Reinsurance Claims

COURT DENIES MOTION TO ENFORCE JUDGMENT AND GRANTS MOTION TO STAY PENDING APPEAL IN CONTENTIOUS ARBITRATION CLAUSE DISPUTE

June 15, 2016 by Carlton Fields

We previously reported on the confirmation of three awards in a dispute between National Indemnity Company (“NICO”) and IRB Brasil Ressegurous S.A (“IRB”). In April, NICO submitted a motion for an award of its fees and costs incurred in different forums related to the dispute, and requested oral argument. The court has now denied the motion because it was “ill-timed and ill-conceived” and denied oral argument “given the extensive opportunity for briefing.” The court also granted IRB’s motion to stay the underlying judgment pending appeal, in a separate order entered on the same day. National Indemnity Co. v. IRB Brasil Ressegurous S.A., Case No. 15-cv-3975 (USDC S.D.N.Y. May 17, 2016) (Order on Motion for Fees) (Order on Motion for Stay Pending Appeal).

This post written by Michael Wolgin.
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ILLINOIS FEDERAL COURT TRANSFERS “LATE NOTICE” REINSURANCE DISPUTE TO PENNSYLVANIA

May 9, 2016 by Carlton Fields

R&Q Reinsurance Company issued a facultative reinsurance certificate to St. Paul Fire & Marine Insurance Company, which reinsured a policy issued by St. Paul to Walter E. Campbell, Co. The broker who placed the certificate was located in Chicago, as were the R&Q employees who executed the contract. St. Paul was located in Minnesota at the time the certificate was negotiated and entered into.

The certificate provided that St. Paul was to “promptly” advise R&Q of “any occurrence and any subsequent developments pertaining thereto” which, in St. Paul’s opinion, might implicate the reinsurance coverage afforded by the certificate. After St. Paul defended and indemnified Campbell in several asbestos personal injury lawsuits arising under the reinsured policy, it sent R&Q its first notice of loss and demanded payment under the certificate. The notice of loss was sent via the broker’s Hartford, Connecticut office. R&Q subsequently brought suit in the U.S. District Court for the Northern District of Illinois seeking a declaration that it was not obligated to indemnify St. Paul under the certificate because it failed to provide prompt notice of the subject loss. St. Paul then filed a parallel suit against R&Q in the Eastern District of Pennsylvania seeking coverage under the certificate, and moved to transfer the Illinois case to the latter forum. At the time the competing actions were filed, R&Q was a Pennsylvania corporation and St. Paul was a Connecticut corporation.

The parties did not dispute that venue was proper in both Illinois and Pennsylvania, but disagreed as to whether the transfer of the Illinois action to Pennsylvania served the convenience of the parties and the interests of justice. Analyzing these factors and others, the court granted St. Paul’s motion to transfer the case to Pennsylvania, because: (a) the bulk of the events material to St. Paul’s alleged late notice and R&Q’s purported breach of the certificate occurred in areas “much closer to Pennsylvania than Illinois, with some of the material events occurring in Pennsylvania”; (b) R&Q is based in Pennsylvania and St. Paul’s residence is closer to that forum than to Illinois; (c) the parties witnesses, and potential non-party witnesses, are located either in the Eastern District of Pennsylvania or closer to it than to the Northern District of Illinois; (d) the dispute was “more likely” to be resolved sooner in Pennsylvania than Illinois, given the relative speed by which cases in each forum typically reach trial or are disposed of prior to trial; (e) Illinois law was “unlikely” to govern the dispute; and (f) Illinois’ interest in the action is “weak relative to that of Pennsylvania”. R&Q Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., No. 15-cv-7784 (USDC N.D. Ill. Mar. 30, 2016).

This post written by Rob DiUbaldo.

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THIRD CIRCUIT AFFIRMS SUMMARY JUDGMENT OF CAPTIVE REINSURANCE DISPUTE AS BEING TIME-BARRED

April 21, 2016 by Carlton Fields

In early January, the Third Circuit Court of Appeals affirmed summary judgment of a putative class action dispute regarding private mortgage insurance and captive reinsurance of the same by M&T. We previously blogged about this case on November 20, 2013, February 4, 2014, and March 17, 2015. The putative class action alleged violations of the Real Estate Settlement Procedures Act – specifically, that M&T violated RESPA’s anti-kickback and fee-splitting provisions. However, the district court entered summary judgment on the grounds that the claims were time-barred, and the Third Circuit affirmed this finding.

