Reinsurance Claims

DEFENDANTS GRANTED LIMITATIONS-BASED SUMMARY JUDGMENT IN CAPTIVE REINSURANCE CLASS ACTION

July 23, 2014 by Carlton Fields

A putative class of mortgage consumers sued Flagstar Bank and its captive reinsurer alleging that they engaged in an illegal “kickback” scheme with private mortgage insurers, which scheme artificially inflated the price of such insurance for the plaintiffs, in violation of the Real Estate Settlement Procedures Act (“RESPA”). The defendants claimed plaintiffs failed to file suit within RESPA’s one year statute of limitations. Plaintiffs claimed the statute was equitably tolled because defendants actively concealed the “scheme.”

After declining to grant a motion to dismiss on the pleadings, and allowing the parties to make an adequate factual record on the statute of limitation issue for summary judgment, the court granted the defendants’ summary judgment motion. The statute ran “from the date of the occurrence of the violation,” which commences upon the closing of the loan, and that each of the plaintiffs’ claims were filed in excess of a year from closing. The court rejected the plaintiffs’ equitable tolling argument, noting that in RESPA cases, “silence is insufficient to toll the statute of limitations; the defendant must have performed an independent act of concealment upon which the plaintiff justifiably relied.” The record included no evidence of active concealment on the defendants’ part. Hill v. Flagstar Bank, Case No. 12-2770 (USDC E.D. Pa. June 26, 2014).

This post written by John Pitblado.

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COURT REFUSES TO COMPEL NONSIGNATORY TO JOIN REINSURANCE ARBITRATION

July 22, 2014 by Carlton Fields

On April 8, 2014, we reported on National Indemnity Company’s (“NICO”) attempt in a Nebraska federal district court to enjoin Transatlantic Reinsurance Company from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York.

The Illinois district court recently refused to compel arbitration against NICO, finding that NICO was a not a signatory to the underlying reinsurance agreement containing the arbitration agreement between Transatlantic Re and the cedent, Continental Insurance Company. The court also found that the language of the arbitration clause was not broad enough to include nonsignatories, and further found that NICO, by its conduct, never assumed the obligation to arbitrate. The court also interpreted the agreements between Continental and NICO and determined that the Transatlantic Re’s arbitration provisions were never incorporated in those agreements by reference. Finally, the court held that NICO was not estopped from disclaiming an obligation to arbitrate because it never asserted any rights of its own for its direct benefit under Transatlantic Re’s reinsurance agreement, notwithstanding the fact that NICO did derive certain indirect benefits. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 1:14-cv-01535 (USDC N.D. Ill. June 24, 2014).

This post written by Michael Wolgin.

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U.K. COURT DISMISSES RETROCESSIONAIRE’S DEFENSE IN “FOLLOW THE SETTLEMENTS” DISPUTE

July 21, 2014 by Carlton Fields

A British retrocessionaire sued its retroceding reinsurer in a coverage dispute regarding the “follow the settlements” doctrine. The primary insurer at issue, ACE INA Overseas Insurance Company, insured Tesco, which operated 212 commercial premises in Thailand that were destroyed in a flood in late 2011. The loss was initially estimated by adjusters to result in £90-100 million ultimate loss payout. Tesco initially demanded and made claim for £125,300,000 in losses. After interposing coverage defenses, ACE ultimately settled the claim for £82,400,000.

Tokio Marine Europe Insurance participated in an excess of loss reinsurance treaty that was triggered by the claim, and had retroceded a portion of that risk to Novae Corporate Underwriting, Ltd. Novae challenged whether it was bound by the “follow the settlements” clause, which typically precludes challenges to the cedent’s settlement on reasonableness grounds. It refused Tokio’s claim and Tokio brought suit. Novae interposed a legal defense that the “follow the settlements” clause is understood to import both a “reasonableness” of the settlement component, and a “professionalism” in adjusting component. Novae’s defense was based on the latter. It alleged ACE had failed to have the underlying coverage issues properly vetted under Thai law. Tokio moved for summary judgment on the defense. The Court granted Tokio’s motion, finding that “notwithstanding that ACE did not further investigate the coverage afforded by the Local Policy, including the scope for deductibles, and did not delve more deeply into the question whether the high rain fall was the sole source or original cause of Tesco’s loss before concluding the settlement, Novae’s defence that ACE, in failing to take these steps, failed to act properly or in a businesslike manner has no prospect of success.” Tokio Marine Europe Insurance Ltd v. Novae Corporate Underwriting Ltd., [2014] EWHC 2105 (U.K..High Ct. Justice, Comm. Div., July 2, 2014)

This post written by John Pitblado.

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COURT DENIES RENEWED ATTEMPT TO DISMISS DEFENSES IN REINSURANCE DISPUTE ASSOCIATED WITH ASBESTOS-RELATED LIABILITIES

July 15, 2014 by Carlton Fields

In this case, plaintiffs sought leave to renew their motion to dismiss certain retention-related and assignment affirmative defenses based on provisions of certain Loss Portfolio Transfer (LPT) agreements, and to re-argue the motion to dismiss based on their contention that the court: (1) overlooked arguments raised by the parties; (2) determined issues sua sponte without factual and legal support; and (3) misapplied precedent to the undisputed facts at issue. The court denied plaintiffs’ motions. The court determined that plaintiffs had failed to refute defendant’s assertion that the LPT may have transferred all of the plaintiffs’ relevant interests and constituted an impermissible assignment because plaintiffs failed to provide documentation showing that the cap in the LPT agreements could be exceeded. The court also decided that plaintiffs failed to meet their burden of showing that the defendant’s retention defenses were without merit as a matter of law. The court determined that the LPT did not satisfy the definition of treaty insurance because it was not obtained in advance of coverage. Furthermore, the court determined that the parties’ statements concerning the extent of plaintiffs’ assignment of their interests in the insurance certificates in question were not fatal to defendant’s assignment defenses as a whole. Granite State Ins. Co. v. Transatlantic Reinsurance Co., Index No. 652506/2012 (Sup. Ct of N.Y., County of N.Y. June 18, 2014).

This post written by Kelly A. Cruz-Brown.

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FLORIDA JURY REJECTS FOREIGN INSURER’S CLAIMS

July 9, 2014 by Carlton Fields

A Florida jury rejected all claims made by Instituto Nacional de Seguros (“INS”), a Costa Rican insurer, against two reinsurance brokers, Hemispheric Reinsurance Group, LLC and Howden Insurance Brokers, Ltd. As previously reported, INS sued the reinsurance brokers following INS’ award of its reinsurance business under a “beauty contest” bid process which did not separately disclose the $2 million reinsurance brokers’ commissions and which only quoted a total bid price of $12 million. The jury rejected each of INS’ claims of breach of contract, breach of implied contract, and breach of fiduciary duty. The jury also found in favor of Hemispheric on its counterclaim for breach of contract, awarding that reinsurance broker $771,855.31. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33-653 CA 04 (Fla. Cir. Ct. Mar. 17, 2009).

This post written by Leonor Lagomasino.

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