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Reinsurance Claims

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

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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

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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).

Trial Court Denies Post-Trial Motions in Asbestos Reinsurance Saga Involving Claims That Reinsurer Failed to “Follow the Fortunes” and Adopt Cedent’s Allocations of Losses

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We previously posted about the yearslong reinsurance dispute between Utica Mutual Insurance Co. (the cedent) and Century Indemnity Co. (the reinsurer), involving Utica’s claims that Century breached two reinsurance certificates covering the years 1973 and 1975 in connection with asbestos liability exposure, and Century’s counterclaim that Utica had, in bad faith, maintained a separate record-keeping system for reinsurance allocation purposes to allegedly over-bill Century for its losses. Last fall, after a trial, the jury agreed that Utica’s allocation decisions were reasonable and made in good faith. The court entered judgment in favor of Utica in the amount of $6,257,889.02.

The court has now denied Century’s motion to reduce the prejudgment interest awarded to Utica and has denied Century’s motions for judgment as a matter of law or for a new trial. Regarding the award of prejudgment interest, Century argued that the court erroneously calculated interest from the date Utica sent its first billing to Century, instead of calculating interest incrementally from each ensuing date that Utica submitted billings to Century. The court equivocated on the merits of Century’s argument, but ultimately rejected Century’s argument because it was never made to the jury, and because the jury had made the contrary finding that the two reinsurance claims at issue accrued on the initial dates that Utica submitted the claims to Century.

Regarding the motions for judgment as a matter of law or for a new trial, Century argued that Utica’s allocation of losses pre- and post-settlement with its underlying insured were inconsistent and therefore objectively unreasonable as a matter of law. The court, however, rejected that argument, ruling that evidence supported the jury’s finding that Utica’s allocations were consistent pre- and post-settlement with the underlying insured, and that even if they were not, the law does not deem inconsistent allocations per se unreasonable as a matter of law. Century also argued that evidence did not support the jury’s award of damages for Utica’s recovery of reinsurance claims that included defense costs. Century contended that there was never a formal endorsement of the reinsurance agreement permitting that recovery. The court was not persuaded, however, finding that evidence supported the jury’s finding on this issue, including testimony that showed that “certain reinsurance principles … including the follow-the-fortunes provision, made formal modification [of the agreement] unnecessary under [the] circumstances.”

Utica Mutual Insurance Co. v. Century Indemnity Co., No. 6:13-cv-00995 (N.D.N.Y. Dec. 3, 2020).

Federal Court Dismisses Policyholder’s Third-Party Action Against Reinsurers

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A Puerto Rico district court dismissed a third-party action by defendant-policyholder Puma Energy Caribe LLC against the reinsurers of an insurance policy issued by plaintiff Integrand Assurance Co. Puma claimed that the reinsurers breached the reinsurance agreements with Integrand, prejudiced Puma’s rights as a third-party beneficiary of those agreements, and negligently handled reinsurance claims that Integrand submitted in connection with a claim Puma had made under the Integrand policy. The reinsurers sought dismissal based on lack of privity, lack of standing, arbitration clauses in the reinsurance treaties with Integrand, and on the ground that Puma improperly sought to implead them under Federal Rule of Civil Procedure 14(a), which allows a party to implead a nonparty “who is or may be liable to it for all or part of the claim against it.”

While recognizing the reinsurers’ arguments were “powerful,” the court dismissed Puma’s third-party claims on procedural grounds. Because Puma was not seeking “indemnity” from the reinsurers, the court found that Rule 14(a) was not the proper vehicle for obtaining the relief Puma had requested. The court also considered other procedural mechanisms, including Federal Rules of Civil Procedure 13(h), 19, and 20, but found each was inappropriate here as well. The court declined to award the reinsurers’ attorneys’ fees, although it agreed that Puma’s filings “come close to obstinance or frivolity.”

Integrand Assurance Co. v. Puma Energy Caribe, LLC, No. 3:19-cv-01195 (D.P.R. Dec. 27, 2019).

Third Circuit Affirms Order Declining to Consolidate Reinsurance Dispute, but Vacates Order Denying Motion to Unseal

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Everest Reinsurance Co. appealed from two district court orders. It claimed that this dispute with Pennsylvania National Mutual Casualty Insurance Co. was the same as a prior dispute that Penn National had arbitrated with two other reinsurers. It, therefore, sought to have this matter consolidated with and heard by the same panel as the prior dispute. The parties agreed that whether this dispute and the prior dispute were actually the same was to be decided by the arbitrators, not the court. The issue was which arbitrators: a new panel, or the panel that heard the prior dispute. The district court ordered that the question goes to a new panel, and the Third Circuit agreed, citing language in the Everest/Penn National arbitration agreement stating that consolidation is only permitted “[i]f more than one reinsurer is involved in the same dispute.” By sending the present dispute to the same panel as the prior dispute at this juncture, the Third Circuit held, Everest was essentially asking the court to prejudge the question of whether the two disputes were “the same,” and thus disregard the express language of the agreement.

Everest separately appealed an order denying its motion to unseal records from the prior dispute. The Third Circuit agreed with Everest that the district did not apply the “more rigorous common law right of access” standard. It therefore vacated and remanded for the district court to apply the legal standard articulated by the Third Circuit in Avandia Marketing.

Pa. Nat’l Mut. Cas. Ins. Co. v. New England Reinsurance Corp., No. 19-1805 (3d Cir. Dec. 6, 2019).