New reinsurance-related and arbitration developments from Carlton Fields
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.
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.
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.
See our disclaimer.
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.
A Massachusetts bankruptcy court denied the motion for summary judgment of reinsurers Trenwick America Reinsurance Corporation and Unum Life Insurance Company, which sought to determine that debtor Malcom C. Swasey’s debt owed them was nondischargeable in bankruptcy. The underlying dispute centered on the reinsurers’ claim that Swasey and companies he controlled, IRC, Inc. and IRC Re, engaged in fraud and breached a contract under which IRC Re was to provide retrocessional coverage in connection with a workers’ compensation program. The reinsurers had prevailed in a lawsuit in which the district court held that Swasey violated Massachusetts’s unfair or deceptive practices statute, Chapter 93A, by disavowing the parties’ retrocessional contract in bad faith. The reinsurers sought summary judgment on the grounds that the district court’s determination that Swasey had violated Chapter 93A established, under the doctrine of collateral estoppel, that Swasey’s debt was nondischargeable under Bankruptcy Code § 523(a)(6), which excepts from discharge any debt that results from “willful and malicious injury.” The court denied the reinsurers’ motion, holding that Chapter 93A’s “willful and knowing” standard differed from the standard for willfulness under § 523(a)(6) and that the reinsurers had not established, for purposes of the Bankruptcy Code, that Swasey had intended to injure them. In re Swasey, Case No. 11-20627, Adv. P. No. 12-1040 (USDC Bankr. Mass. Feb. 14, 2013).
This post written by Ben Seessel.
See our disclaimer.