Reinsurance Claims

INSURANCE GUARANTY ASSOCIATION MUST PAY WORKERS’ COMPENSATION CLAIMS OF A FORMER, NON-MEMBER GROUP SELF-INSURER

February 2, 2015 by Carlton Fields

The North Carolina Court of Appeals has held that the state’s Insurance Guaranty Association is obligated to pay for workers’ compensation claims made or incurred against CompTrust, a former group self-insurer that issued workers’ compensation insurance policies to certain employer members. CompTrust was never an Association member, but had converted itself into the CAGC Insurance Company, a North Carolina licensed direct insurer, and CAGC joined the Association. Only CAGC survived the merger and members of CompTrust were converted into CAGC policyholders. CAGC had assumed liability for all claims previously held by CompTrust but was liquidated in January 2014. At issue were workers’ compensation claims that occurred when CompTrust was still in business and responsible for the relevant insurance policies. The Association argued that it should not be obligated for those claims because, in part, they did not arise under policies of direct insurance issued by CAGC and were therefore outside the scope of the Association’s statutory obligations.

The appellate court disagreed. All of CompTrust’s debts and obligations were transferred to CAGC “to the same extent as if said debts, liabilities, and duties had been incurred or contracted” by CAGC. The court found no difference between the merger agreement at issue and the assumption reinsurance agreement at issue in a prior North Carolina case whereby Reliance National Insurance assumed a self-insurer’s responsibilities and the Association was then obligated, upon Reliance’s insolvency, to workers’ compensation obligations that originated with the self-insurer. CAGC was a direct insurer placing it within the Association’s statutory obligations and, therefore, when CAGC became insolvent the covered claims became the Association’s responsibility. The appellate court reversed the trial court’s decision and remanded with directions to enter judgment that the Association was estopped from denying its obligations for any pre-merger workers’ compensation claims made or incurred against CompTrust. Goodwin v. CAGC Insurance Co., No. COA14-445 (N.C. Ct. App. Jan. 20, 2015).

This post written by Renee Schimkat.

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ILLINOIS COURT ISSUES CORRECTED OPINION ON EXPENSES BEING INCLUDED IN REINSURANCE LIMIT

January 22, 2015 by Carlton Fields

As we previously reported, an Illinois appellate court recently concluded that the limit stated on certain reinsurance certificates applied to both indemnity expenses as well as defense expenses, relying on the often cited case from the Second Circuit, Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2nd Cir. 1990.) On December 16, 2014, the court issued a substituted opinion, making non-substantive changes to its prior opinion. Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Dec. 16, 2014.)

This post written by Catherine Acree.

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EXPENSES ONCE AGAIN FOUND TO BE PART OF COVERAGE LIMIT IN BATTLE AGAINST REINSURER

December 30, 2014 by Carlton Fields

In November, an Illinois appellate court affirmed an order granting defendant MidStates Reinsurance Corporation’s (“MidStates”) motion for judgment on the pleadings because the reinsurer had fulfilled its obligation to pay up to the policy limits of various unambiguous facultative contracts.

Continental Casualty Company (“Continental”) sought reinsurance coverage for excess third-party liability and commercial casualty policies issued for RSR Corporation and Borg-Warner Corporation. In the 1990s and early 2000s, environmental claims arose from injuries linked to asbestos and hazardous waste at these insured facilities. MidStates alleged that subsequent remittances to Continental were in line with the limits provided in the reinsurance certificates. Continental alleged that MidStates breached their contract as the reinsurance certificates did not include limits on expenses.

Relying on Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and its progeny, the court found that the reinsurance certificates placed a limit on indemnity costs and expenses. Looking at the four corners of the contracts, the court found no indication that expenses were removed from the liability limit. The court found that even though only two of the five certificates included the language “inclusive of expenses,” this did not create an ambiguity. Instead, “this inclusion clearly appears to be an abundance of caution rather than an intention to exclude expenses from the liability cap.” Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Nov. 4, 2014).

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

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REINSURANCE ARBITRATION AWARD CONFIRMED, REACHING RESULT CONTRARY TO PREVIOUS AWARD AGAINST DIFFERENT REINSURER

December 18, 2014 by Carlton Fields

On March 11, 2014, we reported on the First Circuit’s ruling in a contested arbitration between OneBeacon America Insurance Co. and certain of its reinsurers over reinsured asbestos claims. The reinsurers filed a declaratory relief action, seeking to preclude OneBeacon’s claims based on an adverse ruling that OneBeacon received in a previous arbitration against a different reinsurer. The First Circuit affirmed the order dismissing the action and compelling arbitration, holding that the preclusive effect of a prior arbitration award is an arbitrable issue and not an issue for the court to determine.

The arbitration has concluded and an award in favor of OneBeacon has been reached and confirmed by the court. The award found that the phrase “same causative agency” in the governing multiple line reinsurance treaty permitted OneBeacon to accumulate claims of multiple insureds and cede losses as a single occurrence, notwithstanding a contrary finding of the previous adverse arbitration award. The panel also determined the procedure by which OneBeacon must apply its self-insured retention across multiple treaty years. OneBeacon America Insurance Co. v. National Casualty Co., Case No. 1:14-cv-12570 (USDC D. Mass. Aug. 21, 2014).

This post written by Michael Wolgin.

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INSURANCE CARRIER BATTLES REINSURER FOR EXPENSES IN ADDITION TO LOSSES

December 15, 2014 by Carlton Fields

On December 4, 2014, the Second Circuit addressed whether a facultative reinsurance certificate (“certificate”) covering an umbrella policy obligates a reinsurer to indemnify expense payments in addition to losses. The Court found the certificate ambiguous as to whether the reinsurer’s reimbursement liability included expense payments and consequently remanded and vacated the instant action back to the Northern District of New York.

Utica Mutual Insurance Company (“Utica”) issued an umbrella policy to Goulds Pumps Inc. (“Goulds”), exposing the carrier to significant payment obligations stemming from asbestos claims against Goulds. As reinsurer, Munich Reinsurance America, Inc. (“Munich”) paid out $5 million dollars, the limit under the certificate. Utica filed suit for additional unpaid and future expense payments associated with the Goulds’ policy. The trial court granted summary judgment for Munich reasoning that the certificate’s $5 million limit of liability applied to expenses and therefore Munich’s obligation for reimbursement had been met.

Distinguishing prior case law that found certificates “unambiguously expense-inclusive,” the Second Circuit found this certificate ambiguous as to expense-inclusion. They reasoned that Munich’s obligations to Utica for “losses or damages” to the liability limit on the certificate could be construed as specifically excluding expenses. The Court also noted that “settlement payments,” while not expressly included in the liability limit, were considered part of the calculation. The Court remanded the action to allow the trial court to interpret the certificate’s inclusion or exclusion of expenses. Utica Mut. Ins. Co. v. Munich Reins. Am. Inc., No. 13-4170-cv (2d Cir. Dec. 4, 2014).

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

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