Follow the Fortunes Doctrine

ANOTHER ASBESTOS REINSURANCE SETTLEMENT

November 14, 2013 by Carlton Fields

A settlement in principle was reached in Century Indemnity Company v. Global Reinsurance Corporation of America, a breach of contract case involving the nonpayment by Global Reinsurance of its portion of an asbestos exposure-related loss incurred by Century under two umbrella liability policies. Global had an uphill battle because the facultative reinsurance agreements contained a follow-the-fortunes provision, obligating Global to follow all loss settlements made by Century, provided that such settlements are within the terms and conditions of both the original policies and the reinsurance certificates. Century Indemnity Co. v. Global Reinsurance Corp. of Am., Case No. 13-CV-797 (KBF) (S.D.N.Y. Aug. 26, 2013).

This post written by Kyle Whitehead.

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FOLLOW THE FORTUNES DOCTRINE APPLIED TO ALLOCATION OF SETTLEMENT AMOUNT

March 11, 2013 by Carlton Fields

In a dispute with reinsurers over coverage for the settlement of asbestos-related disputes valued at close to one billion dollars, in which the reinsurance contracts contained a follow the fortunes provision, the reinsurers challenged whether the doctrine applied to the cedent’s decisions in the allocation of the settlement amount, and, if applicable, it could be applied in a summary judgment context to the cedent’s allocation of the settlement. Modifying the decision of the lower court, the Court of Appeals held: (1) the follow the fortunes doctrine applied to the cedent’s allocation of the settlement amount; (2) the doctrine appropriately was applied to sustain the cedent’s allocation of the entire settlement amount to a single policy year, since the applicable trigger of coverage supported such an allocation; and (3) disputed issues of material fact prevented the application of the doctrine in a summary judgment context with respect to challenges to the allocation of the settlement amount to different policies and the value attributable to specific types of claims. United States Fidelity & Guaranty Company v. American Re-Insurance Company3, 2013 WL 451666 (N.Y. Ct. App. 2/7/2013).

This post written by Rollie Goss.

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PARTIES FILE STIPULATED FACTS AFTER DENIAL OF SUMMARY JUDGMENT IN INDEMNITY ACTION BY ACQUIRER OF 9/11 REINSURER

November 20, 2012 by Carlton Fields

On September 24, 2012, we reported on the denial of summary judgment in a lawsuit brought by an acquirer of a reinsurer against the former parent company of the reinsurer, for an alleged $13 million intentional understatement of case reserves in connection with reinsurance of airplanes involved in the 9/11 attacks. The dispute surrounded the reinsurer’s setting of its reserves based on one “terrorism” event, rather than a higher liability for two “hijacking” attacks, despite the fact that the cedents and brokers treated the loss as two attacks. The court denied the parties’ cross-motions for summary judgment, holding that factual questions existed as to whether the reinsurer’s alleged fraud constitutes a “loss” under the under the relevant stock purchase agreement and, if so, whether the “loss” was caused by the reinsurer’s misrepresentations. The parties recently filed a joint stipulation of undisputed facts wherein the parties set forth agreed facts relating to the reinsurance industry and details of their dispute, including that the reinsurer’s case reserves at the time of acquisition totaled over $12 million, and that the reinsurer has thus far received and paid claims totaling approximately $9.66 million. WT Holdings, Inc. v. Argonaut Group, Inc., Index No. 600925/2009 (N.Y. Sup. Ct. Oct. 26, 2012).

This post written by Michael Wolgin.

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PHILIPPINE INSURER IS NOT ENTITLED TO STAY OF LONDON REINSURERS’ DECLARATORY COVERAGE ACTION REGARDING VESSEL SINKING

October 30, 2012 by Carlton Fields

A consortium of London reinsurers are seeking a declaration from an English court regarding their duty to indemnify Philippine insurer Oriental Insurance Company for losses resulting from the sinking of a cargo passenger ship during Typhoon Frank in 2008. The sinking, which caused widespread outrage in the Philippines due to the vessel’s failure to heed storm warnings resulted in over 500 deaths and significant property loss. The reinsurance contract contained a “Typhoon Warranty,” which voided the policy if an otherwise covered vessel left port during a typhoon or storm warning. Oriental’s underlying policy with the ship owner contained a virtually identical clause. Oriental, facing massive claims and litigation in the Philippines, sought a stay of the proceedings initiated by the British reinsurers, arguing that their action was premature given the reinsurance contract’s “follow the fortunes” clause and significant unresolved claims pending in the Philippine courts. The lower court dismissed Oriental’s application for a stay, holding that such relief should only be granted in “rare and compelling circumstances,” which were not present. The appellate court dismissed the appeal with “little enthusiasm,” finding the lower court’s decision correct but noting its apparent “unfairness.” In particular, as one justice noted, the reinsurers’ action might force Oriental to assert in the London courts that the “Typhoon Warranty” did not apply, a position diametrically opposed to the one it would wish to take in defending ongoing and imminent coverage suits in the Philippines. Amlin Corp. Member Ltd. v. Oriental Assurance Corp., [2012] EWCA Civ. 1341 (Royal Courts of Justice, Queen Bench Division, Commercial Court Oct. 17, 2012).

This post written by Ben Seessel.
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DESPITE ABSENCE OF FORMAL REINSURANCE AGREEMENT, COURT APPLIES “FOLLOW THE FORTUNES” DOCTRINE AND FINDS BAD FAITH

March 7, 2011 by Carlton Fields

In a dispute between reinsurers Trenwick America Reinsurance Corp. and IRC Re Limited regarding the alleged breach by IRC Re of a retrocessional reinsurance agreement, a court applied the “follow the fortunes” doctrine to find that IRC violated the agreement in bad faith. The dispute arose when IRC Re “at the 11th hour” denied the existence of a written reinsurance agreement and refused to pay its share of the liabilities arising from the underlying insurance program. The court found that an unwritten agreement existed based on IRC Re’s conduct (e.g., accepting premium payments), correspondence, and testimony from other parties involved in the program. The 56 page opinion contains extensive discussion regarding the existence and terms of the reinsurance contract, its place in a larger reinsurance program, and IRC’s conduct in the reinsurance dispute. IRC Re was not permitted to raise claim payment defenses due to the “follow the fortunes” doctrine. The court found that the doctrine was customary in the reinsurance industry and was therefore applicable even in the absence of a written agreement. The court further held that IRC Re, its CEO, and IRC Re’s affiliate responsible for managing the underlying insurance program, violated the Massachusetts unfair and deceptive trade practices statute. With the program’s manager and the program’s reinsurer “aligned on the same side” there was “little chance of resolving the claim in a timely fashion and surely without litigation” and they “did everything they could to obfuscate the issues and stall their ultimate resolution.” Trenwick America Reinsurance Corp. v. IRC, Inc., Case No. 07-12160 (USDC D. Mass. Feb. 16, 2011).

This post written by Michael Wolgin.