Reinsurance Claims

COURT GRANTS MOTION TO DISMISS IN ROW BETWEEN INSURED, INSURER, AND THIRD-PARTY CLAIM ADMINISTRATORS

December 9, 2015 by Carlton Fields

A district court in Ohio granted defendants National Indemnity Company (“National”) and Resolute Management, Inc.’s (“Resolute”) motion to dismiss in an asbestos coverage dispute. Plaintiff, industrial manufacturer the William Powell Company (“Powell”), bought 60 million dollars in primary and excess product and liability coverage, eventually assumed by OneBeacon Insurance Company (OneBeacon), with additional coverage for claim defense. OneBeacon procured reinsurance protection through National. National subsequently delegated its claim responsibilities to various companies including Resolute. In 2001, Powell became embroiled in asbestos injury claims to which it sought defense. Powell alleged that National and Resolute “combined to form a racketeering enterprise for the purpose of depriving Powell of its insurance coverage and to profit at Powell’s expense” by rejecting claims and improperly intervening in the defense of those claims. National, OneBeacon, and Resolute sought dismissal of Powell’s various federal and state law claims. The court first rejected plaintiff’s federal RICO claim as it would impede Ohio insurance law to contravene McCarran-Ferguson. In particular, the court noted that an insured my not sue a third-party claims administrator for bad faith nor unfair claims handling. Additionally, a RICO claim “would upset and impair [Ohio’s] regulatory scheme and impede its ability to detect insurance fraud.” Considering next state specific claims, the court found that, without privity, Ohio does not recognize a bad faith claim for the handling of insurance claims. For these and other reasons the court granted defendants’ motion to dismiss. The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-807 (USDC S.D. Ohio Sept. 30, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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NEW YORK APPELLATE COURT AFFIRMS EVIDENTIARY RULING IN FAVOR OF CEDENT

December 2, 2015 by John Pitblado

In a dispute regarding reinsurance coverage for the settlement of asbestos-related claims for nearly a billion dollars, on October 29, 2015, a New York appeals panel affirmed a New York state trial court decision, which denied the reinsurers’ motion for a ruling that the reasonableness of the cedent’s allocation of all settlement dollars to asbestos-insurance claims is properly the subject of evidence at trial. The court noted that in a prior appeal in the case, the Court of Appeals, New York’s high court, denied the cedent’s motion for summary judgment, in part, finding issues of fact as to 1) whether the cedent, “in allocating the settlement amount, reasonably attributed nothing to so-called ‘bad faith’ claims against it”, and 2) whether “certain claims were given unreasonable values for settlement purposes”. (We reported on the Court of Appeals decision on April 1, 2013.) Thus, the court held that the trial court correctly found that the reinsurers’ motion for a ruling allowing evidence on the reasonableness of the cedent’s allocation of the entire settlement to asbestos-insurance claims was contrary to the Court of Appeals decision, which limited the triable issues to two issues.

United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604517/02 (N.Y. App. Div. Oct. 29, 2015).

This post written by Jeanne Kohler.

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NEW YORK APPELLATE COURT AFFIRMS GRANTING OF REINSURER’S MOTION TO SEVER

November 10, 2015 by John Pitblado

Munich Reinsurance America, Inc., (“Munich”) moved to sever its suit against cedent Utica Mutual Insurance Company (“Utica”) from Utica’s suit against Transatlantic Reinsurance Company. Utica sought enforcement of reinsurance policies issued to it by both reinsurers, and sued the reinsurers together to avoid removal of the claims against Munich to federal court, according to Munich. The trial court granted Munich’s motion to sever and Utica appealed.

New York’s appellate court affirmed the trial court’s order because it agreed with the trial court that the cases lacked commonality. The court noted that although the claims against both defendants related to insurance payments made by plaintiff to the same insured for asbestos-related losses, defendants had no relationship to one another, and the claims arose from different reinsurance contracts, were triggered by different underlying umbrella polices, and involved different time periods. Moreover, the court continued, defendants asserted different affirmative defenses, and a finding of liability against one defendant would not impact the liability of the other.

