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Reinsurance Claims

COURT ANALYZES MEANING OF “TREATY REINSURANCE” IN DENYING DISMISSAL OF REINSURER’S AFFIRMATIVE DEFENSES

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Insurers sued their reinsurer for breach of certain facultative reinsurance certificates when the reinsurer ceased paying claims made for underlying losses under excess liability coverage for asbestos-related personal injuries. The reinsurer defended its decision to stop paying claims by contending that the insurers violated the reinsurance certificates when they transferred losses to another company; warranties in the reinsurance certificates provided that the insurers would “retain for [their] own account, subject to treaty reinsurance only, if any, the amount specified on the face of” the certificates. The insurers moved to dismiss this defense, arguing that they did not breach the certificates because their transfer of liability constituted a purchase of “treaty reinsurance,” and thus met the stated exception in the warranties. The court rejected the insurers’ argument, holding that “treaty reinsurance is obtained in advance of actual coverage,” and here, it was undisputed that the transfer took place “some 30 years” after the insurer wrote the policies and after the losses occurred. The court also rejected a number of other arguments made by the insurers with respect to other defenses, with two exceptions: (1) that the insurers were correct that the defense of failure to settle promptly was without merit in light of the reinsurer’s duty to follow the settlements of the insurers, and (2) that the reinsurer’s uberrima fides defense was duplicative of the reinsurer’s breach of contract defense, and was therefore due to be dismissed. The court also denied a motion for summary judgment filed by one insurer, which attempted to argue that the reinsurer was liable as a matter of law under the doctrines of waiver and account stated. Granite State Insurance Co. v. Transatlantic Reinsurance Co., Case No. 652506/2012 (N.Y. Sup. Ct. Dec. 23, 2013).

This post written by Michael Wolgin.

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THE SCOPE OF DISCOVERY LIMITATIONS MAY AFFECT THE AVAILABILITY OF STAYS

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In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

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REINSURANCE “FOLLOW THE SETTLEMENTS” DISPUTE REFERRED TO MANDATORY MEDIATION

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Utica Mutual’s reinsurance lawsuit with Clearwater Insurance has been ordered to mediation. The reinsured (Utica) asserted claims for breach of contract and declaratory relief, alleging that the reinsurer (Clearwater) breached and is expected to continue breaching certain facultative reinsurance contracts covering a share of losses incurred by the reinsured under umbrella liability insurance policies. The reinsured contended that the reinsurer refused to pay a portion of asbestos claims arising out of a settlement the reinsured entered into with the underlying insured. The case was referred to mandatory confidential mediation on January 8, 2014, and is required to be completed within four months. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Sept. 20, 2013 & Jan. 8, 2014) (Complaint & Order).

This post written by Michael Wolgin.

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COURT AGREES TO PERMANENTLY SEAL CONFIDENTIAL PORTIONS OF MEMORANDA AND DEPOSITION TESTIMONY IN REINSURANCE DISPUTE

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In a reinsurance dispute, a court agreed to seal portions of two memoranda of law and exhibits containing excerpts of deposition testimony of the reinsurer’s vice president. The court had previously provisionally sealed the material pursuant to the parties’ stipulated protective order, subject to the reinsurer’s submission of the particular lines and/or passages of testimony to be sealed and the particular grounds for such sealing. After the reinsurer submitted this information, the court agreed to maintain the sealing. Regarding the relevant portions of the memoranda, the court found that they contain confidential business information, and that sealing was appropriate in light of the fact that the cedent had also filed redacted versions of both documents. The court also agreed to permanently seal the deposition excerpts because the court found that they “contain sensitive and confidential business information, disclosure of which could materially affect [the reinsurer’s] ability to compete effectively as a business,” and because the request was narrowly tailored. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case No. 3:11-cv-1209 (USDC D. Conn. Nov. 26, 2013).

This post written by Michael Wolgin.

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REINSURER OFF THE HOOK FOR LITIGATION DEFENSE COSTS

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Public Reimbursement Management of Florida (“PRM”) sued its reinsurer One Beacon Insurance Co. (“OneBeacon”) for reimbursement of defense costs PRM incurred while defending an insured involved in a construction contract dispute. The primary issue was whether the underlying construction contract dispute fell within PRM’s duty to defend and whether OneBeacon was obligated to reimburse PRM. The Florida district court granted OneBeacon’s motion to dismiss with prejudice, concluding that (1) PRM did not have a duty to defend because the construction dispute fell within an exclusion in the PRM insurance policy for intentional breaches of contract, and (2) the theory of equitable estoppel did not apply to create insurance coverage between OneBeacon and PRM because OneBeacon made it clear in its correspondence with PRM that it did not believe PRM had a duty to defend the construction contract dispute. Public Risk Management of Florida v. One Beacon Insurance Co., Case No. 13-1067 (M.D. Fla. Oct. 18, 2013).

This post written by Abigail Kortz.

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