Reinsurance Claims

Court Affirms Ruling That Insured Cannot Recover From Captive Reinsurer or Affiliated Insurance Brokerage

May 19, 2020 by Alex Silverman

The plaintiffs sued Public Storage seeking insurance coverage after Public Storage allegedly disposed of personal belongings the plaintiffs had in a rented storage unit. The belongings were insured under a policy produced by PSCC Inc., an insurance brokerage affiliated with Public Storage. The coverage was also reinsured by a captive reinsurer affiliated with Public Storage – PS Insurance Company-Hawaii Ltd. The cedent-insurer was sued as well but was ultimately dismissed, after which Public Storage moved for summary judgment. The lower court granted Public Storage’s motion, finding that it could not be liable to the plaintiffs under the policy as neither it nor its affiliates were parties to the contract. The plaintiffs appealed, but the California appellate court affirmed.

Although PSCC is a Public Storage affiliate, and was identified in the insurance policy, the court agreed that it was only identified as a producer, not a principal, and thus could not be contractually liable to the plaintiffs under the policy. And while PS Insurance Co. is also affiliated with Public Storage, the court held that the reinsurance agreement between the cedent-insurer and PS Insurance had no effect on the contract between the cedent and its insureds – the plaintiffs. The court also rejected the plaintiffs’ “alter ego liability” theory, finding no evidence that Public Storage and/or its affiliates were alter egos of the cedent-insurer. Indeed, the court ruled, it is an “essential feature” of reinsurance that it does not alter the terms or conditions of the insurance contract between the cedent and its insured. As such, the lower court order was affirmed.

Cabral v. Public Storage, No. B294798 (Cal. Ct. App. Apr. 10, 2020).

District Court Orders Insurer in Receivership to Arbitrate With Reinsurers, Rejecting Argument That Jurisdiction Rests With Receivership Court and That McCarran-Ferguson Act Preempts FAA

May 11, 2020 by Benjamin Stearns

The District Court of Puerto Rico upheld a prior judgment ordering Integrand Assurance Co. to arbitrate its claims against its various reinsurers, rather than remand the case to the court overseeing Integrand’s receivership, the Superior Court of the Commonwealth of Puerto Rico.

Integrand commenced proceedings against the reinsurers in order to recover assets that the reinsurers purportedly owed Integrand. In support of its argument that the proceedings should be remanded, Integrand argued that, under the Puerto Rico insurance code, the Superior Court of Puerto Rico had “exclusive jurisdiction to attend” to any action by or against Integrand and its estate subsequent to the commencement of receivership proceedings. Integrand further argued that the McCarran-Ferguson Act preempted the application of the Federal Arbitration Act to the parties’ dispute.

The court disagreed with Integrand, finding that, under the U.S. Supreme Court’s test in Humana v. Forsyth, the FAA was not preempted because the application of the FAA to the parties’ dispute would not “invalidate, impair, or supersede the state statute regulating insurance.” The court found that the provisions relied upon by Integrand related clearly and exclusively to the commencement of receivership proceedings. The instant dispute, however, was over entitlement to certain assets, not the commencement of receivership proceedings. The exclusive jurisdiction provisions, therefore, did not apply.

The court also distinguished this case from prior cases holding that, in the context of a liquidation proceeding, the FAA was preempted. Significantly, in those prior cases, the action was brought by other entities against the assets of a delinquent insurance company, unlike in this case, in which the action was brought by and for the delinquent insurance company in an attempt to recover assets supposedly owed to it. Finding that the FAA applied, the court upheld the order that the parties proceed with the arbitration of their dispute.

Integrand Assurance Co. v. Everest Reinsurance Co., No. 3:19-cv-01111 (D.P.R. May 1, 2020).

Fireman’s Fund Obtains Second Circuit Reversal in Long-Running Reinsurance Dispute Involving Asbestos Claims and Policies Without Aggregate Limits

May 4, 2020 by Brendan Gooley

The Second Circuit has reversed a $64 million judgment against Fireman’s Fund Insurance Co. in the latest ruling in a long-running dispute related to primary and excess policies that Utica Mutual Insurance Co. issued to a company later embroiled in asbestos claims.

We’ve been closely following this dispute at the district court level. For a full recap, see our posts noting that the district court refused to seal summary judgment exhibits, allowed “follow-the-fortunes” (also known as “follow-the-settlements”) evidence, and refused to change a credibility determination. We’ve also covered a companion case on several occasions.

