Reinsurance Avoidance

BREACH OF UBERRIMAE FIDEA – THE UTMOST DUTY OF GOOD FAITH – AFFIRMED BY SECOND CIRCUIT

February 7, 2013 by Carlton Fields

The Second Circuit recently addressed the issue doctrine of uberrimae fidea. St. Paul Fire & Marine Insurance brought suit against Matrix Posh, LLC, its insured under a policy of marine insurance, seeking to have the policy declared void ab initio due to Matrix’s alleged misrepresentations about pre-existing damage to the insured vessel. The trial court granted summary judgment and the Second Circuit affirmed. The Second Circuit held that the determination of whether the misrepresentations were material hinged not on the extent of the damage to the vessel (Matrix claimed after the fact that the damage was minor), but on whether the misrepresentation that there was no damage, precluded St. Paul from the opportunity to investigate the risk itself, prior to acceptance. This violated Matrix’s duty of utmost good faith and the policy was therefore void. St. Paul Fire & Marine Insurance Co. v. Matrix Posh, LLC, No. 12-2045-CV (2d Cir. Jan. 16 2013).

This post written by John Pitblado.

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RETROCESSIONAIRE’S RESCISSION COUNTERCLAIM THAT REINSURER FAILED TO ACT IN UTMOST GOOD FAITH SURVIVES SUMMARY JUDGMENT

October 15, 2012 by Carlton Fields

Munich Re sued retrocessionaire ANICO based on ANICO’s refusal to pay over $4 million allegedly due under excess loss policies issued to Munich Re to provide retrocessional cover on Munich Re’s reinsurance of Everest National’s workers compensation program. After discovery closed, ANICO counterclaimed for rescission, alleging that facts revealed in discovery demonstrated that Munich Re failed to abide by its duty of utmost good faith or uberrimae fidei by failing to disclose its own internal loss calculations that ANICO claimed would have been material to ANICO’s decision to issue the retrocessional policies. The parties cross-moved for summary judgment on ANICO’s counterclaim for rescission and Munich Re moved for summary judgment on aspects of its breach of contract and declaratory judgment claims.

The federal district court denied the parties’ cross-motion on ANICO’s rescission counterclaim, holding that there were issues of fact regarding whether ANICO reasonably would have considered Munich Re’s internal loss calculations material and, further, whether Munich Re should have known that ANICO would have deemed this information material. With respect to Munich Re’s breach of contract claim, the court rejected ANICO’s argument that Munich Re’s alleged failure to provide timely notice precluded recovery, finding that timely notice was not required under the parties’ agreements and, further, that ANICO could show no prejudice. The court granted Munich Re summary judgment with respect to its interpretation of the agreements’ retention provisions. As none of these decisions entirely disposed of the case, it remains pending in federal district court. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. Sept, 28, 2012).

This post written by Ben Seessel.

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SEEK REINSURANCE WITH CARE: THE REINSURED BEARS THE BURDEN OF PROVING COVERAGE

August 14, 2012 by Carlton Fields

Reiterating that Massachusetts law requires the insured to bear the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage, the First Circuit affirmed an award of summary judgment to a Canadian reinsurer in an action in diversity brought by an American insurer seeking indemnification of amounts incurred in defending its insured against asbestos-related claims. The court parsed through three years of insurance and reinsurance policies, endorsements thereto, as well as the flow of premium payments, to find corroborative of the parties’ intents both the plain language of the documents and extrinsic evidence, including premium payments and the existence of only an initial-year facultative certificate. The court held that the reinsurance arrangement that existed in the first policy year terminated at the end of that year. OneBeacon Am. Ins. Co. v. Commercial Union Assurance Co. of Canada, No. 11-2072 (1st Cir. July 11, 2012).

This post written by Brian Perryman.

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COMMUTATION AGREEMENT EXTINGUISHES REINSURANCE LIABILITIES, BUT REINSURER CANNOT RECOUP VOLUNTARY PAYMENTS MADE POST-COMMUTATION

May 9, 2011 by Carlton Fields

Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).

This post written by Ben Seessel.

SECOND CIRCUIT REVERSES IN FAVOR OF AIG ON FRAUD CLAIMS, FINDING AXA IGNORED “STORM WARNINGS”

August 30, 2010 by Carlton Fields

The Second Circuit Court reversed a $34.3 million judgment rendered after a jury verdict against AIG on fraudulent inducement claims asserted by AXA arising from reinsurance facilities the parties entered into in or about 1998. While the Court agreed with a district court ruling that AXA’s claims sounded in fraud and not contract, and thus were properly not referable to arbitration, it nonetheless held as a matter of law that AXA failed to prove the claims were timely brought under the two-year discovery prong of the statute of limitations for fraud. The Court found that AXA was on notice of the alleged fraud as early as 1998, when it signed wordings which the Court found clearly indicated the manner in which AIG intended to operate the reinsurance facilities. AXA, despite the “storm warnings” of the wordings, and other indications of AIG’s intentions from 1998 through 2000, failed to bring suit until 2005. Because it found the claims were time-barred, the Court reversed the entry of judgment, and remanded with instructions to enter judgment in favor of AIG. AXA Versicherung AG v. New Hampshire Ins. Co., No. 08-2521 (2d Cir. Aug. 23 2010).

This post written by John Pitblado.