Reinsurance Claims

“Buyer’s Remorse,” or Did the Nature of the Reinsurance Commissions Really Violate Florida Law?

December 3, 2013 by Carlton Fields

A Florida circuit court recently denied defendants’ motions for summary judgment in a suit filed by a Costa Rican insurer against two reinsurance brokers – one from the United States and one from England – alleging breach of contract and a host of claims involving negligence, breach of fiduciary duty, and misrepresentation. The crux of the plaintiff’s complaint is that the brokers’ commission earnings were unreasonable, excessive, and undisclosed because a less-than-$200,000 flat commission bid for the brokerage business during an initial bidding stage (which was allegedly terminated) grew to nearly $2 million in a subsequent bidding stage wherein the bid quoted only a total price of over $12 million, without separate premium and brokerage commission line items. The defendants’ motions asserted that Florida law does not impose limits on broker compensation, particularly in arms-length transactions between sophisticated parties, and does not mandate voluntary disclosure of brokers’ earnings, lest a contract requires it. In addition, the insurer chose to award its business as it did because the defendants presented the best price, terms, and other conditions of the reinsurance. Since the Order does not provide any analysis or reasons for the ruling, although it may have given some indication during argument, the Order does not indicate whether the Court denied the motion due to the presence of disputed issues of material fact or because of a disagreement with the legal arguments made by the movants. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33653 CA 04 (Fla. Cir. Ct. Oct. 7, 2013).

This post written by Kyle Whitehead.

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ANOTHER ASBESTOS REINSURANCE SETTLEMENT

November 14, 2013 by Carlton Fields

A settlement in principle was reached in Century Indemnity Company v. Global Reinsurance Corporation of America, a breach of contract case involving the nonpayment by Global Reinsurance of its portion of an asbestos exposure-related loss incurred by Century under two umbrella liability policies. Global had an uphill battle because the facultative reinsurance agreements contained a follow-the-fortunes provision, obligating Global to follow all loss settlements made by Century, provided that such settlements are within the terms and conditions of both the original policies and the reinsurance certificates. Century Indemnity Co. v. Global Reinsurance Corp. of Am., Case No. 13-CV-797 (KBF) (S.D.N.Y. Aug. 26, 2013).

This post written by Kyle Whitehead.

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RISK OF UMPIRE BIAS HELD AN INSUFFICIENT BASIS TO ENJOIN REINSURANCE ARBITRATION

November 5, 2013 by Carlton Fields

In an ongoing reinsurance arbitration between Allstate Insurance Company and OneBeacon American Insurance Company, Allstate unsuccessfully sought to enjoin the arbitration because OneBeacon’s position statement informed the umpire of OneBeacon’s selection of him as umpire. Allstate alleged that this submission (1) violated the arbitration agreement’s umpire selection protocol, which, Allstate argued, implicitly prohibited communications that threatened umpire impartiality, and (2) violated the “reinsurance industry’s custom and practice.” Allstate could not make the requisite showing of “likelihood of success on the merits” to obtain injunctive relief because it misinterpreted the selection protocol, and because “[p]reaward challenges on the basis of bias” are not permitted. Allstate also failed to show “irreparable harm,” given Allstate’s ability to challenge the final award after the arbitration was completed. Concern over potential “lack of neutrality” did not tip the balance of equities in Allstate’s favor, nor did a “technical skirmish over arbitration procedure between two reinsurance companies” rank high in terms of the public’s interest. Allstate Insurance Co. v. OneBeacon American Insurance Co., Case No. 1:13-cv-12368 (USDC D. Mass. Oct. 8, 2013).

This post written by Michael Wolgin.

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REINSURER NOT OBLIGATED TO COVER D&O CEDANT

November 4, 2013 by Carlton Fields

An insurance company that provided directors and officers liability to a lottery corporation sought coverage from its reinsurer for an employment litigation judgment entered against the lottery corporation. The reinsurance certificate stated that coverage would not be provided until the insurer’s losses totaled $5 million. The final judgment at issue was $6.7 million, which included $2.4 million in interest. Thus, the issue was whether the $2.4 million in interest was considered a “loss,” which would trigger reinsurance coverage with a final judgment of $6.7 million, or “interest on a judgment,” which would result in a final of judgment of $4.3 million which falls just shy of the $5 million threshold. The court determined that the carefully worded conditions in the reinsurance certificate made it clear that the reinsurer’s obligation to cover a portion of “interest on any judgment” was separate and apart from its obligation to cover losses and granted summary judgment in favor of the reinsurer. Seneca Insurance Co. v. Everest Reinsurance Co., Case No. 11-7846 (USDC S.D.N.Y. Oct. 17, 2013).

This post written by Abigail Kortz.

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POTENTIAL ARBITRATION AWARD SETOFF NOT JUSTIFICATION FOR A STAY

October 30, 2013 by Carlton Fields

Absent a “pressing need,” an arbitration action and related court case in one federal district do not justify an indefinite stay of a court case in a different federal district when different reinsurance contracts and different merits are at issue, regardless of whether the parties are the same. In Employers Insurance Company of Wausau v. OneBeacon Insurance Company, a garden-variety breach of contract claim, the Western District of Wisconsin recently entertained, and subsequently rejected, OneBeacon’s motion to stay arguments (1) that a Massachusetts arbitration award could eventually result in a setoff against an expected Wisconsin judgment and (2) that Employers Insurance Company of Wausau’s dawdling conduct in arbitration could be positively impacted by an indefinite stay in court. Holding that a potential setoff is not a “pressing need” and that concerns regarding party conduct should be raised in the forum in which that conduct occurs, the court ultimately granted summary judgment to Employers because OneBeacon had not disputed its liability under the Wisconsin contracts. It also awarded Employers prejudgment interest pursuant to Wisconsin law. Employers Insurance Co. of Wausau v. OneBeacon Insurance Co., Case No. 13-cv-85-bbc (W.D. Wis. July 8, 2013).

This post written by Kyle Whitehead.

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