Reinsurance Claims

CENTURY INDEMNITY ENTERS STIPULATED JUDGMENT PRESERVING RIGHT TO APPEAL DECLARATORY JUDGMENT IN FAVOR OF REINSURER

July 21, 2015 by John Pitblado

A New York federal court entered a stipulated judgment in favor of the plaintiff reinsurer that prevailed on its declaratory claim in a summary judgment previously ordered, which judgment capped its exposure to the dollar amount stated in the “Reinsurance Accepted” portion of the reinsurance contracts at issue. The litigation had remained ongoing due to the cedant’s remaining counterclaims, but it agreed to forego pursuing those claims in favor of a strategy allowing it to pursue appeal of the prior summary judgment order.

Global Reinsurance Corporation of America v. Century Indemnity Company, No. 1:13-cv-6577, (USDC S.D.N.Y. June 3, 2015).

This post written by Zach Ludens.

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COURT REVERSES DISMISSAL OF INSURED’S CLAIM AGAINST REINSURER ASSERTING TORTIOUS INTERFERENCE WITH INSURANCE SETTLEMENT AGREEMENT

July 14, 2015 by Carlton Fields

Gardner Denver, Inc. (“Gardner”), had entered into a settlement agreement with its liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“NUF”) to resolve a dispute over Gardner’s coverage under various indemnity agreements. NUF honored the settlement agreement for several years, paying Gardner’s claims. However, once NUF entered into a “retroactive reinsurance” agreement with National Indemnity Company (“NICO”), in which NICO assumed NUF’s obligations and liabilities, NICO delegated the claims handling to another entity, which asserted a coverage defense and ceased paying Gardner’s claims under the settlement agreement. Gardner sued NICO and the claims administrator for tortious interference with a contract, and NICO countered with a motion to dismiss. NICO contended that the tortious interference claim failed because NICO had a qualified privilege as NUF’s agent (similar to the protection afforded to corporate officers under the “business judgment” rule) to handle claims on behalf of NUF. The trial court agreed with NICO and found that the complaint failed to overcome the privilege by sufficiently alleging that NICO acted without justification and with malice, and dismissed the case.

The appellate court, however, reversed the dismissal, holding that it was a factual question whether NICO’s actions were in fact unjustified or malicious, based on interpretation of the underlying insurance and settlement agreements and other evidence not before court, and thus it was not a decision for the court to resolve on a motion to dismiss. “Until the court answers whether NICO’s defense was frivolous, it could not determine whether NICO acted in good faith or, alternatively, acted without justification or malice, in its failure to pay claims pursuant to the settlement agreement.” Gardner Denver, Inc. v. National Indemnity Co., et al., Case No. 4-14-0713 (Ill. App. Ct. May 21, 2015).

This post written by Barry Weissman.

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COURT OF APPEALS AFFIRMS REJECTION OF CLAIMS RELATING TO CAT BOND

July 10, 2015 by Carlton Fields

We previously posted on a district court’s dismissal, with prejudice, of an Amended Complaint challenging the propriety of payments to the ceding insurer of the Mariah Re catastrophe bond which exhausted the cat bond’s trust account. The Amended Complaint contended that the payment amount had not been calculated in accordance with the provisions of the cat bond’s documents, and that a lesser amount, which would not have exhausted the trust account, should have been paid instead. The district court found that the documents clearly set forth the process for calculating the payment amount, and that the payment amount had been calculated in accordance with the contractual agreements. It therefore dismissed the case with prejudice. The Court of Appeal, after briefly describing the contractual relationships, simply stated that “[w]e AFFIRM the judgment of the district court for substantially the reasons stated by Judge Sullivan in his opinion of September 30, 2013.” This result demonstrates the importance of clarity in the drafting of cat bond documents, and may help to reduce whatever uncertainty this lawsuit engendered in the cat bond market. Mariah Re Limited v. American Family Mutual Insurance Company, No. 14-4062 (2nd Cir. June 30, 2015).

This post written by Rollie Goss.

