Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Reinsurance Claims

Reinsurance Claims

BANKRUPTCY COURT DENIES REINSURERS’ MOTION TO DETERMINE DEBT OWED TO THEM IS NONDISCHARGEABLE

by

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.

TRAVELERS CASUALTY AND SURETY CO. SETTLES REINSURANCE DISPUTE WITH EXCALIBUR REINSURANCE CORP.

by

Travelers and runoff reinsurer Excalibur have settled Traveler’s suit for reinsurance benefits allegedly owed to Travelers for asbestos claims coverage reinsured by three facultative certificates. Travelers had filed suit in federal court for breach of contract and account stated, seeking $451,809.66 in allegedly unpaid claims made in 2011 and 2012. The reinsurance claims were based on benefits Travelers paid to its insured, Zurn Industries, Inc., further to a settlement entered into in 2003. Travelers alleged that Excalibur had previously paid reinsurance claims based on the subject insurance coverage, but had failed to pay the 2011 and 2012 claims. Travelers Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 3:12-cv-01701 (D. Conn. Jan. 31, 2013) (notice of dismissal).

This post written by Michael Wolgin.

See our disclaimer.

COVERAGE DISPUTE BETWEEN INSURED AND INSURER HELD NOT A FORESEEABLE CONSEQUENCE OF ATTORNEY MALPRACTICE

by

A minor injured in a softball game obtained a verdict exceeding the $2 million limit on a policy issued to the United States Sports Specialty Association by United States Fidelity and Guarantee Co. and reinsured by Lloyds of London. The reinsurers, USF&G’s behalf, paid a settlement amount also significantly exceeding the policy limits. USF&G filed suit seeking reimbursement from USSSA for amounts paid beyond policy limits. The state supreme court rejected the claim, holding there was no extracontractual right to restitution between an insurer and its insured. The reinsurers, as subrogees of USF&G and the insured, added malpractice claims against the law firm that had been appointed to represent the insured, seeking, among other damages, the litigation expenses incurred by the USF&G and USSSA in determining whether USF&G was entitled to reimbursement from USSSA for amounts spent beyond policy limits. The court granted partial summary judgment to the law firm on this theory, holding that the coverage dispute between USF&G and USSSA was not a foreseeable consequence of the law firm’s alleged malpractice. National Indemnity Co. v. Nelson, Chipman & Burt, Case No. 2:07-CV-996 TS (USDC D. Utah Jan. 18, 2013).

This post written by Ben Seessel.

See our disclaimer.

COURT DECLINES TO ORDER PREJUDGMENT SECURITY FROM A FOREIGN NATIONAL DOING REINSURANCE BUSINESS

by

Pine Top Receivables LLC (“PTR”) was formed when a buyer purchased the assigned rights under certain reinsurance contracts from the Illinois liquidator handling the Pine Top Insurance Company receivership. PTR then brought suit against reinsurer Banco De Seguros Del Estados, which had entered into reinsurance contracts with Pine Top. PTR alleged that Banco owed more than $2,000,000 in overdue balances on the contracts. PTR’s suit sought to compel arbitration. Banco filed a motion to dismiss on jurisdictional grounds. PTR moved to strike the motion, on the grounds that Banco had not paid prejudgment security under Illinois’ statute requiring security by a nonresident reinsurer. Banco resisted the motion, asserting that the Foreign Sovereign Immunities Act prohibited the assessment of any “attachment” on a foreign governmental entity. The Court agreed with Banco, finding that it is a government instrumentality of the Republic of Uruguay, and that pre-judgment security under the statute was effectively an “attachment” as the term is used in the Act. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estados, No. 12 C 6357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by John Pitblado.

See our disclaimer.

NEW YORK COURT ORDERS THAT UMPIRE BE APPOINTED TO COMPLETE REINSURANCE ARBITRATION PANEL

by

Petitioner American Home Assurance Company sought appointment of an umpire, or a third arbitrator under certain treaties, to preside over arbitrations of disputes arising under three reinsurance treaties with respondent Clearwater Insurance Company. The treaties provided that each side would select an arbitrator and the two would select an umpire or third arbitrator; the parties had each selected an arbitrator but the two arbitrators had not chosen an umpire or third arbitrator. The court granted petitioner’s request pursuant to New York CPLR 7504, which provides that a court shall appoint an arbitrator if the method the parties’ agreed upon “fails or for any reason is not followed.” In so holding, the court rejected respondent’s argument that CPLR 7504 did not apply because it was not mentioned in the reinsurance treaties, holding that the law was in existence at the time of the formation of the contracts and thus incorporated in them. The court also dispensed with respondent’s argument that the arbitrations should proceed before an umpire is selected, i.e., that an umpire need not be selected unless the two arbitrators failed to agree, reasoning that having an umpire present during the arbitrations to hear the proof is the more practical approach. The court ordered a specific selection process for the umpire (or third arbitrator) – a hybrid of the ARIAS-US ranking method and the “strike and draw” method. In re American Home Assurance Co., Case No. 653079/2012 (N.Y. Sup. Ct. Jan. 15, 2013)

This post written by Ben Seessel.

See our disclaimer.