Reinsurance Claims

LESS THAN TWO WEEKS BEFORE TRIAL, DISTRICT COURT JUDGE IN UTICA V. FIREMAN’S FUND RULES ON MOTIONS IN LIMINE

December 11, 2017 by Michael Wolgin

This case concerns an action filed by Utica Mutual Insurance Company (Utica) against its reinsurer, Fireman’s Fund Insurance Company (FFIC) seeking to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims from the 1990s. Presently at issue were (1) Utica’s motion to preclude FFIC’s expert Garrett Redmond, (2) FFIC’s motion to preclude five specific evidentiary matters, and (3) Utica’s omnibus motion in limine regarding various evidentiary issues it anticipated to arise at trial.

Utica sought to preclude Redmond from offering testimony that Utica misrepresented or omitted facts to Fireman’s Fund in 1966 through 1972 relating to whether the primary policies it issued to Goulds had aggregate limits and that the primary policies Utica issued to Goulds did not have aggregate limits. The Court ultimately granted Utica’s motion to the extent that it precluded Redmond from testifying that Utica did in fact make misrepresentations to Fireman’s Fund in obtaining the reinsurance policies and that the primary policies in question did in fact lack aggregate limits. The Court noted, however, that “[d]ue to how much time has passed since these policies were issued, there are no witnesses who were personally involved with negotiating or writing the policies [and] [a]s a result, both sides will attempt to offer circumstantial evidence and testimony regarding the usual practices at that time in order to support their positions on the existence of aggregate limits.”

The Court denied FFIC’s motion to preclude Utica’s argument that FFIC had constructive notice of the loss, reasoning that “[w]hile the law in New York requires actual notice and not constructive notice, any facts showing that Fireman’s Fund had prior knowledge of the Goulds loss are relevant to Fireman’s Fund’s claimed prejudice.” However, the court granted, among other requests, FFIC’s motion to preclude Utica from introducing judicial decisions or settlements involving other insurer’s challenges to Utica’s aggregate limit position. In the same light, the Court granted Utica’s motion to preclude evidence of other disputes, holding that “disputes with other reinsurers under different facts are irrelevant and inadmissible.” Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Nov. 16, 2017).

This post written by Gail Jankowski.

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NORTHERN DISTRICT OF GEORGIA ORDERS CEDENT TO PRODUCE INFORMATION ON ITS PAYMENT OF CLAIMS

December 5, 2017 by Carlton Fields

Defendant Golden Isles Reinsurance Company, Limited (“Golden Isles”) sought detailed information regarding individual claims Canal Insurance Company (“Canal”) submitted for reimbursement under the parties’ reinsurance agreement, as outlined in the court’s hearing notes. The Court ordered production of the following:

Check register information (purportedly to enable Golden Isles to verify the amount Canal paid on the claim, in lieu of settlement agreements which would be more burdensome to produce);
Documents showing the date Canal first had notice of each individual claim for which Canal has the claim date within 6 months of either the start or end of the parties’ agreement; and
A 30(b)(6) witness who can address questions Golden Isles has concerning claims data and how certain numbers were entered and calculated, as the Court found “Golden Isles is entitled to answers to these questions,” but also found that “producing large quantities of documents is not the most efficient manner in which to address this.”

The Court will address the parties’ additional discovery disputes by a separate order. This is not the first discovery issue addressed by the court in this case. Further background is available in the amended initial disclosures of Canal Insurance. Canal Ins. Co. v. Golden Isles Reinsurance Co., Ltd., Case No. 1:15-cv-03331 (USDC N.D. Ga. Oct 6, 2017).

This post written by Nora A. Valenza-Frost.
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DISTRICT OF SOUTH CAROLINA DENIES MOTION TO DISMISS ACTION INVOLVING FRONTING RELATIONSHIP

October 25, 2017 by John Pitblado

Applying Delaware law, a South Carolina District Court found Plaintiff had properly pled its causes of action for breach of contract, breach of fiduciary duty, negligence/gross negligence and negligent misrepresentation involving allegations that Defendant approved multiple transactions depleting the trust account which protected Plaintiff’s obligations under its fronting agreement.

The Court found Plaintiff adequately pled that Defendant breached its duty under the fronting agreement when it depleted the trust’s legitimate assets and left Plaintiff with a duty to pay claims. While the Court acknowledged that the fronting agreement did not explicitly impose a duty on Defendant to validate and confirm the assets admitted to the trust, nevertheless, at the very least, “the duty to provide an ‘accounting’ required Defendant to submit a ‘rendition of [the] account’ and the assets it contained.”

The Court also found Plaintiff adequately pled that Defendant breached its fiduciary duty owed to Plaintiff, as Defendant was the trustee and Plaintiff the trust’s sole beneficiary. Although Delaware law prohibits fiduciary duty claims that are wholly duplicative of contract claims, the Court found Plaintiff’s allegations of fiduciary duty were based on additional facts which were broader in scope than the parties’ contractual obligations.

The Court further found Plaintiff sufficiently alleged an independent duty of good faith and duty of care, which supports Plaintiff’s claim for negligence/gross negligence.

Finally, while the Court acknowledged Defendant’s argument that under the trust agreement Defendant had “no duty or responsibility with respect to the qualification, character, or valuation of the Assets deposited into the trust account,” in the contract between the parties, Defendant (as trustee) “agreed to maintain assets of the trust. . . to be negotiable at any time.” Being the agreed upon terms, the Court held that “Defendant cannot alter these terms by placing boilerplate disclaimer language as to the value of the funds on the statement to absolve itself of contractual duties. When Plaintiff attempted to withdraw the assets of the trust account, Defendant could not negotiate these assets.”