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DISTRICT COURT DISMISSES BREACH OF DUTY OF UTMOST GOOD FAITH CLAIMS UNRELATED TO BREACH OF CONTRACT IN REINSURANCE DISPUTE

July 7, 2015 by John Pitblado

The Middle District of Florida recently granted in part and denied in part plaintiff Stewart Title Guaranty Company’s (“Stewart Title”) motion to dismiss defendant First American Title Insurance Company’s (“First American”) counterclaim for breach of the utmost duty of good faith. As noted in a prior post, this case involves disputes regarding reinsurance agreements that First American entered into with Old Republic National Title Insurance Company (“Old Republic”) and Stewart Title. In these agreements, Old Republic and Stewart Title agreed to assume part of First American’s contractual liability under a title insurance policy.

When mechanic’s liens were discovered on the property at issue, First American negotiated a $41 million settlement of the claim before turning to Old Republic and Stewart Title to pay their proportionate share of that sum. While Old Republic paid under its reservation of rights, Stewart Title chose not to pay, and instead, sued First American for rescission, reformation, declaratory judgment, and negligence. First American countersued Stewart Title for breach of contract, breach of the utmost duty of good faith, and declaratory judgment.

Stewart Title moved to dismiss First American’s counterclaim for breach of the utmost duty of good faith on the same bases as a prior dismissal granted in favor of Old Republic. First American contended that Stewart Title’s breach of the reinsurance agreement differed from Old Republic’s alleged breach in that Stewart Title did not pay under its reservation of rights. First American’s counterclaim alleged that Stewart Title breached the utmost duty of good faith in the following four ways: (1) failing to pay the claim as required under the insurance contract; (2) engaging in delay tactics; (3) using First American’s documents against it in support of its allegations and preemptively filing suit against First American; and (4) accusing First American of making misrepresentations and omissions. While the district court held that the first two claims necessarily could be tied to breach of the reinsurance contract, the latter two claims could not and, consequently, the latter two were dismissed.

Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ, 2015 WL 1530611 (USDC M.D. Fla. June 8, 2015)

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

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WHEN $16.5 MILLION IS NOT ENOUGH: INSURER AND REINSURER BATTLE OVER FRONTING ARRANGEMENT

June 15, 2015 by John Pitblado

Lincoln General Insurance Company (“Lincoln”) appealed a district court judgment, despite it having won a $16.5 million dollar tortious interference verdict, to the Fifth Circuit Court of Appeals. Lincoln alleged that the district court erred in dismissing various claims before the trial began, including: breach of contract, breach of fiduciary duty, conversion, and derivative liability.

The lawsuit arose from a fronting arrangement whereby Lincoln reinsured 100% of State and County Insurance Company’s (“State”) liabilities. According to the suit, U.S. Auto Insurance Services (“US Auto”) served as general agent to State. For this arrangement, Lincoln expected to receive 10% of premium payments. The rest of expected premium payments were to be divided between US Auto for management services in conjunction with payments to policyholders. Despite paying out less than anticipated for filed claims, Lincoln claimed it lost millions of dollars.

In a morass of procedural history spanning six years, the Fifth Circuit Court reversed the district court’s refusal to alter its judgment to include a breach of contract claim against U.S. Auto. The Fifth Circuit Court also reversed the dismissal of a tortious interference claim against Jim Maxwell. Jim and Doug Maxwell were co-owners of a business that became the recipient of $50 million dollars from US Auto. The Fifth Circuit Court noted that even if one included the more rigorous “active participation” element to tortious interface–a debatable position in Texas—Jim Maxwell’s conduct was tortious. Defendants attempted to skirt this issue altogether by alleging that the tortious interference award was barred by a two-year statute of limitations. The Fifth Circuit Court disagreed, noting that Lincoln filed the action before the limitations period had run out as they “did not and could not have” reasonably known about the facts comprising the tortious interference claim until US Auto became insolvent.

Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Serv., Inc., No: 13-10589 (5th Cir. May, 18, 2015)

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

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