Reinsurance Claims

In Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., the Second Circuit Court of Appeals affirmed a district court order granting summary judgment to plaintiff Fireman’s Fund, holding that defendant OneBeacon is obligated under a reinsurance policy’s “follow-the-settlements” clause to provide coverage for a settlement paid by Fireman’s Fund to its insured.

The case involved a reinsurance policy that OneBeacon’s predecessor-in-interest (General Accident) issued to Fireman’s Fund. The policy reinsured one of three excess insurance policies that Fireman’s Fund had issued to its insured, ASARCO, for two policy years in the early 1980s. All three excess policies issued by Fireman’s Fund to ASARCO provided coverage for $20 million in losses “but applied to varying policy years and had different attachment points (that is, points at which excess coverage was triggered)”. Faced with significant potential liability from asbestos-related claims, ASARCO sought coverage for those claims from Fireman’s Fund under all of the excess policies. After 10 years of litigation, Fireman’s Fund agreed to pay ASARCO $35 million in settlement of ASARCO’s claims under the three excess policies. To pursue reinsurance for the settlement it paid to ASARCO, Fireman’s Fund allocated the settlement amount among the three excess policies “in proportion to its calculation of the policies’ likely respective exposures,” which resulted in an allocation of $8.1 million to the OneBeacon policy. Fireman’s Fund then sought reinsurance coverage from OneBeacon for a percentage of that amount. The OneBeacon reinsurance policy included a “follow-the-settlements” clause, which provided “[a]ll claims involving this reinsurance, when settled by [Fireman’s Fund], shall be binding on the Reinsurer, who shall be bound to pay its proportion of such settlements.” However, OneBeacon denied the claim, asserting that the underlying policies were not exhausted and “Fireman’s Fund should have allocated the entire settlement amount to the other two excess policies.” The district court granted summary judgment in favor of Fireman’s Fund, concluding that OneBeacon had no basis for challenging Fireman Fund’s allocation of a portion of the settlement amount to the third policy.

The Second Circuit affirmed the district court’s entry of summary judgment, holding that the third policy’s terms “did not unambiguously require exhaustion of the underlying insurance policies through actual payment of the policy limits by the underlying insurers,” and “the underlying policies could be exhausted by a below-limits settlement and the third policy would cover so long as the policyholder’s total covered losses exceeded the policy’s attachment point.” The court then pointed out because ASARCO’s losses exceeded the third policy’s attachment point, “Fireman’s Fund could reasonably allocate a portion of the settlement to that policy.” Finally, the court rejected OneBeacon’s argument that the reinsurance policy required payment of policy limits in full by the underlying primary and excess insurers before any reinsurance coverage would attach, concluding that “[b]ecause Fireman Fund’s allocation was not contrary to the terms of any of the applicable policies, the reinsurance policy’s follow-the-settlements clause binds OneBeacon to honor the allocation.”

Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., No. 20-4282 (2d Cir. Sept. 15, 2022).

The D.C. Circuit recently affirmed a judgment in favor of reinsurers in a suit brought by an insured after concluding that the insured could not assert breach of contract and related claims against the reinsurers because the insured had no direct relationship with the reinsurers.

Vantage Commodities Financial Services I LLC hired Equifin Risk Solutions LLC to create a captive insurance entity (Assured Risk Transfer PCC LLC (ART)) to manage risk associated with its business of financing retail energy companies. Equifin found several reinsurers to reinsure ART. One of the companies to which Vantage loaned money (Glacial Energy Holdings) defaulted. Vantage submitted a claim to ART. An arbitrator ruled in Vantage’s favor, but ART could not cover the loss. The reinsurers then informed ART that any claim would be denied because ART had failed to notify them of Vantage’s claims or provide proof of Vantage’s losses within the time limit required in the reinsurance agreements.

Vantage then filed suit against ART, the reinsurers, and companies involved with the formation and management of ART (“Willis Defendants”). Vantage asserted claims for breach of contract and sought a declaratory judgment regarding the reinsurers’ duties and further asserted claims for breach of implied contract, promissory estoppel, and unjust enrichment.

The district court dismissed Vantage’s breach of contract claim and request for declaratory relief against the reinsurers and then granted summary judgment to the reinsurers on the remaining claims.

