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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration / Court Decisions

COURT COMPELS PRODUCTION OF LOSS RESERVE INFORMATION REPORTED TO REINSURER

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The case involved an insurer’s denial of coverage for damage to a fishing vessel. The discovery dispute related to an insurer’s production of its reinsurance contract and reinsurance reporting, but with all information related to loss reserves redacted as confidential. The court compelled the insurer to produce the reserve information, citing cases holding that such information is relevant to whether the insurer acted in bad faith in denying coverage. The court was not persuaded by the insurer’s attempt to distinguish this reinsurance case from typical first party insurance disputes, finding that the plaintiff had shown that “the purported re-insurer in this case, is actually the front-line insurer.” McAdam v. State National Insurance Co., Case No. 12cv1333 (USDC S.D. Cal. Nov. 1, 2013).

This post written by Michael Wolgin.

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PLAINTIFFS JUMP MOTION TO DISMISS HURDLE IN A PMI CAPTIVE REINSURANCE DISPUTE

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A federal district court in Pennsylvania sided with plaintiffs on motions to dismiss filed by the lender, private insurers, and captive reinsurance company in a dispute over premiums charged for private mortgage insurance. Although plaintiffs’ claims were outside the statute of limitations window, the court concluded that equitable tolling applies to RESPA claims, denying defendants’ motions on that issue and allowing plaintiffs to conduct limited discovery on statute of limitations and equitable tolling issues. The court also denied defendants’ motions on the merits of the RESPA and unjust enrichment claims, finding plaintiffs’ argument that the reinsurance relationships are “shams” to be persuasive. Defendants did secure the dismissal of N.Y. Gen. Bus. Law § 349 claims brought by non-New York plaintiffs, however. Cunningham v. M&T Bank Corp., No. 12-1238 (USDC M.D. Pa. Oct. 30, 2013).

This post written by Abigail Kortz.

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COURT AFFIRMS ORDER APPROVING UP-FRONT DEDUCTION OF BROKER FEES IN DISPUTE OVER ALLOCATION OF REINSURANCE PREMIUM

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The plaintiff insurance company wanted to underwrite a commercial automobile insurance program, but lacked the ability to provide direct insurance. It obtained the services of a reinsurance broker, which set up a complicated transaction involving a fronting insurer, ceding 100% of risk to a reinsurer, which in turn retroceded a portion of the risk to the plaintiff. The dispute surrounded whether the reinsurer satisfied its obligation of paying commissions to the plaintiff by paying to the broker and fronting company the brokerage amounts owed by plaintiff. The reinsurer prevailed on summary judgment, and the plaintiff appealed, contending that the reinsurer was not authorized to offset its commission obligations with the cost of broker fees and expenses. On appeal, the court affirmed summary judgment and rejected the plaintiff’s argument, finding that each separate agreement underlying the various relationships amongst the program participants were inextricably intertwined such that the reinsurer acted properly in accounting for amounts owed by the plaintiff company to the broker and fronting company. The court further relied on industry custom and the course of dealings between the parties, including monthly bordereaux sent to the plaintiff (without protest) that disclosed all premium, commission, and expense allocations under the program. Eastern Atlantic Insurance Co. v. Swiss Reinsurance America Corp., Case No. 179 MDA 2013 (Pa. Sup. Ct. Nov. 1, 2013).

This post written by Michael Wolgin.

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UK COURT HOLDS THAT REINSURANCE BROKERS OWE A CONTINUING DUTY TO THEIR REINSUREDS; TIME-BARRED DEFENSE NO LONGER PACKS A PUNCH

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Resolving a dispute between a reinsured and its reinsurance broker, the UK Commercial Court has held that reinsurance brokers owe a continuing duty to remit money received from reinsurers to their reinsureds. The reinsurance broker conceded that it breached its duty, but argued that the first breach was more than six years (the limitations period) before the litigation was commenced and that the claims are time-barred. The reinsured argued, and the High Court agreed, that the reinsurance broker’s duty is continuous, such that a “fresh cause of action arose on each day when [the broker] failed to make a remittance which it ought to have made.” Equitas Ltd. v. Walsham Bros. & Co., [2013] EWHC (Comm) 3264 (Eng.).

This post written by Abigail Kortz.

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ANOTHER ASBESTOS REINSURANCE SETTLEMENT

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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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