Reinsurance Claims

NEW YORK COURT PREDICTS THAT CALIFORNIA COURTS WOULD RECOGNIZE BAD FAITH EXCEPTION TO NOTICE-PREJUDICE RULE IN REINSURANCE CONTEXT

September 4, 2013 by Carlton Fields

The Insurance Company of the State of Pennsylvania sued its reinsurer Argonaut for liability arising from underlying asbestos litigation. ICSOP issued excess umbrella coverage to its insured, Kaiser, which manufactured products containing asbestos and faced underlying liability from lawsuits alleging asbestos-related injury. ICSOP obtained facultative reinsurance from Argonaut covering a percentage of the Kaiser excess policy. ICSOP received notice in 2001 that Kaiser had exhausted primary coverage, implicating the umbrella coverage. Kaiser ultimately brought ICSOP into a coverage lawsuit in California in 2002, which was litigated extensively until a 2009 mediation. However, ICSOP did not notify Argonaut until 2009 of the potential exposure under the facultative reinsurance, long after the court had made a number of rulings adverse to ICSOP. Argonaut denied ICSOP’s claim citing, among other things, untimely notice. ICSOP filed suit and the parties cross-moved for summary judgment on the late notice issue.

The Southern District of New York, applying California law, held that notice had been untimely, but that in order to be excused from paying claims Argonaut had to prove that it had been prejudiced by the late notice. Although it found that Argonaut had submitted sufficient evidence to raise a genuine issue of fact as to whether it had been prejudiced by the untimely notice, in anticipating evidentiary burdens at trial, the court considered whether Argonaut might be excused from showing prejudice if it demonstrated that ICSOP had acted in bad faith in providing untimely notice. The bad faith exception to the prejudice requirement has been adopted in New York and some other states. Acknowledging that California courts had not addressed whether to recognize the bad faith exception, the court predicted that California courts would recognize the exception. The court permitted Argonaut to take discovery on ICSOP’s alleged bad faith before proceeding to trial. Insurance Co. of the State of Pennsylvania v. Argonaut Insurance Co., No. 12 Civ. 6494 (USDC S.D.N.Y. Aug. 6, 2013).

This post written by John Pitblado.

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COURT APPLIES ENGLISH LAW TO RETROCESSION AGREEMENTS, FINDING SOME CLAIMS OWING AND OTHER CLAIMS BARRED BY STATUTE OF LIMITATION, WITH NO BREACH OF RETENTION WARRANTY

August 20, 2013 by Carlton Fields

U.S.-based insurers wrote risks and obtained reinsurance from a syndicate of reinsurers, for which Republic Insurance was a fronting company. The syndicate obtained retrocessional coverage in the London market through LMX quota share contracts which ran for a number of years. The retrocessional coverage required that the reinsured retain a certain percentage of the risk, which is not an unusual warranty. Claims statements were submitted and paid over several years without dispute, but due to a change in the administration of the retrocessional coverage claims statements were not submitted on the retrocession contracts for about ten years, even though claims had been paid on the underlying coverages. Billings then resumed and a dispute arose. On motions for summary judgment, the trial court held: (1) English law applied to the retrocession contracts since the place of negotiations, contracting, obligations, subject matter, and arbitration situs for the retrocession contracts were primarily focused on London (the fact that the underlying risks were located around the world made that factor of little significance); (2) claims arising during the ten year period of non-billing were barred by the six year English statute of limitation; and (3) later claims were not contested, and were established and owing on an account stated basis. The court found that there was no breach of the retention warranty, even though Republic did not retain the requisite amount of the risk, because the warranty provided for retention by the reinsured, which was defined to be the syndicate rather than the fronting company, and the syndicate did retain the warranted amount of risk. Republic Ins. Co. v. Banco de Seguros del Estado, Case No. 10-C-5039 (USDC N.D. Ill. July 26, 2013).

This post written by Rollie Goss.

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ARBITRATION COMPELLED IN TRENWICK REINSURANCE DISPUTE

August 19, 2013 by Carlton Fields

A federal district court granted a motion by reinsurer Unionamerica Insurance Company to dismiss a lawsuit seeking enjoin the allegedly “illegal arbitration” of a reinsurance dispute between Unionamerica and Trenwick American Reinsurance Corp.; the court instead granted Unionamerica’s motion to compel the arbitration. Unionamerica had demanded that Trenwick participate in arbitration concerning Unionamerica’s claim that Trenwick failed to make payments due under a reinsurance assumption agreement. In response, Trenwick filed a lawsuit seeking to enjoin such an arbitration.

