Reinsurance Claims

Court Declines to Reconsider Summary Judgment Decision in Latest Development in Ongoing Asbestos Liability Reinsurance Litigation

December 13, 2018 by Rob DiUbaldo

The Northern District of New York declined to reconsider a September 2018 decision on competing motions for partial summary judgment we previously reported on in a long-running reinsurance dispute related to asbestos liability exposure. Subsequent to the court’s decision, Century Indemnity Co. moved for reconsideration of the court’s denial of summary judgment on its collateral estoppel defense and denial of its motion to dismiss for lack of standing because the court allegedly overlooked “controlling” evidence and decisions on these issues.

First, on the collateral estoppel claim, the court rejected Century’s argument that the court’s September decision improperly relied on a similar decision in a case involving Utica because that decision was issued after the summary judgment briefing was complete and the court cited the decision “without the benefit of briefing” on the decision’s impact. The court explained the September decision merely recognized the similar decision as involving a “similar estoppel argument” and did not improperly “adopt” the decision’s conclusions or impute a controlling effect to the decision.

Second, on standing, the court disagreed with Century’s contention that the September decision relieved Utica of its burden to establish standing. Harkening back to its September decision, the court emphasized Utica submitted evidence “tending to establish” standing and Century failed to “conclusively undermine” that showing.

Thus, the court denied the motion for reconsideration.

Utica Mutual Ins. Co. v. Century Indemnity Co., Case No. 13-995 (USDC N.D.N.Y. Nov. 30, 2018).

This post written by Thaddeus Ewald .

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D.C. Federal Court Permits Insured to Amend Complaint in Reinsurance Dispute Related to Credit Insurance Policy

December 11, 2018 by Rob DiUbaldo

A District of Columbia federal court partially granted and partially denied a reinsured’s motion to amend its complaint in a dispute over a reinsurance agreement for a credit insurance policy. Assured Risk Transfer (“ART”) extended a credit insurance policy to Vantage. The policy was reinsured under a contract with the reinsurer defendants, which was placed through a broker, the Willis Defendants. ART denied a claim under the credit insurance policy made by Vantage, and Vantage won an arbitration award against ART based on the denial. Vantage sued ART, the Willis Defendants, and the reinsurers after the reinsurers declined to pay under ART’s reinsurance agreement, but the court dismissed for jurisdictional issues. Thereafter, Vantage moved to amend.

First, the court denied Vantage’s effort to amend its complaint regarding its breach of contract and accompanying declaratory judgment claims. Vantage’s proposed amended complaint alleges that the parties created a contractual relationship via credit insurance “binders” which purportedly confirmed that the underlying credit insurance policy was reinsured, but the court concluded such allegations were insufficient because insurance binders describing a reinsurance agreement do not create a binding contractual relationship with the Willis Defendants or reinsurers.

Second, the court accepted Vantage’s proposed amendments related to the breach of implied contract, promissory estoppel, and unjust enrichment claims. On the implied contract claim, the amendments sufficiently alleged that ART and the Willis Defendants acted as agents for the reinsurers by claiming ART facilitated the transaction and the reinsurers delegated their underwriting authority to ART. Additionally, the allegations that reinsurers’ agents gave the insurance binders to Vantage and the reinsurers knew ART was unable to pay Vantage’s loses without reinsurance led he court to conclude it was plausible the reinsurers knew Vantage expected the reinsurers to pay and agreed to that arrangement.

On the promissory estoppel claim, the court interpreted the reinsurers’ agents’ delivery of the binders as a sufficiently alleged “promise” to pay any losses according to the credit insurance policy terms. Furthermore, Vantage plausibly alleged reliance upon the promise and an agency relationship between ART, the Willis Defendants, and the reinsurers. On the unjust enrichment claim, the court found the amendments adequately pleaded that reinsurers indirectly benefited through receipt of premiums to allow the claim to proceed. The court noted that Vantage is unable to prevail on its unjust enrichment and promissory estoppel claims if it prevails on its implied contract claim, but allowed amendment to permit Vantage to pursue all three until a conflict arises.

