT OF NEW YORK DENIES MOTION TO AMEND: HOLDS CLAIM WOULD BE FUTILE

September 23, 2009 by Carlton Fields

On August 24, 2009, the Eastern District of New York ruled on plaintiff Callon Petroleum’s motion to amend its complaint by adding a statutory claim for punitive damages based on defendant National Indemnity’s bad faith failure to make a timely payment following the submission of the bond claim in the action. This action arose out of a judgment Callon obtained against its reinsurer Frontier Insurance Company in the form of a surety bond Frontier issued to Wood Energy Corporation. Defendant moved to dismiss plaintiff’s claims since it was not a party to the surety bond. The motion to dismiss was granted in part and denied in part, and over a year and a half later plaintiff moved to include the statutory claim.

Applying New York’s “center of gravity/grouping of contacts analysis,” the court concluded that New York law should be applied. The court noted that the reinsurance contract was negotiated and entered in New York, the place of performance was New York, and one of the contracting parties (Frontier) is domiciled in New York. Additionally, the arbitration clause in the contract requires all arbitration to take place in New York. Having determined that New York law should apply, the court denied the motion to amend, holding that the claim would be futile under New York law. Callon Petroleum Co. v. Nat’l Indem. Co., Case No. 06-CV-0573, (E.D. N.Y. Aug. 24, 2009).

This post written by John Black.

DISTRICT COURT FINDS CONTRACTING PARTIES IN PRIVITY, DISMISSES THIRD PARTY COMPLAINT

September 22, 2009 by Carlton Fields

In the latest development of Guaranteed Trust Life’s (“GTL”) suit for reinsurance benefits from First Student Programs, the Northern District of Illinois granted in full third party defendant American United Life’s (“AUL”) motion to dismiss. After previously granting in part and denying in part AUL’s motion to dismiss, the court invited the parties to readdress the issues of res judicata. In fully granting AUL’s motion in the instant order, the court determined that, even though First Student Programs was not a party to the arbitration between GTL and AUL, it was in privity with GTL. The court concluded that because the two companies’ claims against AUL arose out of the same alleged breach of contract, were based on the same legal and factual arguments, and rested on a contractual relationship between the two companies, Illinois’ privity test was met. Accordingly, First Student Programs’ claim agasint AUL was precluded by the arbitration award against AUL. Guarantee Trust Life Ins. v. First Student Programs, LLC, Case No. 05 C 1261 (N.D. Ill Sept. 9, 2009).

This post written by John Black.

EXISTENCE OF DEEMER CLAUSE UNDOES JUDGMENT AGAINST REINSURER

September 21, 2009 by Carlton Fields

We previously reported (April 7, 2008) on a federal district court’s interpretation of the liability limit of an employers’ liability reinsurance agreement in a summary judgment setting, finding in favor of the position advanced by the reinsured. We subsequently noted (August 6, 2008) the district court’s entry of judgment in the total amount of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. It appears, however, that the district court was in error, as the Third Circuit vacated the judgment, and remanded the case for further proceedings. The central issue was whether the warranty provision in the agreement limited the reinsurer’s liability for EL claims. The district court held that the contract was unambiguous and contained no such limitation. The Third Circuit held the problem with this conclusion was that it fails to account for the phrase “or so deemed” in the warranty provision. The existence of this “deemer clause” meant the warranty provision could not be interpreted as the district court saw it, solely as a promise or guarantee. The consequence of the reinsured’s failure to comply with the warranty is that, at least in some circumstances, the reinsured was deemed to have complied, so the deemer clause effectively redefined the EL limits in the underlying policies in a way that limited the reinsurer’s liability. Princeton Insurance Co. v. Converium Reinsurance (North America) Inc., No. 08-2136 (3d Cir. Sept. 14, 2009).

This post written by Brian Perryman.

CASE UPDATE: JUDGMENTS REVERSED BY HOUSE OF LORDS IN APPEALS ASKING WHETHER COVERAGE UNDER A PROPORTIONAL FACULTATIVE REINSURANCE CONTRACT IS COEXTENSIVE WITH COVERAGE UNDER THE INSURANCE CONTRACT

September 8, 2009 by Carlton Fields

In an April 8, 2008 post, we reported on a UK Court of Appeals decision, Wasa International Insurance Co. v. Lexington Ins. Co., [2008] EWCA Civ. 150 (Feb. 29, 2008), reversing a lower court’s decision denying reinsurance coverage despite a follow the fortunes provision, based on a finding that the damages occurred outside the coverage period of the reinsurance, and despite the conclusion of a US court on the underlying claim finding liability for damage occurring outside the coverage period of the underlying policy. The Court of Appeals found that the coverage provision of the reinsurance should be interpreted in the same manner as the coverage provision in the underlying insurance. The Court of Appeals agreed that the insurance and reinsurance contracts were not entirely “back-to-back” in terms of the coverage periods, but concluded that although there were some differences in the contracts, the parties intended that they should have the same effect, so the reinsured’s settlement of the insurance claim did fall within the terms of the reinsurance contract.

The UK House of Lords allowed consolidated appeals from the Court of Appeals. These appeals raised the question of the extent to which the coverage under a proportional facultative reinsurance contract is, or should be construed as being, coextensive with the coverage under the insurance contract. The House of Lords, as articulated by Lord Collins, found that the reinsurer takes a proportional share of the premium and bears the risk of the same share of any losses. Normally reinsurance of that kind is back-to-back with the insurance, and the reinsurer and the original insurer enter into a bargain that if the insurer is liable under the insurance contract, the reinsurer will be liable to pay the proportion which it has agreed to reinsure. Any loss within the coverage of the insurance will be within the coverage of the reinsurance. In the view of Lord Phillips, the result of the appeals was dictated by the fact that the subject reinsurance contract was governed by English law and by the principle under English law that a reinsurance contract in relation to property is a contract under which the reinsurers insure the property that is the subject of the primary insurance; “it is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance.” Lexington Insurance Co. v. AGF Insurance Ltd., [2009] UKHL 40 (July 30, 2009).

This post written by John Black.