Contract Interpretation

INSURANCE UNDERWRITER LACKED THIRD-PARTY BENEFICIARY STATUS UNDER REINSURANCE AGREEMENT; COUNTERCLAIMS DISMISSED

November 18, 2008 by Carlton Fields

TIG Insurance entered into an agreement with Titan Underwriting for Titan to act as managing general underwriter, soliciting and procuring stop-loss health and life insurance insureds for policies to be issued by TIG. Titan was also obligated to obtain reinsurance to cover the stop-loss policies issued by TIG. Chubb Re reinsured TIG, and TIG received a percentage of the ceding commission of the gross premiums ceded to the reinsurer, a portion of which Titan received as compensation. Subsequently, TIG terminated the stop-loss program and sued Titan for, among other things, breach of contract and fraud. TIG also sent a letter to state insurance commissioners requesting information that Titan refused to produce to TIG. In response, Titan counterclaimed for breach of the Chubb reinsurance agreement, tortious interference with a contract, tortious interference with its business relationships with policyholders, defamation and negligence. The trial court dismissed each of the counterclaims and the court of appeals affirmed the dismissal.

The appellate court found that Titan, which was not a party to the reinsurance agreement, could not sue in the capacity of a third-party beneficiary. Although Titan was entitled to receive a percentage of the ceding commission, the contract contained a provision disclaiming any intent to create a third-party beneficiary. The tortious interference with a contract claim failed because it was legally impossible for TIG to interfere with its own contract (the reinsurance agreement). The tortious interference with business relationships claim failed because Titan failed to establish that it had existing relationships with the policyholders, whose relationships were insurance policies with TIG. The defamation claim, which was based on TIG’s letter to the insurance commissioners, also failed since the letter was not alleged to contain statements that could be “reasonably construed to disgrace or injure Titan’s reputation in the community or subject Titan to public ridicule and contempt.” Finally, the negligence claim failed since Titan failed to establish, as it was required to do, that TIG owed Titan a duty of care. TIG Insurance Co. v. Titan Underwriting Managers, LLC, No. M2007-01977-COA-R3-CV (Tenn. Ct. App. Nov. 7, 2008).

This post written by Brian Perryman.

U.K. COURT CONSTRUES PARTIES’ INTENT IN CREATING REINSURANCE CONTRACT AGAINST REINSURER

November 12, 2008 by Carlton Fields

Allianz Insurance Company of Egypt (“Allianz”) sued its reinsurer, Aigaion Insurance Company S.A. (“Aigaion”), for US $675,000 arising from the constructive loss of the oceangoing vessel “Ocean Dirk,” one of several scheduled ships under the reinsurance contract. Aigaion denied liability for the claim on the theory that the parties never arrived at consensus over the terms of the reinsurance contract, and thus it was null and void ab initio.

Allianz countered with evidence of communications by and between Allianz, Aigaion, and the intermediary broker who placed the risk, Chedid & Associates Ltd. (“Chedid”). The court held that these communications, consisting mainly of e-mail correspondence, indicated that the parties clearly intended for Aigaion to be bound as Allianz’s reinsurer for certain risks covered by Allianz’s underlying insurance. Aigaion took the position that the communications reflected a continued intent on the part of both parties to negotiate certain terms of the contract, even after the reinsurance contract had issued, but that the parties failed to reach consensus sufficient to create a contract. The court found in Allianz’s favor, noting that the communications reflected a resort to certain shorthand understood in the industry, and that Aigaion clearly communicated its intent to be bound by those terms with the same understanding as had Allianz, at the latest by a date certain which may have post-dated the contract, but nonetheless pre-dated the loss. The Court entered judgment in favor of Allianz for the net premium due. Allianz Insurance Company of Egypt v. Aigaion Insurance Company S.A. [2008] EWHC 1127 (Queen’s Bench Div. Comm. June 2, 2008).

This post written by John Pitblado.

FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT AS TO WHETHER CLAIMS COOPERATION CLAUSE WAS AGREED TO BY REINSUREDS

November 5, 2008 by Carlton Fields

In this English case, the claimant reinsurer, Markel, applied for the UK equivalent of summary judgment against two defendant German reinsureds, seeking a declaration that it was not liable under a contract of reinsurance. The primary issue was whether the contract provided in a claims cooperation clause that it was a condition precedent to any liability under it that if the reinsureds knew of any circumstances which may give rise to a claim against them, they should advise Markel within thirty days. Conflicting evidence was submitted as to whether the parties had agreed to the clause as suggested by Markel. Consequently, the court stated it was unable to accept Markel’s submission that there should be summary judgment since the issue involved questions of fact to be determined at trial. The court further addressed the separate issue of whether knowledge of the manager of the reinsurance pool (VOV) amounted to knowledge of the reinsureds for purposes of the claims cooperation clause. The court rejected Markel’s construction of the clause, holding that under the terms expressed, knowledge of VOV would not be imputed. Summary judgment was denied on all issues. Markel Capital Ltd. v. Gothaer Allgemeine Versicherung AG [2008] EWHC 2517 (Comm. Oct. 24, 2008).

This post written by Brian Perryman.

COURT DISMISSES CLAIMS AGAINST REINSURER AND THIRD PARTY ADMINISTRATOR FOR LACK OF CONTRACTUAL RELATIONSHIP TO PLAINTIFF

October 29, 2008 by Carlton Fields

Plaintiff Samuel Brand sued his disability insurer, AXA Equitable Life Insurance Company (“AXA”), for failing to pay and improperly handling his disability claim. Brand also sued the third party administrator who handled the claim, Disability Management Systems, Inc. (“DMS”), and Centre Life Insurance Company (“Centre”), AXA’s reinsurer for its disability claims. Centre and DMS moved to dismiss Brand’s breach of contract and statutory bad faith claims on the basis that they had no contractual relationship with the plaintiff.

The district court agreed with the defendants, noting that the breach of contract claims failed because Brand was not a party to any contract with DMS or Centre. The court also rejected Brand’s theory that he was a third-party-beneficiary of AXA’s contracts with DMS and Centre, holding that the defendants’ contracts with AXA did not reflect an expectation that DMS or Centre would have a direct obligation to any AXA policyholder such as Brand. The court dismissed the statutory bad faith claims because neither DMS nor Centre qualified as Brand’s “insurer” as that term is defined and construed under Pennsylvania’s insurance bad faith statute. Brand v. AXA Equitable Life Ins. Co., No. CV-08-2859 (USDC E.D. Pa. Sept. 16, 2008).

This post written by John Pitblado.

CASE UPDATE: COURT RULES ON JURISDICTION AND DISMISSAL ISSUES IN THE HUNTSMAN/INTERNATIONAL RISK INSURANCE LAWSUITS

October 22, 2008 by Carlton Fields

We previously posted on May 14, 2008 about a group of reinsurers’ successful effort to transfer venue in a casualty coverage dispute. In an update to that litigation, the transferee court ruled on four motions in two related lawsuits: a motion to remand the transferred lawsuit to state court; a motion to enjoin related state court litigation; a motion to dismiss for lack of subject matter jurisdiction; and a motion to dismiss for failure to state a claim. Initially, the court found that remand should be denied because it had federal question jurisdiction under the New York Convention, 9 U.S.C. § 201 et seq. Specifically, jurisdiction was proper because arbitration agreements between citizens of foreign countries and citizens of the United States were implicated. This opinion also addresses the interesting question of whether the parties should be realigned for purposes of evaluating diversity of citizenship. Huntsman Corp. v. International Risk Ins. Co., Case No. 08-1542 (USDC S.D. Tex. Sept. 26, 2008). The motion to enjoin the state court litigation was denied as moot because, by the time of the rulings, the state case had been removed and was the subject of the decided motion to remand. Ace American Ins. Co. v. Huntsman Corp., Case No. 07-2796 (USDC S.D. Tex. Sept. 26, 2008). The motion to dismiss for lack of subject matter jurisdiction was denied. The principal thrust of that motion was that the defendant’s (International Risk Insurance Company) liability to its co-defendant (Huntsman) under an insurance policy had not yet been determined; however, the court found that this did not warrant dismissal of the reinsurers’ claim to compel arbitration with IRIC because, among other things, the reinsurers’ liability to IRIC under reinsurance certificates was intertwined with IRIC’s demand that the reinsurers accept the defense of IRIC’s lawsuit against Huntsman in related litigation. Finally, the court denied Huntsman’s motion to dismiss the reinsurers’ claim to compel arbitration, and to dismiss the reinsurers’ claim for declaratory relief. Ace American.

This post written by Brian Perryman.