Contract Interpretation

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.

COURT UPHOLDS SANCTIONS ORDER BASED UPON FRIVOLOUS APPEAL BY LLOYDS NAME

October 16, 2008 by Carlton Fields

In 1979, Bennett signed a contract with Lloyd’s as a Name to provide underwriting capital for insurance syndicates. The contract contained clauses stating that English law applied to Names’ disputes and such disputes can only be resolved in the courts of England. At the time the contract was signed, Lloyd’s failed to disclose massive anticipated losses. In 1998, Bennett and 600 other Names sought to avoid the forum selection and choice of law clauses. The Ninth Circuit upheld the clauses. Lloyd’s sued in England and won a large judgment against non-settling Names to recover mandatory premiums. Lloyd’s then sought to enforce its claim against Bennett, a non-settling Name, in Utah District Court. The court found in favor of Lloyd’s. Bennett appealed, and this appeal was consolidated with other Names cases in the Reinhart case before the Tenth Circuit. The circuit court upheld the forum selection and choice of law clauses.

During the pendency of the Reinhart appeal, Bennett filed for bankruptcy and brought two separate lawsuits under the auspices of the bankruptcy case. The parties stipulated to the dismissal of the first suit, and the second suit went to trial. In the second suit, the court granted Lloyd’s summary judgment motion and a motion for sanctions, finding that the forum selection issue had been previously determined. Bennett appealed, but the district court affirmed the ruling.

Bennett appealed the bankruptcy court’s sanctions order, again advancing arguments against the forum selection clause. The court upheld the award of sanctions, finding the appeal from the bankruptcy court to be frivolous, and that “no reasonable attorney” could believe otherwise based upon the doctrine of res judicata and the Tenth Circuit’s prior opinions. Bennett v. Soc’y of Lloyd’s (In re Bennett), Case No. 2:07-CV-736 TS (USDC Utah Sept. 24, 2008).

This post written by Dan Crisp.

COURT GRANTS PARTIAL SUMMARY JUDGMENT TO REINSURER ON CLAIMS OF TORTIOUS AND FRAUDULENT CONSPIRACY AND CONCEALMENT

October 13, 2008 by Carlton Fields

Plaintiff Mike Robinson and other selling agents of Commonwealth National Life Insurance Company (“Commonwealth”) brought claims against Guarantee Trust Life Insurance Company (“GTL”) arising from an Assumption Reinsurance Agreement entered into between Commonwealth and GTL. Under the reinsurance agreement, GTL assumed certain of Commonwealth’s Medicare supplement policies, as well as Commonwealth’s obligations to its agents who originally placed the policies. The plaintiffs alleged that through its agreements and in conspiracy with Commonwealth, GTL improperly avoided payment of commissions.

The district court granted partial summary judgment to GTL, finding that there was no evidence GTL was obligated to continue paying commissions on inactive or replaced Commonwealth policies, but found that there were genuine issues of fact pertaining to whether the plaintiffs were third party beneficiaries under the reinsurance agreement. GTL later moved again for partial summary judgment on such claims as tortious and fraudulent conspiracy and concealment, and the court found that those claims were unsupported by evidence of any prior knowledge of or conduct by GTL relating to the inactive and replacement Commonwealth policies, and granted partial summary judgment in GTL’s favor. Robinson v. Guarantee Trust Life Ins. Co., Case No. 2:00-CV-243-B-B, et al. (N.D. Miss. Sept. 22, 2008).

This post written by John Pitblado.

UNDERLYING INSURED DENIED RIGHT TO SEEK DISCOVERY FROM FORMER REINSURER

October 7, 2008 by Carlton Fields

A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

COURT TO REINSURER: “FOLLOW THE FORTUNES”

September 2, 2008 by Carlton Fields

“The Corporation shall reimburse the Reinsured or its legal representative promptly for loss against which indemnity is herein provided.” Is this a “follow the fortunes” clause in a reinsurance treaty? Undoubtedly, a federal district court answered on Mass Mutual’s (the cedent) motion for summary judgment against its reinsurer, Employers Reinsurance Corporation. “Nowhere in the Treaty does it state that ERC may question claims once those losses are incurred and paid.” The fact that ERC had a right of joint participation in adjusting the claims did not undermine this conclusion. Mass Mutual retained the right to be the final decision maker in all determinations. The court found additional support in the parties’ thirteen-year course of conduct, inasmuch as during most of that period ERC “consistently and continually” paid out claims without questioning Mass Mutual’s handling of those claims. The court found for Mass Mutual again on the question of whether ERC breached the treaty’s offset provision by withholding disputed reimbursements to Mass Mutual. The provision stated that the parties could offset loss or claim expenses due from one to the other; disputed sums did not count.

As a consolation prize, the court dismissed Mass Mutual’s counterclaim against ERC for violations of the Connecticut Unfair Trade Practices Act: “A simple breach of contract claim is not in and of itself a violation of CUTPA.” The court previously had dismissed other claims that Mass Mutual had asserted, including a claim for breach of fiduciary duty. (See April 24, 2007 post to this blog.) The court essentially brought the dispute down to a simple breach of contract dispute, which was determined based upon the follow the fortunes doctrine. Employers Reinsurance Corporation v. Massachusetts Mutual Life Insurance Company , Case No. 06-0188 (USDC W.D. Mo. Aug. 19, 2008).

This post written by Brian Perryman.