Reinsurance Claims

NEW YORK TRIAL COURT FINDS CEDENT IS NOT COVERED FOR LOSS ADJUSTMENT AND LEGAL EXPENSES IN EXCESS OF THE AMOUNTS STATED IN ITS REINSURANCE CERTIFICATE

October 10, 2016 by John Pitblado

Relying on past New York precedent, a New York state trial court determined the language of certain reinsurance certificates at issue were unambiguous, declining to accept plaintiff’s extraneous evidence “that the custom and practice in the insurance trade is contrary” to such precedent.

The Court relied on the following three cases: Utica Mut. Ins. Co. v. Clearwater Ins. Co., 2014 WL 6610915 (N.D.N.Y. Nov. 20, 2014) (currently on appeal); Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004); and Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990), wherein the courts “concluded that the [reinsurance] certificates as to the limit of liability are unambiguous, and therefore, extrinsic evidence should not be considered.” Notably, other courts have reached different results on this issue.

Although the certificate language here – “reinsurance accepted” – was different than the “limit” language considered by the New York Court of Appeals in Excess, the Court in Excess relied, in part, on the decision by the Second Circuit in Bellefonte – which involved reinsurance certificates with the same or similar language to the certificates at issue here. Citing to Excess in support of its decision, the Court noted:

Of course, both parties were well aware of the type of product that was being reinsured. It would be far from unreasonable to expect that at the time of procuring reinsurance, [the reinusred] could anticipate the possibility of incurring loss adjustment expenses in settling a claim… Certainly, nothing prevented [the reinsured] from insuring that risk either by expressly stating that the defense costs were excluded from the indemnification limit or otherwise negotiating an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurer’s liability on the insured property. Failing this, the reinsurers were entitled to rely on the policy limit as setting their maximum risk exposure. (Excess, at 584-585).

The Court granted the moving defendants partial summary judgment on their affirmative defense pertaining to a cap on liability for both loss and expenses in the face amount of the reinsurance certificates. Utica Mut. Ins. Co. v. Abeille Gen. Ins. Co., n/k/a 21st Century Nat’l. Ins. Co., et al., Index. No. CA2013-002320 (Sup. Ct. N.Y. County Aug. 15, 2016).

This post written by Nora A. Valenza-Frost.

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FINAL JUDGMENT ENTERED AND NOTICE OF APPEAL FILED IN LONGSTANDING REINSURANCE DISPUTE

August 15, 2016 by Carlton Fields

In the ongoing reinsurance dispute between cedent Utica Mutual Insurance Company and reinsurer Clearwater Insurance Company, about which we most recently posted on February 9, 2016, two developments occurred on July 14, 2016. First, the district court entered final judgment and resolved the dispute between the parties regarding the calculation of nearly $1 million in prejudgment interest on the multiple billings for reinsurance made by Utica to Clearwater. And second, the Utica filed a notice of appeal to the Second Circuit from various prior rulings to the extent those rulings imposed a cap on the amount that it is entitled to recover. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. July 14, 2016) (Summary Order & Notice of Appeal).

This post written by Michael Wolgin.
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ILLINOIS FEDERAL COURT DENIES MOTION TO TRANSFER WHERE CONTRACTS ENTERED INTO AND PARTY LOCATED IN ILLINOIS

August 2, 2016 by Carlton Fields

Earlier this month, a federal court in Illinois denied a motion to transfer a case to California. The motion arose out of a reinsurance dispute between the R&Q Reinsurance Company and American Insurance Company. R&Q filed its case in the Illinois federal court, and American moved to transfer the case to California, arguing that R&Q was seeking to “avail itself of Illinois’ notice laws, which arguably provide reinsurers with a less onerous path to avoid their obligations on late notice grounds.” R&Q argued that the case should remain in Illinois, among other reasons, because R&Q was based in Illinois and the reinsurance contracts were executed there. Additionally, R&Q argued that to the extent that AIC’s records were electronic, those documents and that data is “as much present in Illinois” as in California. However, R&Q noted that “this action arises out of events that transpired in at least three, and possibly 5 different states.” American replied that the key witnesses were “either in California or outside of Illinois,” continuing to make its case for a transfer to California. After an oral hearing, the court denied the American’s motion to transfer, keeping the case in Illinois. R&Q Reinsurance Co. v. American Insurance Co., Case No. 1:16-cv-4199 (USDC N.D. Ill. July 11, 2016).

This post written by Zach Ludens.

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FEDERAL COURT DISMISSES CLAIMS AGAINST THIRD-PARTY ADMINISTRATOR

July 13, 2016 by Carlton Fields

The Indiana Department of Environmental Management and the Environmental Protection Agency brought certain enforcement actions against Hartford Iron & Metal, Inc. to remediate alleged environmental damage at a scrapyard run by Hartford Iron. It sought coverage from Valley Forge Insurance Company, and the parties eventually entered into two settlement agreements obligating Valley Forge to pay for the remediation of the site and the defense of the regulatory actions. Valley Forge hired Resolute Management Inc. to act as a third-party claims administrator, and Resolute became heavily involved in managing the remediation of the site. Disputes arose from the remediation project and litigation followed. Hartford Iron brought a third-party complaint against Resolute asserting various claims, which it moved to dismiss. The court granted Resolute’s motion, finding that it could not be liable to Hartford Iron for breach of contract because there was no privity or contractual arrangement between those parties, irrespective of whether Resolute was the alleged reinsurer of Valley Forge policies. The Court likewise dismissed the various tort claims brought by Hartford Iron against Resolute, holding that these claims were premised solely upon unsupported legal conclusions. Valley Forge Insurance Co. v. Hartford Iron & Metal, Inc., No. 1:14-cv-00006 (USDC N.D. Ind. June 15, 2016).

This post written by Rob DiUbaldo.

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ILLINOIS FEDERAL COURT RULES THAT CEDENT’S CLAIMS ARE TIME-BARRED

June 23, 2016 by Carlton Fields

Our prior discussion of this case, and relevant background, can be found here. In 2012, Pine Top Receivables of Illinois, LLC (“PTRIL”) brought an action against Banco de Seguros del Estado (“Banco”) to recover sums purportedly due under certain reinsurance treaties. Banco moved for summary judgment on the grounds that claims were time-barred. Each of the treaties governed how the parties would settle claims between them. Four of the five treaties at issue mandated quarterly account statements, with Banco typically required to either object to the claims referenced in the statement after receipt thereof or pay the outstanding balances within three months of the end of each quarter. Under the fifth treaty, the balance for claims owed thereunder became “immediately due” once proof of the underlying loss payment was provided to Banco.

Banco argued that the subject claims accrued, and the operative statute of limitations period began, once payments became due under the above-referenced provisions. As all of the claims at issue in the lawsuit were billed to Banco outside the applicable limitations period, Banco argued that the claims were time-barred. In opposition, PTRIL asserted that the original cedent’s entrance into liquidation tolled the running of the statute of limitations for the subject claims. The court, however, rejected this argument, holding that the relevant provisions in the treaties governed the date on which the claims accrued, without regard to the cedent’s liquidation, thus rendering the claims untimely under Illinois law. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 12-cv-6357 (USDC N.D. Ill. May 31, 2016).

This post written by Rob DiUbaldo.

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