Reinsurance Claims

COURT DISMISSES CLAIM AGAINST AIG FOR BREACH OF REINSURNACE CONTRACTS

March 31, 2014 by Carlton Fields

Reinsurer Transatlantic Reinsurance Company sued AIG and certain of its subsidiaries for a declaration that they breached various provisions of reinsurance certificates by transferring their risk under asbestos liability policies to another insurer. The court dismissed the claim against AIG, holding that it was undisputed that AIG itself was not a signatory to the reinsurance certificates at issue, and that the complaint failed to allege that AIG, as an “alter ego,” dominated and controlled the actions of the signatory AIG subsidiaries. The court was not persuaded into finding AIG liable by the contention that AIG was the party responsible for making the decision to transfer the insurance risk. The court explained that “TransRe’s allegations that AIG’s ‘de-risking’ strategy interfered with the Insureds’ abilities to meet their obligations under their contracts with TransRe do not permit this court to find that AIG has made a sham of the corporate formalities of the Insurers, as required to establish alter-ego liability.” Transatlantic Reinsurance Co. v. American International Group, Inc., et al., Case No. 152812/2013 (N.Y. Sup. Ct. Feb. 7, 2014).

This post written by Michael Wolgin.

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DISTRICT COURT DECLINES TO CONSOLIDATE DISPUTES ARISING OUT OF TWO REINSURANCE CONTRACTS

March 25, 2014 by Carlton Fields

Plaintiff Georgia Casualty & Surety Company entered into two reinsurance contracts with Defendant Excalibur Reinsurance Corporation, formerly known as PMA Capital Insurance Company. Both reinsurance contracts contained arbitration clauses. The First Excess Reinsurance Contract contained a choice of law provision but no forum selection clause, and the Second Excess Reinsurance Contract contained a forum selection clause but no choice of law provision. In 2006, Douglas Asphalt Company sued Applied Technical Services, Inc., a Georgia Casualty insured. Applied was found liable. While that judgment was on appeal, a high-low agreement was entered, which guaranteed that Georgia Casualty would pay Applied no less than $3 million and no more than $12 million. Thereafter, the Eleventh Circuit vacated the judgment against Applied. Georgia Casualty claimed that it was owed $1,418,708 under the two reinsurance contracts. In response, Excalibur argued that Georgia Casualty promised to seek malpractice damages against defense counsel for Applied and that this lawsuit would be a prerequisite to determining Excalibur’s liability. Additionally, Excalibur claimed that it did not consent to the high-low agreement. Georgia Casualty demanded arbitration of Excalibur’s alleged breach of the reinsurance contracts. Excalibur demanded arbitration on a counterclaim for unpaid premiums. Excalibur refused to consolidate the arbitration of all claims under both reinsurance contracts and requested that the arbitrators stay the arbitration pending the resolution of the malpractice claims. Georgia Casualty claimed this was a delay tactic and sued Excalibur.

The court found that if the Federal Arbitration Act or a state arbitration act lacking a statutory consolidation provision applied, then a court may consolidate arbitration only if the contracts expressly permit. Alternatively, if a state arbitration act that allows courts to impose consolidation regardless of the contracts’ terms governs the contracts, then a court may order consolidation where the statutory requirements are satisfied. Because the Second Excess Reinsurance Contract lacked a choice of law provision, it was governed by the FAA. Thus, the court could not order consolidation. Because the court could not order consolidation, it also could not designate a forum for that consolidated arbitration. With respect to a potential stay, the court believed it had to tread carefully to not violate the principle that, in determining whether a dispute is arbitrable, a court should not rule on the merits of the underlying claims. The court could not order the arbitrators not to stay the arbitration pending any potential malpractice recovery. The court also could not delve into the contract to determine if the contract required Excalibur to post security (in response to Georgia Casualty’s claim that Excalibur was delaying the proceedings). Georgia Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 1:13-CV-00456-JEC (USDC N.D. Ga. Mar. 13, 2014).

