Reinsurance Claims

New York Federal Court Awards Damages for Reinsurance Payments in Lawsuit Against Iran Related to September 11 Attacks

August 6, 2018 by Rob DiUbaldo

The Southern District of New York recently granted a motion for damages by insurance plaintiffs in a multidistrict litigation case against Iran stemming from the September 11, 2001 terrorist attacks. The court previously entered a default judgment against Iran and tasked a magistrate judge with calculating damages. The present opinion stemmed from plaintiff’s objections to the magistrate’s recommendations that plaintiffs could not recover reinsurance payments made related to the attacks and that prejudgment interest began to accrue on the individual dates of payment of each claim for which plaintiffs sought damages.

First, the court agreed with plaintiffs and awarded damages for the reinsurance payments at issue. Plaintiffs objected to the magistrate’s recommendation because another case in the MDL had previously awarded damages for reinsurance payments (constituting law of the case) and that, contrary to the magistrate’s logic, their subrogation rights did not depend on contractual privity. The Southern District side-stepped the issue of whether the “law of the case” doctrine applied by concluding equitable subrogation, a doctrine sounding in equity rather than contract, does not require contractual privity under New York law. While not officially deciding the law of the case issue, the court in dicta noted the existence of a D.C. federal case allowing recovery for reinsurance payments on an unrelated terrorist attack and that the magistrate provided no basis for distinguishing the present case from the previously decided MDL case.

Second, the court determined that the date of the September 11 terrorist attacks was the appropriate benchmark for when prejudgment interest should start accruing. New York law provides that damages for losses arising in the state incurred at various times may trigger interest either at the date of each loss individually or upon a “single reasonable intermediate date.” Instead of triggering interest accrual for each loss based on the date each claim was paid, the court affixed all prejudgment interest to begin accruing on September 11, 2001 to promote consistency in the MDL cases and avoid complex calculations. As to losses arising outside of New York, the court likewise exercised its broad discretion to select September 11, 2001—the date of the underlying terrorist attack and the date selected for New York losses—to be the date from which prejudgment interest is to be calculated for non-New York losses.

In re Terrorist Attacks on Sept. 11, 2001, Case No. 03-MDL-1570 (USDC S.D.N.Y. June 25, 2018).

This post written by Thaddeus Ewald .

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Northern District Of New York Allows Evidence That Follow The Fortunes Or Follow The Settlements Provision Could Be Implied In Facultative Reinsurance Certificates

July 18, 2018 by Rob DiUbaldo

Munich Reinsurance America, Inc. and Utica Mutual Insurance are headed to a bench trial in the United States District Court for the Northern District of New York in a case regarding two facultative reinsurance certificates issued by Munich to Utica in 1973 and 1977, and the court has ruled on certain motions in limine filed by both parties.

In an earlier ruling on cross motions for summary judgment, the court noted that neither the 1973 nor the 1977 certificates contained a follow the fortunes or follow the settlements provision and declined to find this such a clause was implied in the contracts based on the record before it. Munich filed a motion in limine asking the court to preclude Utica from presenting evidence in support of the existence of a follow the fortunes/settlements provision. The court denied this motion, however, holding that Utica would be allowed to present evidence that “the doctrines of follow the fortunes or follow the settlements 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.” In doing so, however, the court emphasized that it would be Utica’s burden to show that such custom and practice was “fixed and invariable,” and not merely generally understood within the (re)insurance industry during the relevant time period.

The court also considered Munich’s motion to preclude certain testimony by Utica’s expert witnesses regarding trade usage and custom and practice in the reinsurance industry. The court declined to exclude such testimony, doing so largely on the basis that such decisions could better be made in the context of trial and that such exclusions are less necessary in a bench trial “[w]here the gatekeeper and the factfinder are one in the same—that is, the judge . . . .” However, the court granted Munich’s motion to preclude testimony on withdrawn claims and defenses as well as its motion to preclude evidence of decisions from certain other matters, which the court held was hearsay.

Utica was similarly unsuccessful in most of its motions in limine. The court rejected Utica’s request that Munich not be allowed to make certain arguments about the meaning of the 1973 and 1977 certificates on the basis of collateral estoppel. The court found that this interpretation was an issue of law, and “collateral estoppel does not operate to bar relitigation of pure issues of law.” However, the court granted Utica’s motion to preclude the use of a privilege log it produced in the litigation, which Munich argued was admissible to show when Utica considered certain issues, finding that there was no relevant, nonspeculative inference that could be drawn from that log.

Utica Mutual Insurance Company v. Munich Reinsurance America, Inc., 6:13-cv-00196(BKS/ATB) (N.D.N.Y. June 27, 2018)

This post written by Jason Brost.

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Appellate Court of Massachusetts Finds That Reinsurer Must Pay Workers’ Compensation Benefits of Bankrupt Self-Insured Employer

June 28, 2018 by Rob DiUbaldo

In a recent opinion, a Massachusetts appeals court was required to determine who is liable to pay workers’ compensation benefits owed by a self-insured employer that has gone bankrupt? In a choice between the state created Workers’ Compensation Trust Fund and a reinsurer of that bankrupt employer, the court chose the reinsurer.