Utica Mutual Insurance Co. v. American Re-insurance Co., No CA 15-00408 (N.Y. App. Div., 4th Dep’t. Oct. 9, 2015).

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

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NEW YORK APPELLATE COURT LEAVES OPEN QUESTION OF WHETHER A LOSS PORTFOLIO TRANSFER CONSTITUTES “TREATY REINSURANCE”

November 5, 2015 by Carlton Fields

A New York state appellate court recently affirmed a decision denying a cedents motion to dismiss certain affirmative defenses asserted by a reinsurer, but found it could not rule as a matter of law whether a loss portfolio transfer (“LPT”) entered into by the cedents constituted “treaty reinsurance”.

A prior discussion of this case can be found here. The cedents sued the reinsurer for breach of certain facultative certificates. One of the affirmative defenses asserted by the reinsurer was that the cedents’ entry into the LPT breached warranty retention provisions in the certificates. In opposing this defense, the cedents have argued that the LPT fell within the “treaty reinsurance” exception in the warranties. The trial court ruled that because the LPT was retroactive in nature, it did not constitute “treaty reinsurance”, relying upon dicta from prior reinsurance cases in New York for the proposition that such reinsurance can only be prospective. The Appellate Division disagreed, noting that the authority cited by the parties was inconclusive or failed to squarely address the issue, thus finding premature this prong of the trial court’s ruling. As many LPT transactions have been entered into by cedents in recent years, a final ruling by the court on the “treaty reinsurance” question will be noteworthy. Granite State Ins. Co. v. Transatlantic Reinsurance Co., No. 652506/12 (App. Div., 1st Dep’t Oct. 15, 2015).

This post written by Rob DiUbaldo.

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NEW HAMPSHIRE FEDERAL COURT RULES THAT ENGLAND’S STATUTE OF LIMITATIONS APPLIES TO A CEDENT’S BREACH OF CONTRACT CLAIM

November 4, 2015 by Carlton Fields

In a diversity action based upon breach of a facultative reinsurance certificate, a New Hampshire federal court recently held that England’s six-year statute of limitations governed a cedent’s contract claim, rejecting the foreign reinsurer’s argument that the claim was time-barred under the shorter period afforded by New Hampshire law.

The lawsuit arose from a loss paid by the cedent in 2009 under a property insurance policy. The reinsurer rejected the cedent’s billing on, among other grounds, that the reinsurer’s share had not been allocated properly. After the cedent brought suit, the reinsurer moved for judgment on the pleadings, arguing that New Hampshire’s three-year statute of limitations for breach of contract claims barred the cedent’s recovery. The cedent opposed the motion on the basis that England’s limitations period governed. Applying New Hampshire choice of law rules, the court first found that the statute of limitations issue was substantive, and not procedural, because neither party is a “resident” of the state as defined by New Hampshire law, and the cause of action arose outside the forum. Thus, instead of simply applying New Hampshire’s limitations period for contract claims – which occurs when statute of limitations is deemed procedural in nature – the court found it was required to address the substantive conflict between English and New Hampshire law. Applying factors articulated by the New Hampshire Supreme Court, the court held that England’s six-year statute of limitations controlled because the certificate was negotiated and entered into in London, governed by English law, and the application of England’s statute of limitations would not complicate the dispute or extinguish a statutory cause of action under New Hampshire law. As both parties conceded that the subject claim would be timely under English law, the court ruled in the cedent’s favor, denying the reinsurer’s motion for judgment on the pleadings or, in the alternative, summary judgment. TIG Insurance Company v. EIFlow Insurance Limited, No. 1:14-cv-00459 (USDC D.N.H. Sept. 29, 2015).

This post written by Rob DiUbaldo.

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