Lastly, the court granted Vantage’s request for leave to attempt to serve the reinsurers, declined to require the D.C. Department of Insurance, Securities, and Banking to accept service on their behalf, and dismissed Vantage’s complaint as to ART as a defendant where Vantage failed to establish the necessity for ART to remain.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, Case No. 17-1451 (USDC D.D.C. Nov. 16, 2018).

This post written by Thaddeus Ewald .

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UK Court Considers Whether Payment of Insurance Claim Violates Iran Sanctions

October 30, 2018 by Rob DiUbaldo

A court in the United Kingdom has issued a ruling considering the intersection of a clause in an insurance agreement meant to protect the insurer from obligations that would violate international sanctions regimes and the rapidly changing realities of US sanctions against Iran.

At the heart of the case was an insurance agreement providing coverage for cargo carried on two ships that transported goods to Iran in August 2012. Upon arrival in Iran, certain cargo covered by the insurance agreement was put into storage, from which it was stolen in September or October 2012. The insured made a claim based on this loss in March 2013, but the insurer denied coverage on the basis of clause in the agreement providing that “no (re)insurer shall be liable to pay any claim . . . to the extent that the . . . payment of such claim . . . would expose that (re)insurer to any sanction, prohibition or restriction under . . . the trade or economic sanctions, laws, or regulations of . . . the United States of America.”

The insurer argued that paying this claim would expose it to sanctions based on US sanctions barring the provision of services to Iran. The parties agreed that insurance is a covered service and that the insurer was prohibited by these sanctions from paying this claim when it was made in March 2013. The insurer argued that its obligations were extinguished at that time, but the insured argued that later developments allowed the insurer to pay the claim. Specifically, in 2015, the US entered in an agreement with Iran called the Joint Comprehensive Plan of Action (JCPOA) under which the sanctions were relaxed. Under provisions of the JCPOA that went into effect in January 2016, the insurer could have paid the claim but delayed doing so while awaiting confirmation from the US and UK governments that this was allowed. Then, in May 2018, President Trump announced that the US was withdrawing from the JCPOA effective June 27, 2018, with a wind down provision allowing certain transactions to take place through November 4, 2018, and the parties disagreed regarding whether paying this claim was among the permitted transactions.

The court made several significant findings. First, it found that the fact that payment was prohibited at the time the claim was made in 2013 did not extinguish the insurer’s obligation to pay the claim, but instead only suspended that obligation until such time as the law changed to allow such payment to be made, as happened in 2016. Second, it found that payment of the claim was a permitted transaction under the wind down provision of the US withdrawal from the JCPOA. Finally, it interpreted the provision excusing the payment of the claim to the extent it “would expose” the insurer to sanctions to mean that the insurer had the burden to show that the payment was prohibited under the sanctions law, and not merely that there was a risk that a relevant government entity would interpret the payment to be prohibited. The court therefore decided that the insured was entitled to payment of the claim.

Mamancochet Mining Ltd. v. Aegis Managing Agency Ltd., [2018] EWHC 2643 (Comm)

This post written by Jason Brost.

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Years-Long Asbestos Reinsurance Battle Continues for Utica and Century, Including Whether Century Must Follow the Fortunes of Utica’s Allocation of Losses

October 22, 2018 by Michael Wolgin

In 2013, Utica Mutual Insurance Company (the cedent) filed a complaint alleging that Century Indemnity Company (the reinsurer) (1) breached two reinsurance certificates executed between the parties covering the years 1973 and 1975 in connection with asbestos liability exposure; (2) owed the unpaid balance of prior billings under the two certificates; (3) violated the duty of utmost good faith and fair dealing; and (4) is obligated to pay certain future billings. Century answered, refusing to acknowledge the existence of a valid 1975 reinsurance certificate, and asserted various affirmative defenses. After two years of discovery, Century amended its answer to assert bad-faith counterclaims against Utica alleging that Utica had been maintaining two sets of record-keeping systems to track asbestos settlements made on behalf of the underlying insured, allegedly part of a larger effort by Utica to conceal the fact it had been over-billing reinsurers, including Century, for these claims.

