Reinsurance Focus

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Reinsurance Claims

Court Denies Reinsurers’ Attempts to Avoid Suit

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The U.S. District Court for the District of Columbia recently denied attempts by reinsurers to avoid a suit by moving to have the claims against them dismissed or, in the alternative, seeking to compel arbitration or stay the case pending a related arbitration.

Vantage Commodities Financial Services I, LLC sued various reinsurers. The court dismissed Vantage’s breach of contract claim but allowed Vantage to file an amended complaint in which it alleged breach of implied contract, promissory estoppel, and unjust enrichment claims. The reinsurers moved to dismiss those claims. They argued that express agreements foreclosed the claim that there was a breach of an implied contract. The court disagreed. It noted that Vantage was not a party to any agreement with the reinsurers. Thus, the court also rejected the reinsurers’ claim that Vantage’s claim was untimely under an agreement.

In the alternative, the reinsurers sought to compel arbitration. Because Vantage and the reinsurers were not parties to an agreement with Vantage, however, the court concluded that the parties had not agreed to arbitrate disputes under arbitration clauses in a related agreement.

The court then rejected the reinsurers’ request that Vantage revise its amended complaint, reasoning that the complaint was not unduly vague or ambiguous. Finally, the court denied the reinsurers’ request for a stay pending ongoing arbitration. The court recognized that there were “overlapping factual issues common to both the arbitration and [the] litigation,” but found that overlap was insufficient to justify a stay and that it would not be in anyone’s interest to allow the “case to languish” during a pending arbitration of undetermined length.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, No. 1:17-cv-01451 (TNM) (D.D.C. Apr. 26, 2019).

Northern District of New York Declines to Imply a Follow-the-Fortunes or Follow-the-Settlements Obligation in Reinsurance Certificate

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After a ten-day bench trial involving ten fact witnesses and five expert witnesses, the Northern District of New York found that certain facultative certificates did not implicitly contain follow-the-settlements or follow-the-fortunes provisions. Utica Mutual Insurance Co. was permitted to present evidence at trial as to whether the doctrines were, at the time the parties agreed to the certificates, so “fixed and invariable in the reinsurance industry as to be part of the Certificates.” We previously wrote about the court’s decision to permit such evidence here.

Utica presented three expert witnesses who testified that follow-the-settlements and follow-the-fortunes doctrines were “industry-wide concepts that did not need to be stated in reinsurance certificates to apply” but “acknowledged that not all reinsurers included these provisions” in their certificates — as was the case here. The court determined that Utica “failed to prove that follow the fortunes or follow the settlements were so ‘fixed and invariable’ in the facultative reinsurance industry as to warrant importing them into” the subject certificate.

As a result, Utica had to prove that the loss was specifically caused by a risk covered in the reinsurance contract. The court concluded that Utica did not meet that burden, and Munich Reinsurance America Inc. was not obligated to pay loss expenses incurred in investigating, adjusting, and litigating claims supplemental to the liability limits.

Munich Reinsurance Am., Inc. v. Utica Mut. Ins. Co., No. 6:13-cv-00743 (N.D.N.Y. Mar. 29, 2019)

District Court Denies Summary Judgment to Trustee of Trust Account Maintained for Beneficiary of “Fronted” Reinsurance Program

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The U.S. District Court for the District of South Carolina denied summary judgment to the trustee of an account established pursuant to a “fronted” reinsurance program. The plaintiff, Accident Insurance Co. (AIC), participated in the program with non-party Freestone Insurance Co. Freestone paid AIC a fee to use its name and paper as a “front,” while bearing the actual risk of the fronted policies by reinsuring them under a “Program Agreement” with AIC. That agreement required Freestone to deposit funds into a separate trust account to be maintained by a trustee for AIC’s benefit. The defendant, U.S. Bank National Association, was the trustee. After Freeman went into receivership, AIC sued U.S. Bank for civil conspiracy and breach of fiduciary duty, among other things, after learning that nearly $7 million in trust assets seemingly disappeared. U.S. Bank moved for summary judgment on the civil conspiracy claim, arguing AIC could not have conspired with its wholly owned subsidiaries, and had no evidence of a “meeting of the minds” between these entities to “illegally transfer” trust assets. The court denied the motion, finding a genuine issue of fact as to each element of the civil conspiracy claim, and that breach of fiduciary duty is an independent tort that can give rise to a civil conspiracy claim under Delaware law.

