Reinsurance Claims

SECOND CIRCUIT FINDS THAT LATE NOTICE BARS CLAIMS AGAINST REINSURER

September 8, 2014 by Carlton Fields

The Court of Appeals for the Second Circuit affirmed a lower court’s ruling in favor of TIG Insurance Company, finding that AIU Insurance Company’s belated notice of claim to TIG under nine certificates of facultative reinsurance issued by TIG barred AIU’s claim. AIU submitted its claim almost four years after it settled with its insured regarding numerous asbestos-related lawsuits. Central to the Second Circuit’s ruling was its conclusion that, under New York’s choice of law rules, the substantive law of Illinois – and not New York – applied to the question as to the legal effect of the late notice. Under Illinois law, TIG was not required to prove it was prejudiced resulting from AIU’s late notice. AIU Insurance Co. v. TIG Insurance Co., No. 13-1580-cv (2d Cir. Aug. 27, 2014).

This post written by Leonor Lagomasino.

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ENGLISH APPELLATE COURT DISMISSES APPEAL OF JUDGMENT DECLARING NO LIABILITY UNDER A CARGO LIABILITY REINSURANCE POLICY

September 3, 2014 by Carlton Fields

A judgment found that certain Lloyd’s reinsurers were not liable to cover the destruction of cargo on board a vessel that capsized in the Philippines during a Typhoon. The trial court relied on a typhoon warranty clause contained in both the reinsurance policy and the underlying insurance policy, which deemed the policy void if a vessel sailed out of port (1) “when there is a typhoon or storm warning at that port”; or (2) when the destination or intended route “may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.” The trial court had found that there was a typhoon or storm warning at the port of sailing, and that the vessel’s route was within the possible path of the typhoon or storm announced at the port.

On appeal, the cedent argued that the first condition of the typhoon warranty clause was not breached under a four-step analysis: (1) the reinsurance policy contained a follow the settlements clause, (2) which required the reinsurance coverage to be interpreted like the underlying insurance policy, (3) the insurance policy should be construed in accordance with what an experienced insured would have understood the storm notice to mean, and (4) in this case, the storm notice would not be understood by an experienced insured as a sufficient warning against embarking. The court rejected this argument, holding that the clause must be understood according to only its plain meaning, both with respect to the clause in the insurance policy and the parallel clause in the reinsurance policy, and here it was undisputed that a storm warning had been issued. The court also rejected the cedent’s contention that the intended path of the vessel would not have crossed the possible path of the typhoon, finding that it was proper for the trial court to determine that the intended route was within the typhoon’s path. Amlin Corporate Member Ltd. v. Oriental Assurance Corp., [2014] EWCA Civ 1135 (Royal Courts of Justice, July 8, 2014).

This post written by Michael Wolgin.

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COURT GRANTS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS IN RESPA CLASS ACTION REGARDING PRIVATE MORTGAGE INSURANCE

August 28, 2014 by Carlton Fields

We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. Defendants in that case filed a motion for partial judgment on the pleadings asserting that plaintiff-intervenor, and all others similarly situated, failed to plead sufficient facts to state a claim for application of equitable tolling and/or equitable estoppel to the one-year statute of limitations for alleged violations of the Act. The court granted defendants’ motion for equitable tolling and equitable estoppel/fraudulent concealment pleadings. The loan document disclosures adequately placed plaintiff on notice of her claim and that she failed to allege extraordinary circumstances that prevented her from timely filing. In particular, the disclosures explained the requirement of mortgage insurance, the purpose of the mortgage insurance, the borrower’s rights and responsibilities under mortgage insurance, and the potential occurrence of captive insurance. The court also found that plaintiff failed to plead an act of concealment separate and apart from an underlying RESPA claim. The court, however, is allowing plaintiff one opportunity to file and serve an amended complaint to cure deficiencies within 20 days from date of the court’s order. Munoz v. PHH Corp., No. 1:08-CV-0759 (USDC E.D. Cal. Aug. 11, 2014).

This post written by Kelly A. Cruz-Brown.

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REINSURER’S EXPOSURE CAPPED AT THE CERTIFICATE LIMITS: NO OBLIGATION TO PAY DEFENSE EXPENSES ABOVE THE LIMITS

August 25, 2014 by Carlton Fields

A New York federal court recently was presented with a reinsurance dispute about the amount a reinsurer was required to pay under certain reinsurance Certificates. The issue was whether the reinsurer’s obligation was capped at the stated limit, or whether the reinsurer was also liable for defense costs in excess of the limit that the direct insurer had reimbursed. The court ruled that the “Certificate Limits” stated in the “Reinsurance Accepted” section of the Certificates capped the maximum amount that the reinsurer could be obligated to pay for combined loss and expenses.

The court rejected the direct insurer’s argument that the reinsurer should have to pay additional sums for defense costs above the amount of the “Certificate Limits,” ruling that “the unambiguous language in the ‘Reinsurance Accepted’ sections of the Certificates does not differentiate between reinsurance accepted for loss versus reinsurance accepted for expenses, but simply provides a total cap on liability. If the parties intended to exclude expenses from the total liability cap, they could have made that clear in the language of the Certificates.” Under New York law, for costs to be excluded from the liability cap in a reinsurance certificate, language in the certificate must expressly state that such costs were excluded from the indemnification limit. Because nothing in the Certificates that expenses were to be excluded from the Certificate Limits, the court entered summary judgment in favor of the reinsurer. Global Reinsurance Corp. of America v. Century Indemnity Co., Case No. 1:13-CV-6577 (USDC S.D. N.Y. Aug. 15, 2014).

This post written by Catherine Acree.

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CLASS ACTION ALLEGING MORTGAGE KICKBACK CAPTIVE REINSURANCE SURVIVES DISMISSAL PENDING DISCOVERY ON TOLLING OF LIMITATIONS

August 21, 2014 by Carlton Fields

A court denied dismissal of a putative class action involving claims against Suntrust Bank subsidiaries and a captive reinsurer for an alleged illegal kickback scheme arising out of captive reinsurance covering Suntrust’s lender-placed insurance. The plaintiffs alleged violations of the Real Estate Settlement Procedures Act, unjust enrichment, and unfair trade practices. The defendants attempted to dismiss the case on the basis of the expiration of the statutes of limitations, but the court denied dismissal, finding that it could not “conclusively determine at [that] time that the claims contained with” the complaint could survive due to tolling. The court permitted discovery on that issue, as well as on the issue of whether plaintiffs’ could “pierce the corporate veil” and sue certain Suntrust subsidiaries. The court did dismiss one plaintiff’s unjust enrichment claim against Suntrust due to the existence of an express insurance agreement between those parties. Finally, the court found that a co-obligor on one of the plaintiff’s loans must be joined to the case as an indispensible party in order to avoid the potential for duplicative or inconsistent judgments. Thurmond, et al. v. Suntrust Banks, Inc., et al., Case No. 11-1352 (USDC E.D. Pa. June 26, 2014.

This post written by Michael Wolgin.

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