The court rejected Trenwick’s suit and compelled arbitration. Although the court found it had jurisdiction to decide threshold questions of arbitrability, it also determined that Unionamerica – a nonsignatory to the reinsurance agreement – could invoke the arbitration provision because of “cut-through” language allowing Unionamerica to rely on all terms of the agreement. The court further determined that the parties’ claims and defenses fell within the arbitration provisions’ scope, which encompassed “any” dispute arising out of or in connection with the agreement. Finally, the court held that Trenwick’s statute of limitations defense was not justiciable in court, but would need to be decided by the arbitrator. Trenwick American Reinsurance Corp. v. Unionamerica Insurance Co., Case No. 3:13cv94 (USDC D. Conn. July 12, 2013).

This post written by Brian Perryman.

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APPEALS COURT HOLDS REINSURER’S UNLAWFUL AGREEMENTS AND CONSPIRACIES ARE NOT CLAIM HANDLING ACTIVITIES

July 23, 2013 by Carlton Fields

Wellpoint, Inc. sued a number of defendants, chief among them reinsurers Continental Casualty Company and Twin City Fire Insurance Company, for denying coverage for Wellpoint’s defense and settlement of a number of medical reimbursement-related lawsuits against it. Wellpoint’s predecessor, Anthem, was the subject of a class action lawsuit in 1999 that alleged that Anthem’s subsidiary failed to timely and adequately reimburse for medical services. Beginning in 2001, Anthem became the subject to a series of over ten additional state and federal lawsuits alleging improper denial of reimbursement and other wrongful acts, including alleged violations of the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Anthem sought coverage from its insurers for defense and settlement of the CUTPA and RICO claims, and the reinsurers counterclaimed seeking declaration that these claims were not covered by the reinsurance agreement. The trial court granted the reinsurers’ motion for summary judgment on the issue.

The reinsurance agreement at issue covered claims against the insured for a wrongful act “only if such Wrongful Act . . . occurs solely in the rendering of or failure to render Professional Services.” (emphasis added) The reinsurance agreement states that “Professional Services” are “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” In a divided panel vote, the appeals court affirmed the lower court’s summary judgment ruling for the reinsurers finding professional services only included those rendered in the conduct of Wellpoint’s handling or adjusting of claims submitted on the policies that it had issued. Coverage was available only if the alleged wrongful acts that gave rise to the underlying litigation happened “solely” in the conduct of Wellpoint’s claims handling and adjusting. The court held the alleged acts did not, interpreting “solely” to mean “exclusively” or “entirely.” Thus, the alleged violations of CUTPA and RICO were not claims handling activities and could not be covered. Wellpoint, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 49A05-1202-PL92 (Ind. Ct. App. June 19, 2013).

This post written by Brian Perryman.

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INSURER’S MOTION TO DISMISS DENIED DUE TO EQUITABLE TOLLING

June 6, 2013 by Carlton Fields

United Guaranty sought reconsideration of its motion to dismiss, which the Court denied in part due to Plaintiffs’ successful equitable tolling argument. United Guaranty again argued that equitable tolling was inappropriate as Plaintiffs “did not sufficiently allege that United Guaranty committed an act of fraudulent concealment that prevented him from discovering his claim during the limitation period.” Broome, one of the original plaintiffs, obtained a mortgage from First Horizon. First Horizon then selected United Guaranty to act as Broome’s insurer. United Guaranty in turn then selected FT Reinsurance, a subsidiary of First Horizon, to provide reinsurance. Broome alleges this relationship represented a “captive reinsurance scheme,” with referral payments used to circumvent the kickback prohibitions of the Real Estate Settlement Procedures Act (“RESPA.”)

Once again, the Court found that Broome’s allegations were sufficient under the doctrine of equitable tolling, and therefore, the one-year statute of limitations did not bar his claim. The Court noted that the extent of cooperation between the bank, insurer, and reinsurance companies, while currently unknown, are better left to discovery. The Court also denied United Guaranty’s motion to certify the February 27, 2013 Order for immediate appeal as the previous court order did not represent a controlling question of law. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. April 4, 2013).

This post written by Rollie Goss.

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