To recap, Utica Mutual Insurance Co. issued primary and excess policies to Goulds Pump Inc. Utica reinsured a portion of the excess policies with Fireman’s Fund Insurance Co. Goulds subsequently faced thousands of asbestos claims related to its products. Utica defended and indemnified those claims pursuant to its policies.

A dispute arose between Utica and Goulds because Utica’s policies allegedly did not contain aggregate limits. To avoid potentially catastrophic losses as a result of that purported omission, Utica settled its dispute with Goulds. The parties agreed, among other things, that the primary policies contained aggregate limits and that Goulds’ umbrella policies would cover losses that exceeded the primary policies’ aggregate limits. They also stipulated the settlement was fair, just, and reasonable and resolved within the terms of the policies.

Utica subsequently sought reimbursement from Fireman’s Fund pursuant to the reinsurance contracts. In short, the district court denied cross-motions for summary judgment, and a jury subsequently returned a $64 million verdict in favor of Utica following a 12-day trial.

Fireman’s Fund appealed to the Second Circuit. It argued that it did not owe anything to Utica because the reinsurance certificates contained a “follow form” clause that provided that Fireman’s Fund’s liability “shall follow that of [Utica] and … shall be subject in all respects to all the terms and conditions of [the umbrella policies]” and the umbrella policies provided they only applied in excess of the limits stated in the schedules accompanying the umbrella policies, which Fireman’s Fund claimed did not contain any aggregate limits for bodily injury claims.

Applying New York law, the Second Circuit agreed. It explained that the plain language of the excess policies provided that they only applied “in excess of … the amounts of the applicable limits of liability of the underlying insurance as stated in the Schedule of Underlying Insurance Policies,” and “the limits of liability listed in [those] Schedules for bodily injury d[id] not include aggregate limits.” The court rejected Utica’s argument that the language in the excess policies only required occurrence limits, not aggregate limits, to be listed as inconsistent with the plain language of the excess policies and New York’s principles of contract interpretation.

Utica argued, however, that Fireman’s Fund was obligated to reimburse it pursuant to the reinsurance contracts because those contracts contained a “follow-the-settlements” clause that provided that all “claims involving this reinsurance, when settled by [Utica], shall be binding on [Fireman’s Fund].” The Second Circuit explained that follow-the-settlements clauses may “not alter the terms or override the language of reinsurance policies.” Adopting Utica’s argument would “render the follow form clause in the reinsurance contract and the umbrella policy language defining Utica’s loss meaningless” and would contradict the parties’ expressed agreement.

The Second Circuit therefore reversed the judgment against Fireman’s Fund.

Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., No. 18-828 (2d Cir. Apr. 28, 2020).

Northern District of New York Refuses to Change Credibility Determination Regarding Bench-Trial Testimony by Attorney Involved in Underlying Settlement Negotiations

March 24, 2020 by Brendan Gooley

The U.S. District Court for the Northern District of New York recently denied an insurer’s attempt to compel the court to change a credibility decision it rendered following a bench trial in reinsurance litigation between Utica Mutual Insurance Co. and Munich Reinsurance America Inc. that we’ve been following closely.

We’ve previously written about this litigation (multiple times, not counting related litigation, which we’ve also written about multiple times). But even with all the hype, a quick overview is in order. Utica issued primary policies to insured Goulds Pumps Inc. that, in the Second Circuit’s words, “had a glaring omission: they did not include aggregate limits of liability.” The results of that omission were potentially catastrophic for Utica because Goulds could potentially select a primary policy to apply to all asbestos claims that would never exhaust or trigger excess policies. Thus, in the underlying litigation, Goulds wisely argued there were no aggregate policy limits while Utica insisted the policies had such limits and that the fact that they did not actually appear in the policies “was a mere ‘scrivener’s error.’” Goulds and Utica ultimately settled the underlying dispute. The settlement agreement provided that the primary policies “have … an aggregate limit of liability.” Utica attorney and vice president Bernard Turi was involved in the settlement negotiations and the drafting of the settlement agreement.

Litigation between Utica and Munich regarding Utica billings to Munich under facultative reinsurance certificates Munich issued to Utica in 1973 followed.

During a ten-day bench trial, Turi testified that during the settlement negotiations with Goulds, Utica did not bargain for Goulds’ agreement that the primary policies had aggregate limits. Turi testified that Goulds agreed that the policies had such limits and always had.