Under RESPA, claims are subject to a one-year limitations period. The Third Circuit has previously held that the statute of limitations in RESPA is not jurisdictional and is subject to equitable tolling. The putative class plaintiffs argued for the application of equitable tolling on the grounds of fraudulent concealment. After discovery, the district court found that the putative class plaintiffs failed to show reasonable diligence. The Third Circuit affirmed, finding that where the mortgage documentation included a disclosure and allowed borrowers to opt out of captive reinsurance, the putative class was given notice that this could have happened and should reasonably have begun investigating at that time. During depositions, the putative class plaintiffs confirmed that they were aware of the possibility of captive reinsurance, but none of them investigated it until they were contacted by a law firm years later. Cunningham v. M&T Bank Corp., Case No. 15-1412 (3d Cir. Jan. 12, 2016).

This post written by Zach Ludens.

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COURT DENIES MOTION TO STAY FURTHER REINSURANCE ARBITRATION PENDING APPEAL CONCERNING INITIAL ARBITRATION

February 16, 2016 by Carlton Fields

At the end of January, the United States District Court for the Eastern District of Michigan denied a motion to stay arbitration pending appeal. The case involves a reinsurance dispute between National Union Fire Insurance Company of Pittsburgh and members of the Meadowbrook Insurance Group. Following an initial arbitration, National Union moved to confirm the award. The court confirmed in part but vacated the portion of the arbitration award dealing with prejudgment interest. As a result, the court ordered the parties to arbitrate the issue of prejudgment interest. Both parties appealed, and National Union filed a motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal.

According to National Union, the parties had already arbitrated the amount and interest in the first arbitration and the district court should have confirmed, vacated, or modified the awards—rather than submitting that question to a new arbitration—which National Union is appealing to the Sixth Circuit. However, the district court noted that the arbitration panel found in favor of National Union “in part because Meadowbrook failed to produce documentation” that would allow it to compute damages and prejudgment interest. Therefore, the district court reasoned, this issue had not already been arbitrated, and National Union was unlikely to succeed on the merits of its appeal. For this reason, among others, the court denied both National Union’s motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal. Star Insurance Co. v. National Union Insurance Co. of Pittsburgh, Case No. 14-12915 (E.D. Mich. Jan. 27, 2016).

This post written by Zach Ludens.

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CEDENT IS NOT REQUIRED TO MINIMIZE ITS REINSURANCE RECOVERY IN ORDER FOR THE “FOLLOW THE FORTUNES” DOCTRINE TO APPLY

February 9, 2016 by Carlton Fields

On December 9, 2014 and August 20, 2015, we reported on the reinsurance dispute between Utica Mutual Insurance Company and Clearwater Insurance Company. In a recent ruling, the court rejected Clearwater’s argument that the follow the fortunes doctrine did not apply and that Clearwater was relieved of its obligations under the subject reinsurance contract. Clearwater contended that Utica unreasonably and in bad faith shifted all of its liabilities to its umbrella policies to maximize reinsurance recovery. As an alternative basis to avoid liability, Clearwater also argued that Utica billed it for items for which it was not entitled to recover.

In rejecting Clearwater’s arguments, the court explained that while the follow the fortunes doctrine requires the cedent to align its interests with its reinsurer, in order to show bad faith, Clearwater was required to establish an “extraordinary showing of a disingenuous or dishonest failure” and that the cedent acted with gross negligence or recklessness. The court found that Clearwater could not make such a showing. The Court noted that Utica did not have any fiduciary duty to place Clearwater’s interests above its own nor minimize its reinsurance recovery in order to avoid bad faith. And the Court summarily dismissed Clearwater’s argument that some of the billings were not covered by the reinsurance, ruling that if the payment was arguably within the scope of the insurance policy, then it was within the reinsurance. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Jan. 20, 2016).

This post written by Barry Weissman.

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