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Reinsurance Claims

Reinsurer’s Summary Judgment Upheld on Motion for Rehearing

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Capitol Life Insurance Co. moved the Court of Appeals for the Fifth District of Texas for rehearing of the court’s prior affirmance of summary judgment against Capitol in favor of MetLife Insurance Company USA, MetLife Investors Group, Inc., and American General Life Insurance Company, a decision we previously wrote about here [https://www.reinsurancefocus.com/archives/13403]. The Court denied Capitol’s motion but withdrew and superseded its previous opinion with a new memorandum opinion. The result for Capitol, however, was more of the same.

The Fifth District reversed the trial court’s summary judgment against Capitol in favor of the policyholder, holding that fact issues related to the policyholder’s intent in serving a demand letter on Capitol prevented summary judgment for either party. With regard to MetLife and American General, the court affirmed the no-evidence summary judgments against Capitol, stating Capitol had failed to provide “more than a scintilla of probative evidence” to demonstrate it had performed under the contracts, a necessary element of Capitol’s claim against both parties. Capitol Life Ins. Co. v. Newman, Case No. 05-16-01476-CV (Tex. Civ. App. Sept. 13, 2018).

This post written by Benjamin E. Stearns.

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Contract Claims Dismissed Against Reinsurers and Reinsurance Service Providers, but Negligence Claim Against Service Providers Allowed to Go Forward

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Vantage, the plaintiff, had purchased insurance from Assured Risk Transfer (ART) against the risk that a company to which Vantage had loaned $22 million would default. ART then reinsured 90% of its risk with seven reinsurance companies. When the borrower defaulted, Vantage made a $22 million claim, which ART denied. An arbitrator decided that ART owed Vantage $22 million plus interest and costs. ART did not pay, claiming it had insufficient assets to satisfy the award and that the only source of funding was amounts owed to it under its reinsurance contracts. The reinsurers, however, refused to pay on the claim. Vantage filed suit in U.S. District Court of the District of Columbia, asserting a claims for breach of contract against the seven reinsurers and negligence and breach of contract against three related companies that provided services to ART—Willis Captive Management, Willis Re, Inc. and Willis Towers Watson Management (the Willis Defendants).

The court first addressed the argument that it could not exert personal jurisdiction over the seven reinsurers. While it found that the requirements for specific jurisdiction over these reinsurers had been met, the court found that Vantage had not effected service of process on these defendants. Vantage had served them through a law firm that was listed in the relevant reinsurance contracts as their agent for service of process, but those contracts authorized service only if ART sued to compel arbitration or enforce an arbitration award. The court found that Vantage could not show that it was a party to any of the reinsurance contracts or overcome the general rule that a reinsurer does not have a contractual relationship with the original insured, and thus that it could not take advantage of the service of process provisions within those contracts. The court then denied Vantage an extension of time to effect service, as Vantage’s lack of a contractual relationship with the reinsurers meant that its breach of contract claims against those reinsurers must necessarily fail.

The court then addressed the breach of contract claims against the Willis Defendants. Vantage alleged that they had breached their contractual obligation to transmit information to the reinsurers when they failed to timely notify them of Vantage’s $22 million claim—a failure the reinsurers relied upon when denying the claim. However, the court found that the contracts at issue were between the Willis Defendants and ART, not Vantage, giving ART no enforceable right under these contracts, and the court dismissed these claims. However, while no contractual duty existed, the court found that a tort duty might, as the Willis Defendants were alleged to have undertaken to render services to one party (ART) that was necessary for the protection of a third party (Vantage). Thus, the court found that the complaint sufficiently alleged the existence of such a duty to Vantage to avoid dismissal.

Vantage Commodities Financial Service I, LLC, v. Assured Risk Transfer PCC, LLC, et al., Case no. 1:17-cv-01451(TNM) (D.D.C. Aug. 6, 2018)

This post written by Jason Brost.

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Promissory Note Issued In Satisfaction of Unpaid Insurance Premiums Is Valid And Enforceable, Even If Allegedly Derived From Unapproved Reinsurance Agreement

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Plaintiff sells workers’ compensation insurance through its “EquityComp” program approved by New Jersey law. Defendant purchased an EquityComp policy. Unable to pay its insurance premiums, defendant executed a promissory note acknowledging its indebtedness and promising to pay plaintiff a stated amount in full settlement. Defendant made no payments toward the note, however, leading plaintiff to commence a lawsuit.

Defendant argued that the note was void as against public policy because it derived from a Reinsurance Participation Agreement (RPA) that was executed as part of the EquityComp program, but which was not itself approved by New Jersey regulators. According to defendant, plaintiff used the RPA to unlawfully circumvent state regulations governing policies issued with guaranteed versus loss-sensitive premiums. According to the court, however, the note was valid and enforceable regardless of whether it violated New Jersey insurance regulations. Citing Nebraska law, the court determined that the note was a distinct, unconditional agreement to “settle” a delinquent account. The court refused to “look behind” and nullify that agreement based on defendant’s allegations, particularly where there were no allegations of fraud or mistake in the issuance of the note.

Applied Underwriters, Inc. v. Top’s Personnel, Inc., No. 8:15-cv-00090-JMG-CRZ (USDC D. Neb. Aug. 2, 2018)

This post written by Alex Silverman.
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Special Focus: Follow the Fortunes Doctrine

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The follow the fortunes (or follow the settlements) doctrine has been an important part of many reinsurance relationships. This Special Focus article focuses on divergent case law as to whether the doctrine is purely a matter of contract, or whether it should be implied into every reinsurance contract, whether or not the contract refers to the doctrine.

This post written by Rollie Goss.
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Reinsurer Obtains Summary Judgment in Suit by Annuity Issuer

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Capitol Life Insurance Co. partially prevailed, and partially failed, its effort to overturn unfavorable grants of summary judgment in a recent dispute regarding an annuity policy written by Capitol. The present opinion arose from Capitol’s appeal of the trial court’s decision granting summary judgment in favor of the policyholder (“Newman”), third-party administrator MetLife, and summary judgment on behalf of Capitol’s reinsurer, AGL. On appeal, the Texas Court of Appeals reversed and remanded regarding summary judgment on Newman’s breach of contract claim, but affirmed summary judgment in favor of AGL and MetLife.

The court reversed summary judgment regarding Newman’s breach of contract claim and Capitol’s statute of limitations defense, remanding the case for further proceedings on that claim. The court affirmed the trial court’s grant of a “no-evidence summary judgment” as to Capitol’s breach of contract claim against AGL because Capitol did not provide “more than a scintilla of probative evidence” to show that Capitol had performed its obligations under the reinsurance agreement, an element of a breach of contract claim as to which Capitol bore the burden of proof. Likewise, the court upheld the grant of no-evidence summary judgment as to Capitol’s contract claim against MetLife. Capitol Life Ins. Co. v. Newman, Case No. 05-16-1476 (Tex. Civ. App. June 21, 2018).

This post written by Thaddeus Ewald .

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