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Reinsurance Claims

BRITISH HIGH COURT FINDS FOR CEDENTS IN DISPUTE OVER COVERAGE FOR A DEFECTIVE KUWAITI OIL TANK

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A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

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REINSURER SETTLES CONFIDENTIALITY BREACH DISPUTE

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We previously reported on Utica Mutual Insurance Company and R & Q Reinsurance Company’s dispute arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. By Order dated February 27, 2013, the case is reported as settled, though none of the terms were disclosed. Utica Mut. Ins. Co. v. INA Reinsurance Co., No. 6:12-cv-194 (USDC N.D.N.Y. Feb. 27, 2013).

This post written by John Pitblado.

See our disclaimer.

NO REINSURANCE COVERAGE FOR CEDENT’S EXTRACONTRACTUAL LIABILITY FOR BAD FAITH

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USF&G settled underlying asbestos coverage claims for nearly a billion dollars, and looked to its reinsurers for coverage. The reinsurers, including American Re, challenged the claims, and USF&G brought suit. A New York state trial court granted USF&G summary judgment, and the intermediate appellate court affirmed. American Re petitioned to New York’s high court, arguing (1) summary judgment was improper because USF&G improperly calculated its share of the losses; and (2) USF&G improperly attempted to allocate the portion of the underlying settlements attributed to bad faith claims against USF&G to the reinsurers.

As to issue (1), the Court of Appeals affirmed, citing the “follow the settlements” doctrine. As to issue (2), the Court agreed with American Re that summary judgment was improper as to the issue of allocating a portion of the settlements that could reasonably have been attributed to extracontractual bad faith claims against USF&G. It remanded with instructions for the trial court to determine if, and by how much, it should reduce allocation to the reinsurers of any portion of the underlying settlements attributable to USF&G’s settlement of the underlying bad faith claims against it, for which the reinsurers are not responsible. United States Fidelity & Guaranty v. American Re-insurance Co., 2013 NY Slip Op 00784 (N.Y. Feb. 7, 2013).

This post written by John Pitblado.

See our disclaimer.

FOLLOW THE FORTUNES DOCTRINE APPLIED TO ALLOCATION OF SETTLEMENT AMOUNT

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In a dispute with reinsurers over coverage for the settlement of asbestos-related disputes valued at close to one billion dollars, in which the reinsurance contracts contained a follow the fortunes provision, the reinsurers challenged whether the doctrine applied to the cedent’s decisions in the allocation of the settlement amount, and, if applicable, it could be applied in a summary judgment context to the cedent’s allocation of the settlement. Modifying the decision of the lower court, the Court of Appeals held: (1) the follow the fortunes doctrine applied to the cedent’s allocation of the settlement amount; (2) the doctrine appropriately was applied to sustain the cedent’s allocation of the entire settlement amount to a single policy year, since the applicable trigger of coverage supported such an allocation; and (3) disputed issues of material fact prevented the application of the doctrine in a summary judgment context with respect to challenges to the allocation of the settlement amount to different policies and the value attributable to specific types of claims. United States Fidelity & Guaranty Company v. American Re-Insurance Company3, 2013 WL 451666 (N.Y. Ct. App. 2/7/2013).

This post written by Rollie Goss.

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ALLIED WORLD AND HANNOVER RE SETTLE DISPUTE OVER “FOLLOW THE SETTLEMENTS” BREACH CLAIM

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In July 2012, Allied World Assurance Company brought suit against its reinsurer, Hannover Ruckversicherung AG, alleging that it improperly declined coverage under certain facultative agreements covering certain of Allied’s commercial property insurance risks. The complaint cites Hannover’s breach of its duty to “follow the settlements” which allegedly required Hannover Re to cover settlements which Allied agreed to pay to underyling policyholders, despite misrepresentations allegedly made to Allied by the broker who placed the underlying property risks. The breach is also cast in the complaint as a breach of Hannover’s “utmost duty of good faith.” On January 22, 2013, the court entered an order of dismissal, based on the parties’ reported settlement (the terms of which were not disclosed). Allied World Assurance Co. (U.S.), Inc. v. Hannover Ruckversicherung AG, Case No. 12 Civ. 5146 (USDC S.D.N.Y. Jan. 22, 2013).

This post written by John Pitblado.

See our disclaimer.