Utica sought partial summary judgment on various aspects of the litigation, including that (1) Utica’s allocation decisions related to the coverage and handling of the asbestos claims against the underlying insured were reasonable and made in good faith, such that the “follow the fortunes” doctrine applied; (2) the 1975 reinsurance certificate is valid and binding on Century; and (3) Century had no right to claw back any sums previously paid to Utica. Century responded with its own dispositive motions. The court denied the parties’ motions with respect to most issues, including whether Utica’s loss allocation decisions were reasonable and made in good faith. Utica Mut. Ins. Co. v. Century Indem. Co., Case No. 6:13-cv-00995 (USDC N.D.N.Y. Sept. 26, 2018).

This post written by Gail Jankowski.

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Second Circuit partially vacates summary judgment ruling in asbestos risk reinsurance case

October 8, 2018 by Carlton Fields

The Second Circuit has partially vacated summary judgment rulings in a case involving the reinsurance of asbestos-related risks. The case involves Utica Mutual Insurance Company and it reinsurer Clearwater Insurance Company, regarding Clearwater’s reinsurance obligations arising from claims of Utica’s insured, Goulds Pumps, Inc. Utica had issued various primary and umbrella liability insurance policies to Goulds from the 1950s to the 1990s. In the 1990s, Goulds faced many thousands of asbestos-related person injury claims, for which it turned to Utica for coverage. Clearwater had reinsured the 1978 and 1979 umbrella policies under two reinsurance certificates (the “Clearwater Certificates”) and the 1979-1981 umbrella policies under three reinsurance contacts as part of a pool of reinsurers managed by Towers, Perrin, Forster & Crosby, Inc. (the “TPF&C Memoranda”). When Utica sought coverage from Clearwater, Clearwater objected on three grounds: (1) Utica had no liability for the asbestos-related claims under the umbrella policies reinsured by Clearwater; (2) Clearwater’s liability under the Clearwater Certificates was capped at $5 million and $2 million for 1978 and 1979, inclusive of expenses; and (3) Clearwater was not obligated to pay amounts Utica had voluntarily paid Goulds through settlements.

The Second Circuit found that Clearwater’s first objection turned on language in the Utica umbrella policies stating that Utica would cover expenses “not covered by” the primary policies. Clearwater argued this meant that the umbrella policies did not cover asbestos-related claims because such claims were covered by the primary polices, but Utica said it meant the umbrella policies had to cover amounts that Utica did not pay under the primary policies because it interpreted those policies to have aggregate limits of liability that were exceeded. The trial court, which had granted Clearwater summary judgment on other grounds, had not decided what “not covered” meant in this context, and the Second Circuit remanded the matter so the trial court could rule on this issue.

The Second Circuit rejected Clearwater’s second objection, because the Clearwater Certificates contained “follow the form” clauses, the umbrella policies specifically stated that Utica would “reimburse the insured for all reasonable expenses . . . in addition to the applicable limit of liability of this policy,” and the Clearwater Certificates contained nothing inconsistent with an obligation to cover expenses in addition to the limits of liability contained in those Certificates.

Finally, the Second Circuit agreed with Clearwater’s third objection, finding that Clearwater was not obligated to reimburse Utica for its voluntary settlements with Goulds because the Clearwater Certificates did not contain an express follow-the-settlements clause and no such obligation was implied under New York Law. Further, it found that the TPF&C Memoranda only required Clearwater to reimburse Utica for settlements that were authorized by TPF&C, which authorization had never been requested or given. Utica objected that this condition was excused because it was impossible, as TPF&C had stopped managing the reinsurance pools decades ago, but the court found that, regardless of impossibility, such prior approval was still a condition precedent to Clearwater’s obligation to reimburse Utica for the settlements.

Utica Mutual Insurance Company v. Clearwater Insurance Company, Nos. 16-2535 (L), 16-2824 (XAP) (2d Cir. Sep. 25, 2018).

This post written by Jason Brost.
See our disclaimer.