Reinsurance Claims

PARTIES AGREE TO DISMISSAL WITH PREJUDICE OF REINSURANCE DISPUTE PENDING IN ILLINOIS FEDERAL COURT

May 7, 2014 by Carlton Fields

A dispute over two facultative reinsurance certificates pending in the United States District Court for the Northern District of Illinois was voluntarily dismissed on March 26, 2014. The parties, R&Q Reinsurance Company, as plaintiff, and Sentry Insurance, as defendant, stipulated to the dismissal of that case with prejudice. We previously reported on this case in a February 22, 2013 post, discussing a December 12, 2012 ruling on this matter ordering R&Q to provide copies of the certificates at issue. R&Q Reinsurance Co. v. Sentry Insurance, Case No. 12 C 9788 (USDC N.D. Ill. Mar. 26, 2014).

This post written by Leonor Lagomasino.

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BANKRUPTCY TRUSTEE’S ACTION FOR CROP REINSURANCE PROCEEDS IS TIME-BARRED

May 6, 2014 by Carlton Fields

A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).

COURT AFFIRMS INTERPRETATION OF AVIATION REINSURANCE CONTRACTS TRIGGERED IN THE WAKE OF 9/11

May 5, 2014 by Carlton Fields

In a summary order, the Second Circuit Court of Appeals has affirmed a federal district court’s interpretation of certain reinsurance contracts in favor of AIOI Nissay Dowa Insurance Company. The central issue in dispute was the scope of AIOI Nissay’s obligations to a group of insurers under contracts that those insurers had purchased from a reinsurance pool, of which AIOI Nissay was a member. The contracts were triggered in the wake of the aviation losses associated with the September 11, 2001 terrorist attacks. The Second Circuit rejected all of the arguments raised by the group of insurers on appeal, recognizing that the primary objective in contract interpretation is to give effect to the intent of the parties. While short on facts, the summary order stated that the “more natural reading” of contractual terms controlled, which was the interpretation advanced by AIOI Nissay, and the court therefore affirmed judgment in favor of AIOI Nissay on its breach of contract claim. AIOI Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., No. 13-2689 (2d Cir. Apr. 22, 2014).

INSURER MUST FOLLOW THE SETTLEMENTS, NOTWITHSTANDING CLAUSE PURPORTING TO LIMIT SETTLEMENT TO SETTLING INSURERS ONLY

April 29, 2014 by Carlton Fields

Interest holders in a vessel insured a 50% interest with certain Lloyd’s Syndicates, and a 30% interest with Aigaion Insurance Company. The terms of the Aigaion policy contained a clause reading, “Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments” (the “Follow Clause”). When the Syndicates later settled a claim after the vessel was damaged, a dispute between the insureds and Aigaion arose over whether Aigaion was required to follow the settlement. Aigaion contended that it need not follow the settlement due to the following provision in the settlement agreement between the Syndicates and the insureds (the “Settlement Clause”): “The settlement and release pursuant to the terms of this Agreement is made by each Underwriter for their respective participations in the Policy only…and do not bind any other insurer providing hull and machinery cover in respect of the [vessel].” The insureds disagreed that this provision was enforceable by Aigaion, and argued that Aigaion was obligated to follow the Syndicates’ settlement under the Follow Clause.

The court interpreted the plain meaning of the Aigaion policy and ruled that the Follow Clause did indeed require Aigaion to follow any settlement made by the Syndicates. The court rejected Aigaion’s argument that the clause’s purpose was only to make the Syndicates Aigaion’s agent to negotiate settlement of disputed claims. The court also found that, although it interpreted the Settlement Clause as an attempt to exclude other parties from the settlement between the insureds and the Syndicates, Aigaion was not an intended third-party beneficiary of that agreement, Aigaion was bound under the Follow Clause, and Aigaion therefore could not rely on the Settlement Clause to avoid liability to the insureds. San Evans Maritime Inc., et al. v. Aigaion Insurance Co. SA, [2014] EWHC 163 (U.K. High Court of Justice, Comm. Div. Feb. 4, 2014).

This post written by Michael Wolgin.

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LACK OF PROPER NOTICE TO REINSURER BARS CLAIM FOR PAYMENT UNDER FACULTATIVE REINSURANCE CONTRACTS

April 23, 2014 by Carlton Fields

A federal district court granted summary judgment in favor of a reinsurer who had been sued by a ceding company for failure to pay under two facultative reinsurance certificates that reinsured two excess liability policies from the 1980s. The certificates required the ceding insurer to promptly notify the reinsurer of “any event or development” that might result in a claim against the reinsurer. The reinsurer had not been provided with notice of millions of dollars worth of asbestos claims that had developed over several decades. The only correspondence between the ceding insurer and the reinsurer reflected a small potential exposure in the early 1980s that did not indicate the possibility that involvement of the certificates might follow. In the early 2000s, the insured was facing tens of thousands of asbestos bodily injury claims, and the ceding insurer engaged in lengthy and complex settlement negotiations with its insured without providing notice to the reinsurer. Ruling in the reinsurer’s favor, the court looked to the purpose of the notice provision – to provide the reinsurer with an opportunity to associate in the control and settlement of claims, as well as to ensure that the reinsurer has sufficient information at its disposal to determine whether to avail itself of that opportunity. The court also concluded that the ceding insurer’s failure to provide notice to the reinsurer was a breach of its duty of utmost good faith. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. 09-10607 (USDC S.D.N.Y Mar. 31, 2014).

This post written by Catherine Acree.

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