In September 2006, the Society of Lloyds filed an Amended Complaint in a Florida District Court seeking recognition and enforcement of a foreign country judgment under Florida Statutes. The Defendant, Robert Sumerel, moved to dismiss the case as barred by the statute of limitations, asserting that the Amended Complaint is a common law civil action, not a statutory cause of action. The court disagreed, finding that the Amended Complaint did plead a statutory cause of action, and therefore the statute of limitations argument failed. Society of Lloyds v. Robert Sumerel, Case No. 2:06-cv-329-FtM-29DNF (USDC M.D. Fla. April 10, 2007).
Arbitration / Court Decisions
Court refuses to find fiduciary duty in reinsurance relationship
Employers Reinsurance Corporation (“ERC”) filed suit in Missouri federal court against its reinsured, Massachusetts Mutual Life Insurance Company (“MassMutual”) alleging that MassMutual breached the parties’ reinsurance agreement. MassMutual filed various counterclaims alleging that ERC breached the contract by failing to reimburse it for covered claims under the contract. ERC sought dismissal of MassMutual’s counterclaims for vexatious refusal under Missouri and Kansas law and breach of fiduciary duty.
In dismissing both vexatious refusal claims, the court did not reach the substantive issue of whether the Missouri and Kansas statutes apply to a reinsurance contract, but rather dismissed on the ground that Connecticut law, and not Missouri or Kansas law, applied to the parties’ reinsurance contract. Applying Connecticut law, the court also dismissed MassMutual’s claim for breach of fiduciary duty, concluding that the “defendant has failed to plead sufficient facts in its counterclaim supporting a fiduciary relationship between plaintiff and defendant.” Specifically, the defendants failed “to allege facts that there was a unique degree of trust and confidence between the parties or that plaintiff had superior knowledge, skill, or expertise.” The court added that “[c]considering that Connecticut courts have deemed that there is no fiduciary relationship between an individual policy holder and a sophisticated insurance company, they are not likely to imply one in a reinsurance relationship between two sophisticated insurance companies.” Employers Reinsurance Corp. v. Massachusetts Mutual Life Ins. Co., Case No. 06-0188-CV-W-FJG (W.D.Mo. April 10, 2007).
PETITION TO APPOINT UMPIRE DENIED PENDING MOTION FOR DISQUALIFICATION OF COUNSEL IN OTHER COURT
Munich Reinsurance Company (“Munich Re”) initiated arbitration against its reinsurer, Ace Property and Casualty (“Ace”), to recover claims under a reinsurance contract. Ace contended that the amount of the claims was excessive. Each party appointed an arbitrator, and the two party-appointed arbitrators agreed on a pool of names from which an umpire would be selected. Ace then demanded that Munich Re’s counsel, Saul Ewing, voluntarily withdraw from the representing Munich Re in the arbitration, because he had previously represented Ace and possessed potentially prejudicial information. Saul Ewing refused and Ace filed an action in Pennsylvania’s Court of Common Pleas to disqualify him.
Munich Re then filed a Petition for the Appointment of an Umpire in United States District Court. Ace argued that such an appointment would be improper at this time in light of the civil action in Pennsylvania seeking to disqualify Munich Re’s counsel. The District Court stated that “[t][he central issue before me is whether the appointment of an umpire by the Court would move the matter forward despite the pending Pennsylvania action.” Finding that the issue of disqualification was properly before the Pennsylvania court, the Court denied Munich Re's Petition, stating that “although it is clearly within my power to grant a stay [pending the disposition of the Pennsylvania action], there is no articulable benefit to do so since the Pennsylvania court will soon decide the conflict issue” before it. Munich Reinsurance America v. Ace Property & Casualty Ins. Co., Case No. M-82 (HB) (S.D.N.Y. April 10, 2007).
D&O CARRIERS NOT RESPONSIBLE FOR LOSSES SUSTAINED IN FRAUDULENT CONVEYANCE ACTIONS
A New Jersey federal judge ruled that an asset purchase agreement and a quota share reinsurance agreement did not obligate Hartford Fire Insurance Company (“Hartford”) and Twin City Insurance Company (“Twin City”) to step into the shoes of an insolvent insurer and provide coverage to Plaintiff for losses sustained in defending three fraudulent conveyance actions. The underlying fraudulent conveyance actions alleged that an ex-CEO played a shell game with the assets of GAF (the predecessor in interest to G-I) to shield itself from liability in pending asbestos litigation. The present action was originally filed against Reliance, but after Reliance filed for bankruptcy, Plaintiffs joined Hartford and Twin City, alleging that Defendants purchased the assets and renewal rights to Reliance’s D&O book of business and seeking coverage pursuant to that policy.
Ruling on competing summary judgment motions, the District Court said that Hartford and Twin City had no coverage obligation reasoning, among other things, that the “underlying fraudulent conveyance actions constitute a single claim that was first made under the Reliance Policy and before the inception of the Hartford/Twin City Policy” and that the Hartford/Twin City Policy and the Reliance Policy were two separate and distinct policies. G-I Holdings v. Hartford Fire Ins. Co., Case No. 00-6189 (D.N.J., Mar. 16, 2007).
THIRD CIRCUIT REVIVES RICO SUIT AGAINST INSURER
The Third Circuit has revived a RICO suit against First Unum Life Insurance Co., finding that a lower court erred when it held that such a claim would interfere with state regulation of insurers. The plaintiff, Richard Weiss, brought suit under RICO against his insurer, First Unum, alleging that First Unum discontinued payment of his disability benefits as part of First Unum’s racketeering scheme involving an intentional and illegal policy of rejecting expensive payouts to disabled insured. The District Court dismissed his claim, believing that the allowance of such a RICO claim would interfere with New Jersey’s statutory regulation of insurers, and thus run afoul of the McCarran-Ferguson Act.
The Third Circuit reversed finding that the District Court’s reading of McCarren Ferguson was too narrow. The McCarran-Ferguson precludes applying a federal law only when doing so would “invalidate, impair, or supersede” state insurance law. After reviewing the totality of New Jersey's insurance regulatory scheme, including New Jersey’s Insurance Trade Practices Act and Consumer Fraud Act, the Third Circuit concluded that the District Court had erred in holding that RICO would impair it. Specifically, the Court stated “[t]here is nothing in the regulatory scheme that indicates that allowing other remedies as part of its regulation of insurance would frustrate or interfere with New Jersey's insurance regime…To the contrary, the legislation permits additional remedies … and the New Jersey courts have felt free to fashion them.” This case is one of a series which considers the issue of whether a federal statute that adds remedies not available under state law, which are not necessarily inconsistent with state law, violate McCarran-Ferguson. The counter-argument is that by affording a remedy that the state deliberately withheld, the federal statute is indeed inconsistent with state law. Weiss v. First Unum Life Ins. Co., Case No. 05-5428 (3d Cir. April 3, 2007).