Accident Insurance Company, Inc. v. U.S. Bank National Association and U.S. Bank Trust N.A., 15-cv-02621-JMC (USDC D.S.C. Sept. 28, 2017)

This post written by Nora A. Valenza-Frost.

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ALABAMA FEDERAL COURT FINDS CEDENT DID NOT WAIVE ARBITRATION, AND ORDERS REINSURANCE DISPUTE TO BE ARBITRATED

October 4, 2017 by Michael Wolgin

Alabama Municipal Insurance Corp. (“AMIC”), an Alabama non-profit public insurer, brought suit in Alabama federal court against Munich Reinsurance America Inc. (“Munich Re”), alleging breach of a reinsurance contract for failing to fully reimburse a settlement of flood claims asserted against an insured city. Munich Re answered, denying liability under the reinsurance contract alleged in the complaint, and stated that another reinsurance contract (Agreement No. 1236-0009, endorsed by Agreement No. 1236-0009-E003) applied to the claims. After the parties submitted their Rule 26(f) report and a Scheduling Order was entered by the court, AMIC amended its complaint without opposition from Munich Re, asserting a claim under another reinsurance contract, Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Munich Re answered the Amended Complaint and AMIC noticed the depositions of two Munich Re employees. AMIC then filed a Motion to Stay Pending Arbitration under Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Thereafter, the depositions of the two Munich re employees took place.

Both parties agreed that Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003 referenced in the Amended Complaint contains an arbitration clause. However, Munich Re contended that AMIC’s claim in the case is not subject to arbitration because that agreement is not applicable to the claims. The Alabama federal court found that the only claim brought in the case was under a contract which contains an arbitration clause, and thus is subject to arbitration. Munich Re, however, claimed that AMIC had waived its right to arbitrate. In response, the court held that AMIC had not waived the right to arbitrate. The court found that the actions taken toward litigation prior to filing the Amended Complaint should not be considered a waiver of the right to arbitrate, as the Amended Complaint was the first time that AMIC had alleged a breach of a reinsurance contract which contained an arbitration clause. Thus, the Alabama federal court granted the motion to stay pending arbitration. Alabama Municipal Ins. Corp. v. Munich Reinsurance America Inc., Case No. 2:16-CV-948-WHA-SRW (USDC M.D. Ala. Sept. 7, 2017).

This post written by Jeanne Kohler.

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THE UNCERTAINTIES OF PROGNOSTICATIONS OF THE IMPACT OF HURRICANES HARVEY AND IRMA ON CATASTROPHE BONDS

September 25, 2017 by Carlton Fields

We have rarely provided our opinions or market commentaries in our Reinsurance Focus posts, preferring instead to provide our readers hopefully balanced analyses of court opinions, legislation, and regulations affecting the reinsurance market. Recent events, however, have caused us to make an exception to that practice. Much is being written about the extent to which catastrophe bonds (or traditional reinsurance) are “exposed” to or may be called upon to pay losses from Hurricanes Harvey and Irma, and the impact that those storms may have on the ILS market. Some reinsurance agreements use a parametric trigger, and the possible impact of a particular storm on such reinsurance facilities may be reasonably ascertainable in the relatively short term. For example, the Caribbean Catastrophe Risk Insurance Facility, which has developed parametric trigger policies covering wind risks to be backed by traditional reinsurance and capital markets, insuring member countries in the Caribbean, has already determined the amount of payouts on its parametric policies for Harvey and Irma, and has published a report on that issue. However, many of the catastrophe bonds covering wind risks have indemnity triggers, including those to which the Texas Windstorm Insurance Association (the Alamo series) and Florida’s Citizens Property Insurance Corporation (the Everglades series) ceded risks. Moreover, many catastrophe bonds are part of a reinsurance program or tower composed of different types of risk transfer, with different layers, some overlapping or parallel, different attachment points, and different limits.

With the exception of flood losses under the National Flood Insurance Program’s traditional reinsurance program, which does not include catastrophe bonds, few of the “analyses” in the press to date appear to have even attempted to take into account the specific factors that will determine whether, and the extent to which, a particular catastrophe bond or traditional reinsurance agreement is likely to respond to losses, including the trigger of the reinsurance coverage, the attachment point of the reinsurance, the limit of the reinsurance, the percentage of cover for a particular layer, the actual level of losses in the reinsurance program, other inuring reinsurance in the reinsurance program, whether the reinsurance is aggregate or occurrence based, and the extent to which the retention leading up to the attachment point of the reinsurance has been or will be eroded by losses. While one may say that all reinsurance in a tower is “exposed” to losses by any covered event, that is not meaningful without a factually informed analysis of the extent to which a particular catastrophe bond or reinsurance agreement is likely to be called upon to pay losses, given the damage caused by the event and the terms of the applicable reinsurance agreement.

The modeled level of losses from these storms suggested by various brokers and modeling companies are only estimates, and the fact that the modeled losses suggested by different sources conflict with each other and have changed over time is itself good evidence that such numbers are only preliminary estimates, based upon limited reliable data. Many catastrophe bonds frequently attach fairly high in a reinsurance tower, and if few cat bonds actually sustain losses from these two major storms, the impact upon the ILS market may be limited, or even positive. In addition, there has been a great influx of capital into the markets for traditional reinsurance for wind risks and catastrophe bonds over the past several years, and historically major hurricanes have frequently prompted the influx of additional capital.

The bottom line? Only time and accompanying loss development will permit a reasoned evaluation of the impact of Harvey and Irma on the reinsurance and cat bond markets or individual reinsurance agreements or catastrophe bonds.

This post written by Rollie Goss.
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