Following the trial, the U.S. District Court for the Northern District of New York ruled in favor of Munich in one case (Utica I) and Utica in another (Utica II). With respect to Turi, the court concluded that Turi’s testimony “that Utica did not bargain for Goulds’ agreement that the primary policies had aggregate limits as part of its settlement with Goulds” was not credible. The court noted that Turi had conceded on cross-examination that “getting Goulds to agree to aggregate limits in the primary policies had value to Utica.”

Utica appealed the court’s ruling against it and filed a Rule 52(b) motion to amend the court’s finding regarding Turi’s credibility regarding settlement negotiations. Utica specifically claimed that the court failed to distinguish between whether the policies “in fact” had aggregate limits, which Utica claimed was not bargained for, and whether Utica nevertheless compromised with Goulds to resolve a disagreement about that fact, which Utica agreed it had.

The court denied Utica’s motion. It noted that Goulds had claimed in the underlying litigation that the policies did not have aggregate limits, that there was an enormous risk to Utica if the court were to accept that position, and that Goulds ultimately agreed in the settlement agreement that the policies had aggregate limits. The court explained that its findings regarding Turi’s credibility was not premised on whether the policies actually had aggregate limits and that the court did not find that Utica had bargained for “the fact” of aggregate limits as Utica claimed the court had. Instead, the court reaffirmed its decision that, under the circumstances, any contention that Utica had not bargained for Goulds’ agreement that the policies contained aggregate limits was not credible. The court noted that the high standard for succeeding on a Rule 52(b) motion was not satisfied and declined to amend its findings of fact.

Munich believed that Utica’s Rule 52(b) motion was so meritless that it sought sanctions, but the court declined to award them, concluding that the standard for sanctions was not met.

Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., No. 6:12-cv-00196, 6:13-cv-00743 (N.D.N.Y. Feb. 27, 2020).

Nebraska Appellate Court Affirms Dismissal for Lack of Personal Jurisdiction in Suit Involving Breach of Reinsurance Participation Agreement

February 11, 2020 by Brendan Gooley

The Court of Appeals of Nebraska has affirmed the dismissal of a claim under a reinsurance participation agreement based on lack of personal jurisdiction.

Applied Underwriters Captive Risk Assurance Co., an Iowa corporation with its principal place of business in Nebraska, entered into a reinsurance participation agreement with Doyle Signs Inc., an Illinois corporation based in Illinois. The agreement contained a choice-of-law clause and a forum selection clause providing that the agreement would be governed by Nebraska law and that disputes regarding the agreement would be heard by the “courts of Nebraska.” Applied Underwriters later sued in Nebraska state court alleging that Doyle owed it nearly $380,000 under the agreement.

Doyle moved to dismiss for lack of personal jurisdiction claiming it did not have sufficient contacts with Nebraska to be hauled into court there and, in the alternative, that Nebraska was not a reasonably convenient forum. The trial court granted Doyle’s motion and Applied Underwriters appealed.

The Court of Appeals affirmed. It found the case largely on point with its prior decision in Applied Underwriters Captive Risk Assurance Co. v. E.M. Pizza, Inc., 26 Neb. App. 906, 923 N.W.2d 789 (2019). In that case, the court concluded that the defendant had sufficient minimum contacts with Nebraska for specific jurisdiction but that Nebraska was nevertheless not a reasonably convenient forum.

Attempting to distinguish E.M. Pizza, Applied Underwriters argued that Doyle did business in Nebraska and was subject to general personal jurisdiction there. The court rejected that argument. It concluded that Doyle did not have systematic and continuous general business contacts with Nebraska based on the fact that it had bid for and had been awarded eight contracts by corporate offices outside Nebraska to make signs for Nebraska stores when the signs were manufactured outside Nebraska, transported to Nebraska by third parties, and there was no evidence that, among other things, Doyle had any employees in Nebraska, made sales there, or solicited business there.

In the alternative, the court noted that even if Doyle had sufficient minimum contacts with the state, it was not fair or reasonable for Nebraska courts to exercise jurisdiction over Doyle.

The court also rejected Applied Underwriters’ argument that the forum selection clause conferred jurisdiction on Nebraska’s courts, noting that it had rejected a similar argument in E.M. Pizza.

Finally, the court rejected Applied Underwriters’ contention that Doyle did not challenge service upon it, explaining that courts are still entitled to determine whether Nebraska courts are a convenient forum notwithstanding the apparent lack of challenge to service of process.

Applied Underwriters Captive Risk Assurance Co. v. Doyle Signs, Inc., No. A-19-464, 2019 WL 7425406 (Neb. Ct. App. Dec. 20, 2019) (copy of opinion available from Nebraska court website with a subscription).