Accident Ins. Co. v. U.S. Bank Nat’l Ass’n, No. 3:16-cv-02621-JMC (D. S.C. Mar. 22, 2019).

Second Circuit Rejects Claims Against Insurer for Settlement Using Policy Funds

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Three plaintiffs—a subcontractor (HBI), an affiliated entity (Keller Foundations), and their parent (Keller Group)—brought a claim against Zurich, which had issued a liability policy (the Policy) to the Keller Foundations for which HBI was an additional insured. A general contractor (Diaz) sued HBI in one lawsuit and Zurich in another, claiming that Zurich should defend it in the first lawsuit because it was an additional insured under the Policy. Zurich settled the lawsuit by paying Diaz $450,000. Zurich then sought and received reimbursement from Capital, a captive reinsurer owned by plaintiff Keller Group. Claiming that Zurich’s payment to Diaz was not covered by the Policy, plaintiff brought causes of action for breach of contract, breach of the duty of good faith, and declaratory relief. Zurich filed a motion to dismiss all claims, which the trial court granted, and plaintiffs appealed.

The Second Circuit affirmed the dismissal. First, the court found that plaintiffs had not plausibly alleged a breach of the Policy, as Zurich had broad discretion to settle claims and plaintiffs were not directly harmed by Zurich’s decision to settle the claim, even if they had to reimburse Capital for its reimbursement of Zurich. As the court explained, plaintiffs’ payments to Capital did not relate to Zurich’s duties under the Policy, but instead “flow from Capital’s choice to reimburse Zurich under the Reinsurance Agreement, as well as whatever arrangements exist for inter-company reimbursements between Keller Group and its subsidiaries.” Any complaint regarding Capital’s obligation to reimburse Zurich was Capitals’ to make, not Plaintiffs’.

Second, as to the claim for breach of the duty of good faith, the court found that Zurich’s decision to settle the Diaz claim was not arbitrary and unreasonable, and again emphasized that plaintiffs had not plausibly alleged that this decision deprived them of the benefits of the Policy. Finally, the court rejected the request for declaratory relief, finding that plaintiffs had failed to plead any facts demonstrating even a possibility that Zurich’s payment to Diaz would cause the Policy’s $5 million cap to be exhausted and thus cause plaintiffs to lose the benefit of the Policy.

Keller Foundations, LLC et. al v. Zurich American Insurance Company, 18-1280-cv (2d Cir. Dec. 6, 2018)

DC District Court Permits Vantage Commodities To File Amended Complaint And Denies Reinsurer Defendants’ Motion For Interlocutory Appeal

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The District Court for the District of Columbia issued an order denying a motion to reconsider its prior order allowing Vantage Commodities to file an amended complaint and denying the reinsurer defendants’ motion for interlocutory appeal. In the underlying decision, the court determined that, while Vantage had not stated a claim for breach of contract because it had failed to allege facts showing a contractual relationship, the complaint adequately stated claims for breach of implied contract, promissory estoppel, and unjust enrichment.

The court found that Vantage had alleged enough facts to survive a motion to dismiss, noting that the court was required to draw all reasonable inferences in Vantage’s favor at the motion to dismiss stage. That determination was limited to the specific allegations in Vantage’s amended complaint, and did not “create new law.”

The court refused to exercise its discretion to allow an interlocutory appeal of its non-final order, finding that the questions of law the reinsurers presented were “tied up in the specific facts of this case.” Furthermore, while the reinsurers argued that the court’s prior order “goes against the weight of authority in reinsurance law that an insured cannot maintain a direct action against a reinsurer,” they failed to cite any specific case law showing that the court’s order was in conflict with other authorities. The court concluded that the reinsurer defendants did not meet their burden of showing that the circumstances of this case justified a departure from the basic policy of postponing appellate review until after the entry of final judgment. For more information regarding this case, see our prior posts here and here.

Vantage Commodities Financial Services I, LLC v. Assured Risk Transfer PCC, LLC, Case No. 1:17-CV-01451 (USDC D.D.C. Jan. 17, 2019).