The case involved benefits due to Robert Janocha, whose employer at the time of his injury was self-insured for workers’ compensation claims. In compliance with Massachusetts law, the employer had ensured its ability to pay such claims with a $2.4 million surety bond and a reinsurance contract with ACE American Insurance Company, which had a $400,000 retention provision applicable to each injured employee. In 2007, the employer went bankrupt, and in 2012 the surety bond was exhausted. However, Mr. Janocha’s benefits had not reached the $400,000 retention floor, and ACE argued that, until that floor was reached, his benefits were the responsibility of the Workers’ Compensation Trust Fund under a statute requiring the Trust Fund to pay benefits for claims against employers “uninsured in violation” of the law. The court found that this statute only applied when the employer was uninsured at the time of the injury in question, however, and did not apply when the lack of insurance was the result of bankruptcy. Thus, the Trust Fund was not obliged to pay the benefits. The court then found that ACE was statutorily required to pay benefits in the event the self-insured employer became insolvent, and that the retention provision would not be enforced because “a party is unable to contract away its statutory obligations.” Thus, ACE was required to pay Mr. Janocha’s benefits.

Janocha’s Case, No. 16-P-1181 (Mass. App. Ct. May 2, 2018)

This post written by Jason Brost.

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California Appeals Court Upholds Summary Judgment Against Insured’s Attempt To Pierce Insurer’s Corporate Veil

June 25, 2018 by Rob DiUbaldo

A California state appellate court recently upheld summary judgment in favor of an insurer in a dispute about the value of fine art paintings over the insured’s attempts to pierce the insurer’s corporate veil. In the course of litigation against XL Specialty and related entities, the Hollanders alleged that XL Capital, the insurer’s parent company, operated as the alter ego of the other entities and operated as a single enterprise. The trial court had previously denied several defendants’ motion for summary judgment on the alter ego, agency, and related liability theories, but those defendants renewed their motion on the grounds that new facts had arisen. Specifically, there was new information concerning XL Specialty’s assets which allegedly doomed the Hollanders’ ability to prove the insurer was incapable of paying a judgment; proof which would satisfy the “inequitable result” element required to pierce the corporate. After the trial court’s initial grant of the renewed motion was appealed and remanded on other grounds, the trial court again granted the motion and this appeal followed.

In its second review of the case, the appellate court affirmed the grant of summary judgment. First, the court found the Hollanders failed to present sufficient evidence (through proper expert witness testimony) that XL Specialty’s assets were inadequate to satisfy a potential judgment or to support their claims for emotional distress and punitive damages. It concluded the expert testimony proffered was “only unsupported and unexplained conjecture” about XL Specialty’s solvency. Even less sufficient were the Hollanders’ claims for emotional distress, supported by “absolutely no evidence,” and punitive damages, a discretionary award for which the lack of evidence fell far short of the clear and convincing evidence required.

Second, the court upheld the decision regarding the agency theory because the Hollanders failed to prove that XL Capital dominated and controlled the activity of its subsidiaries. The Hollanders showed the various defendants shared an employee, but that showing alone was insufficient to prove agency of XL Capital where there was no evidence about other employees, the senior leadership of the companies, or the shared employee inappropriately mixing roles for the respective companies. The Hollanders attempted to demonstrate shared profits and losses by highlighting reinsurance agreements, but failed to show any of the defendants were members or parties to the reinsurance pooling and quota share agreements. Finally, the fact that the defendants shared administrative service agreements did not show agency where there was no right to control or any demonstrated impact by the agreements on day-to-day management of the companies.

Thus, the court affirmed the summary judgment as to the alter ego/single enterprise and agency theories of liability because the Hollanders failed to present triable issues of fact on the legal elements of those theories.

Hollander v. XL Capital, Ltd., Case No. B276621 (Cal. App. Ct. May 1, 2018).

This post written by Thaddeus Ewald .

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New York Federal Court Denies Cedent’s Motion For Reconsideration In Reinsurance Dispute Regarding Expense Provisions

June 13, 2018 by John Pitblado

This case was previously reported by us on April 30, 2018. As we previously reported, on March 20, 2018, a New York federal court largely denied the motions for summary judgment of both plaintiff, Utica, and defendant, Munich Re, finding that the expense provisions in the facultative certificates at issue were ambiguous and that extrinsic evidence was not submitted by the parties. Utica made a motion for reconsideration. In denying the motion, the court rejected Utica’s argument that extrinsic evidence was presented on the ambiguity found by the court in the facultative certificates. The court noted that the evidence noted by Utica “would in no way alter the conclusion the Court previously reached on this matter” and also that Utica failed to show that reconsideration was required.

Utica Mut. Ins. Co. v. Munich Reins. Am., Inc., Nos. 12-cv-00196; 12-cv-00743 (USDC N.D.N.Y. May 23, 2018).

This post written by Jeanne Kohler.

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