The D.C. Circuit affirmed. With respect to Vantage’s breach of contract and declaratory judgment claims, the court held that “Vantage failed to plead facts sufficient to show a contractual relationship with the Reinsurers.” The court noted that reinsurers generally do “not have a direct contractual relationship with the original insured unless the terms of the reinsurance agreement create such a relationship,” and the agreements in this case created no such relationship. There were “no allegations that the Reinsurers dealt directly with Vantage or otherwise treated Vantage as if it were directly insured by them.” Turning to Vantage’s remaining claims, the court explained that there was “no record evidence of any consideration to support [Vantage’s] alleged implied contract with the Reinsurers.” The consideration had been between ART and the reinsurers. Vantage’s promissory estoppel and unjust enrichment claims meanwhile suffered “from the absence of any evidentiary support.” The claims “depend[ed] on the existence of an agency relationship between the Reinsurers and either ART or the Willis Defendants,” but “Vantage point[ed] to no evidence of statements or conduct by the Reinsurers that authorized ART or the Willis Defendants to act on their behalf.” The reinsurance binders meanwhile “merely disclose[d] the existence and terms of a reinsurance agreement between ART and the Reinsurers.” Finally, Vantage’s claims against the Willis Defendants for negligence were barred by the “economic loss doctrine” because Vantage sought “to recover purely economic losses” and no exception applied.

Vantage Commodities Financial Services I, LLC v. Assured Risk Transfer PCC, LLC, No. 21-7033 (D.C. Cir. Apr. 22, 2022).

In a matter previously covered in this blog, the Northern District of New York was asked to determine whether Clearwater Insurance Co. (the reinsurer) was entitled to a new trial, a judgment as a matter of law, or an amendment to the judgment rendered in favor of Utica Mutual Insurance Co. (the cedent).

At trial, the jury agreed with Utica’s interpretation of the parties’ reinsurance contract and found that an underlying settlement between Utica and insured Gould’s Pumps was negotiated in good faith. As a result, the jury awarded Utica $10 million in damages under the reinsurance treaty, and a judgment was entered consistent with this verdict.

Among several post-trial motions filed by the parties, Clearwater moved for a new trial or judgment as a matter of law, arguing that the verdict was not supported by sufficient evidence, that there were errors in the jury instructions and verdict form, and that a recent Second Circuit decision nullified the jury’s verdict as a matter of law. Clearwater also moved to amend the judgment, arguing that Utica was not entitled to prejudgment interest or, in the alternative, that prejudgment interest should accrue from a later date. The court denied Clearwater’s motion for a new trial, finding the jury’s verdict to be adequately supported and upholding the jury instructions used at trial. The court also denied Clearwater’s motion for a judgment as a matter of law, finding that the cited Second Circuit decision did not nullify the jury’s verdict.

However, the court granted Clearwater’s motion to amend the judgment in part, finding that the court’s calculation of prejudgment interest from the date Utica submitted its first unpaid reinsurance billing would result in a windfall for Utica. The court determined that the reasonable accrual date for prejudgment interest was the midpoint of the unpaid reinsured billings and modified its judgment accordingly.

Utica Mutual Insurance Co. v. Clearwater Insurance Co., No. 6:13-cv-01178 (N.D.N.Y. Mar. 18, 2022).

Plaintiffs, Certain London Market Company Reinsurers (LMRs), filed suit against Lamorak Insurance Co. seeking a declaratory judgment that they were not obligated to pay reinsurance billings ceded by Lamorak. The disputed amounts stem from various settlements between Lamorak and its insured relating to numerous environmental damage claims dating back several decades. The LMRs moved for summary judgment in the reinsurance coverage dispute, arguing that English law governed the interpretation of the reinsurance agreements. Lamorak claimed that Massachusetts law applied. The Massachusetts federal court agreed with the LMRs.

Lamorak argued that the choice-of-law analysis was governed by Restatement section 193. But the court ruled that Restatement sections 6 and 188 controlled, noting it found no precedent supporting Lamorak’s position. Applying Restatement section 188 in the reinsurance context, the court held that choice of law is dictated by “the state where the reinsurance certificate issued and the location where performance is expected, i.e. the place to which the ceding insurer must make its demand for payment, typically control for purposes of choice of law.” Here, the reinsurance agreements were signed in England, the relevant documents were issued from England, and Lamorak’s demands for payment under the agreements were made to the LMRs in England. As such, the court found it was beyond dispute that English law applied. Notwithstanding, the court denied the LMRs’ motion for summary judgment, finding the disputed issues of material fact were too numerous to identify in the decision. The court ruled it was sufficient to deny the motion on the ground that the parties fundamentally disagreed as to whether the reinsurance agreements were the relevant contracts in the first instance.

Certain London Market Company Reinsurers v. Lamorak Insurance Co., No. 1:18-cv-10534 (D. Mass. Jan. 20, 2022).