ONLY ARBITRATOR, NOT FEDERAL COURT, CAN DETERMINE PRECLUSIVE EFFECT OF CONFIRMED ARBITRATION AWARD

March 11, 2014 by Carlton Fields

In a case of first impression in the First Circuit, Employers Insurance Company of Wausau and National Casualty Company (“Wausau”), two of three reinsurers under identical agreements with OneBeacon American Insurance Co. (“OneBeacon”), petitioned a federal court for a declaration that a prior arbitration award between One Beacon and the third reinsurer had preclusive effect over OneBeacon’s subsequent demand for arbitration against Wausau. The district court dismissed the action, agreeing with OneBeacon that a determination of the preclusive effect of the arbitration award itself was arbitrable. On appeal, Wausau argued that because the federal court confirmed the prior arbitration award, thus affording that award the same “force and effect” as any other federal court judgment pursuant 9 U.S.C. §13, then only the federal court could determine its preclusive effect. The First Circuit rejected this argument, noting that an arbitration award is distinct from the federal judgment confirming the award. Because a federal court’s review of an arbitration award does not include a review of the merits or legal basis of the award, which would be required in order to determine its preclusive effect, the First Circuit concluded that such a determination fell outside the purview of the federal court. Employers Insurance Company of Wausau and National Casualty Company v. OneBeacon American Insurance Co., et. al., Case No. 13-1913 (1st Cir. Feb. 26, 2014).

This post written by Leonor Lagomasino.

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CEDING REINSURER’S DISCLOSURE DEFICIENCIES INSUFFICIENT TO SUPPORT RETROCESSIONAIRE’S RESCISSION CLAIM

March 10, 2014 by Carlton Fields

A federal district court recently made findings of fact and conclusions of law following a nine-day bench trial upholding a ceding reinsurer’s right to receive certain payments from a retrocessionaire under two retrocession agreements, and rejecting the retrocessionaire’s counterclaim for rescission. The plaintiff, Munich Reinsurance America, Inc., was the ceding reinsurer who contended that its own reinsurer, the retrocessionaire defendant American National Insurance Company, failed to pay certain claims submitted. ANICO countered that the retrocession agreements should be rescinded due to material disclosure deficiencies during the underwriting process and improper claims-handling procedures. The parties also disagreed regarding the payment of certain claims based on the agreement’s wording.

With respect to the counterclaim for rescission, the court agreed with ANICO that Munich had failed to fully disclose information relating to Munich’s own evaluation of the primary insurer’s program (such as Munich’s internal calculations of its estimated loss ratios), but nevertheless concluded that the counterclaim failed because the deficiencies in reporting were not material. There was a lack of evidence that ANICO’s underwriters would have acted differently if the information about the primary insurer’s program had been disclosed. ANICO’s underwriter testified that she considered Munich’s internal calculations to be material to her underwriting process, but the court did not find the testimony to be credible, noting that the underwriting procedures and forms could be completed without such information. Moreover, ANICO had failed to show that it was objectively reasonable for Munich to have believed that its own loss ratios were material to the retrocessionaire’s underwriting. The court also rejected ANICO’s claim for rescission based on Munich’s alleged improper claims-handling practices, finding no willful violation of Munich’s obligations under the agreements and concluding that ANICO waived such a claim by failing to timely raise it. Finally, applying New York law, the court concluded that late notice of the claim did not relieve ANICO of its obligations to pay under the agreements. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (FLW) (USDC D.N.J. Feb. 27, 2014).

This post written by Catherine Acree.

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SILENCE IS GOLDEN: REINSURER ORDERED TO PAY PREJUDGMENT INTEREST TO INSURANCE COMPANY’S LIQUIDATOR ON AGREEMENT SILENT AS TO INTEREST

March 3, 2014 by Carlton Fields

A New Hampshire insurance company, Home Insurance Company (“Home”), was placed in liquidation in 2003. When its reinsurer Century Indemnity Company (“CIC”) tried to claim an $8 million setoff from amounts owed to Home, the liquidator balked and demanded the $8 million. A New Hampshire statute allows for the payment of prejudgment interest on an “action on a debt or account stated.” Finding no “meaningful distinction” between an “action on a debt” and the dispute at hand, the New Hampshire Supreme Court held that the statute applied and that the liquidator was entitled to prejudgment interest from the date CIC was informed the setoff would not be allowed. The court’s holding was also based on the fact that key agreements between CIC and Home were silent as to interest. Interpreting that contractual silence as to interest, the court declined to write into the contract a provision which made the interest statute inapplicable. In re Rehabilitation of The Home Insurance Company, No. 2012-623 (N.H. Feb. 13, 2014).

This post written by Abigail Kortz.

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