Reinsurance Claims

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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COURT DENIES MOTION TO DISMISS BY BANK AND ITS AFFILIATED REINSURER IN RICO SUIT

January 14, 2016 by Carlton Fields

This dispute involves class action claims under RICO, claims for unjust enrichment and allegations that Bank of America and its affiliate reinsurer engaged in a conspiracy to defraud home mortgage borrowers into funding sham captive reinsurance arrangements through illegal kickbacks. Specifically, plaintiffs allege that Bank of America referred homeowner borrowers to private mortgage insurance providers in exchange for a kickback of the private mortgage insurance payment to the bank’s affiliated reinsurer, and that in reality, the bank and its reinsurer did not assume any real risk in exchange for the payments, and thus the reinsurance was illusory. Bank of America moved to dismiss the claims as time-barred, for lack of standing and for failure to state a RICO claim.

A Pennsylvania federal court denied the motion to dismiss on all grounds. However, with respect to the statute of limitations, the court denied the motion to dismiss based on the current record, and gave leave to proceed to limited discovery as to the statute of limitations, injury-discovery and tolling issues. Weiss, et al. v. Bank of America Corp., et al., No. 15-62 (W.D. Pa. Dec. 22. 2015).

This post written by Jeanne Kohler.
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NEW YORK FEDERAL DISTRICT COURT DISMISSES THIRD PARTY CLAIM AGAINST INSURANCE BROKERAGE SERVICE

January 6, 2016 by Carlton Fields

In what the court termed a “risk-free reinsurance scheme [that] proved anything but,” a New York federal court dismissed a third-party claim against the insurance brokerage service that put the two parties to the insurance arrangement in contact and counterclaims against the reinsurer that acquired business through the customers of its insured. The case involves a dispute between AmTrust North America, Inc. and SafeBuilt Insurance Services, Inc., as well as a third-party insurance consulting service, Preferred Reinsurance Intermediaries. AmTrust had retained PreferredRe to help AmTrust find prospective business opportunities, and PreferredRe succeeded in introducing AmTrust to SafeBuilt. As a result, AmTrust and SafeBuilt entered into an agreement in which AmTrust provided reinsurance to SafeBuilt, which SafeBuilt then provided a retrocession through a Montana subsidiary. The idea was that AmTrust was “to provide reinsurance but was not actually to have anything at risk.” Because of undercapitalization in the primary insurer and the retrocessionaire, however, AmTrust ended up shouldering close to $10 million of liability. When faced with the lawsuit, SafeBuilt filed a third-party complaint against PreferredRe, alleging, among other things, that PreferredRe was negligent because it “knew or should have known that . . . the parties were not well-suited for one another.” Having indemnified PreferredRe, AmTrust filed a motion to dismiss the third-party claims against it, which the court granted. In addition, AmTrust faced a counterclaim for breach of fiduciary duty and tortious interference with business relationships that the court dismissed.

Dispatching the claims against PreferredRe, the court found, among other things, that “there [was] no allegation of any agreement between PreferredRe and [SafeBuilt] at all.” Even if SafeBuilt was an intended beneficiary of a contract between AmTrust and PreferredRe, this did not include a duty to conduct due diligence of a relationship between AmTrust and SafeBuilt. The counterclaims against AmTrust centered on allegations that AmTrust used information from auditing the insurance arrangement to provide to a subsidiary, which was able to acquire business from SafeBuilt’s former customers. The fiduciary duty claim centered on allegations that AmTrust was the principal and SafeBuilt was its agent—however, absent specific contractual language, “a principal does not necessarily owe its agent a fiduciary duty.” As to tortious interference, the court ruled that absent a contractual duty to keep information confidential, AmTrust’s did “nothing more than engage in sharp practice” which “may be repugnant, but is not a wrongful means.” AmTrust North America, Inc. v. SafeBuilt Insurance Services, Inc., No. 14-cv-09494-CM-JLC (USDC S.D.N.Y. Dec. 1, 2015).

This post written by Zach Ludens.

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EXCESS WORKERS’ COMPENSATION AND EMPLOYERS’ LIABILITY POLICY HELD NOT TO BE REINSURANCE

December 16, 2015 by Carlton Fields

The United States District Court for the Middle District of Louisiana recently granted an insurer’s motion for summary judgment, finding that an excess workers’ compensation and employers’ liability policy was not reinsurance and that the limit of liability of an underlying insurance policy was not relevant to the amount owed. Louisiana Commerce and Trade Association Self Insurers Fund sued National Union Fire Insurance Company of Louisiana for breach of contract. The district court to which the case was removed described the case as “a dispute between two insurance companies over the limits of liability resulting from the settlement of an intentional tort case.” LCTA provided indemnity for workers’ compensation benefits and employers liability and issued coverage to Gee Cee Group Inc. and Gee Cee Enterprises. An employee of Gee Cee was injured and filed a workers’ compensation claim and claim for intentional tort damages against Gee Cee. Gee Cee settled the intentional tort action and LCTA filed a proof of claim with National Union for $1 million, the policy limits of the National Union/LCTA policy. Of that amount, National Union paid $800,000 and then asserted that it had overpaid by $300,000 because the policy limit was actually only $500,000. Both parties moved for summary judgment. LCTA asserted that it was entitled to judgment in its favor for $200,000, and National Union asserted that it is a reinsurer that has no greater liability to LCTA than LCTA has to Gee Cee, which is $500,000. Finding the terms of the National Union/LCTA policy to be clear and unambiguous, and not reinsurance, the district court held for LCTA. Louisiana Commerce and Trade Association Self Insurers Fund v. Nat’l Union Fire Insurance Co. of Pittsburgh, No. 13-773-JJB-RLB (USDC M.D. La. Nov. 3, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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NEW YORK APPELLATE COURT AFFIRMS DENIAL OF COMPETING SUMMARY JUDGMENT MOTIONS IN REINSURANCE DISPUTE

December 15, 2015 by Carlton Fields

In a short, unanimous opinion, the New York Appellate Division, First Department, affirmed a trial court’s ruling that genuine issues of fact precluded it from granting summary judgment to a reinsurer or the plaintiff-cedents in a long-running dispute between them. The case involves Everest Reinsurance Company’s obligation to reimburse various cedents for a settlement entered into under certain facultatively reinsured policies. Everest Re asserted various defenses, including whether the loss is covered by the certificate at issue and whether the settlement entered into was reasonable and made in good faith. The cedents argued that Everest Re is bound to honor the billings under the follow the settlements doctrine. The Appellate Division held that the record before it presented “numerous issues of fact” regarding the settlement entered into by the cedents, and, specifically, the issue of good faith, “none of which are susceptible to resolution on summary judgment.” National Union of Fire Insurance Co. of Pittsburgh v. Everest Reinsurance Co., Index No. 602485/06 (N.Y. App Div., 1st Dep’t, Nov. 5, 2015).

This post written by Rob DiUbaldo.

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