Reinsurance Avoidance

WITH OR WITHOUT PREJUDICE, THAT IS THE QUESTION

August 2, 2010 by Carlton Fields

A California federal court addressed arguments pertaining to whether a dismissal of a third party complaint as part of a settlement agreement between a plaintiff insurer and defendant-third-party-plaintiff reinsurer should be with or without prejudice. The third party plaintiff argued that the nature of the agreements between it and the third party defendant, another pool reinsurer (and no settlement had been reached as between these two parties), as to future indemnification obligations left open questions that could be precluded by dismissal with prejudice. The court ordered the dismissal without prejudice, invoking its broad discretion under Rule 41, and citing a failure by the third party defendant to identify a concrete harm it would suffer from a dismissal without prejudice. Eagle Star Ins. Co., Ltd. v. Highland Ins. Co., No. 02-cv-2165 (USDC S.D. Cal. July 22, 2010).

This post written by John Pitblado.

COURT DECLINES TO RECONSIDER RULING FOR REINSURER IN LIABILITY LIMIT DISPUTE

June 21, 2010 by Carlton Fields

Pacific Employers Insurance Company moved for reconsideration of a recent court ruling that Global Reinsurance Corporation of America was not required to reimburse Pacific for costs beyond the $1 million cap on “reinsurance accepted” under a facultative certificate issued to Pacific by Global (see our May 5, 2010 post for details about the initial ruling). The court denied Pacific’s motion for reconsideration, noting that it failed to point to new evidence or a change in controlling law. The court also denied Pacific’s alternative motions seeking to have the previous order certified as final for immediate appeal, or to have the matter certified for an interlocutory appeal to the Third Circuit. The court held that claims for relief remain to be adjudicated, and that any appeal is premature and unwarranted. Pacific Employers Ins. Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. June 9, 2010).

This post written by John Pitblado.

“Reinsurance Accepted” Clause Interpreted to Define Maximum Exposure, Including Expenses

May 5, 2010 by Carlton Fields

A court has found that a reinsurer’s (Global Reinsurance Corporation of America) maximum exposure under a facultative certificate is $1 million dollars, inclusive of expenses. The issue raised in the case by the parties’ cross-motions for judgment on the pleadings was whether expenses are subject to the $1 million limit stated in the certificate’s “Reinsurance Accepted” section. The reinsured (Pacific Employers Insurance Company) alleged the $1 million cap did not apply to the expenses, and requested that the court find that as a matter of law that Global was obligated for up to $1 million of loss and, in addition thereto, a pro rata share of expenses. In turn, Global sought a declaration that the cap is the maximum Pacific Employers could potentially recover. The “Reinsurance Accepted” section stated: “$1,000,000 ANY ONE OCCURRENCE AND IN THE AGGREGATE[.]” Examining the certificate’s plain language, the court found that this section’s “broad and unambiguous language” encompassed expenses because it defined Global’s maximum exposure. The section did not differentiate between reinsurance accepted for “losses” versus reinsurance accepted for “expenses,” but simply provided a total cap on liability for loss payments, expense payments, or any combination thereof. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. Apr. 23, 2010).

This post written by Brian Perryman.

New York Appellate Court: Claims Against Reinsurance Brokers Survive Dismissal

April 26, 2010 by Carlton Fields

New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.

NEW YORK APPELLATE COURT ADDRESSES NUMEROUS CONTRACT INTERPRETATION ISSUES IN REINSURANCE DISPUTE

November 25, 2009 by Carlton Fields

Gulf Insurance Company sued Gerling Global Reinsurance Corporation of America (“Gerling”) and others who participated in reinsurance treaties covering a portfolio of Gulf’s automobile residual value insurance. Gerling denied Gulf’s claims for its portion of payments Gulf made in connection with underlying coverage litigation which settled for $266 million. Gulf sued Gerling, and Gerling countersued, seeking rescission of the treaties on the basis of nondisclosures and misrepresentations made by or on behalf of Gulf. The issues turned in part on the interpretation under the treaties of the percentage of the reinsurers’ participation. That interpretation was impacted by a further determination as to the amount of premium paid, but Gerling argued, and the trial court agreed, that the amount of premium was miscalculated by its bookkeeping department, and that Gulf improperly based its premium payment on those miscalculations. The premium payments were also not made until after formation of the treaties, and thus, the trial court found, did not affect interpretation of the treaties. After addressing a number of other contract interpretation issues, the Appellate Court essentially affirmed, with partial modification, the trial court’s decisions granting partial summary judgment to Gerling, and denying partial summary judgment to Gulf. Gulf Insurance Company v. Transatlantic Reinsurance Company, Nos. 6016023/03 and 601077/04 (N.Y. App. Div., Oct. 1, 2009)

This post written by John Pitblado.