Reinsurance Claims

COURT REJECTS JURY VERDICT TO GRANT JUDGMENT IN PUBLIC ENTITY REINSURANCE LAWSUIT

January 26, 2012 by Carlton Fields

A dispute arose between the Alabama Municipal Insurance Corporation and Alliant Insurance regarding the latter’s public entity reinsurance program. AMIC purchased $650 million in reinsurance, received a binder on the program, paid almost half a million dollars in premium, but did not receive a written policy until over a year later. According to AMIC, the two parties had agreed that AMIC must transmit timely loss notices to Alliant. Subsequently, during a round of golf between two senior executives from the parties, the two companies entered a “Gentlemen’s Agreement” that AMIC would not submit reinsurance claims for the 2000-01 treaty year. Five years later, AMIC submitted its 2000-01 claims which Alliant passed on to Lloyd’s, the reinsurance underwriter, which denied payment. At a trial of the dispute, a jury awarded AMIC just under $400,000 for breach of contract.

On Alliant’s motion for judgment as a matter of law, the federal district court found that the evidence so weighed in Alliant’s favor that no reasonable jury could find that AMIC had successfully proven a legally enforceable contract existed. AMIC could not demonstrate whether Alliant was acting as managing general agent for AMIC or for the reinsurance underwriters. Moreover, the claims had not properly been submitted in any case. The court further concluded that the equities barred recovery. Alabama Municipal Insurance Corp. v. Alliant Insurance Services, Inc., Case No. 09-928 (USDC M.D. Ala Jan. 10, 2012).

This post written by John Black.

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INSURERS AWARDED $9 BILLION IN DEFAULT JUDGMENT AGAINST AL QAEDA FOR “BUSINESS OR PROPERTY” DAMAGE UNDER ANTI-TERRORISM ACT

January 25, 2012 by Carlton Fields

Various insurance carriers covering losses from the 9/11 terrorist attacks were collectively awarded treble damages amounting to over $9 billion against the terrorist organization al Qaeda. The carriers had obtained default judgments against al Qaeda and moved under the “business or property” provisions of the Anti-Terrorism Act to assess damages. Adopting the magistrate judge’s report and recommendation, the district judge broadly construed the available damages under the ATA based on similar language in the Clayton Act and civil RICO statute. Based on the insurers’ allegations and affidavits, the court awarded treble damages for claims paid on business interruption, property damage, and other losses resulting directly from the 9/11 attacks. The court denied recovery, subject to reconsideration after submission of additional evidence and briefing, for claim adjustment costs and legal expenses associated with paying claims. The court noted that binding precedent likely limited the insurers’ recoveries to the extent of their subrogation to their insureds’ claims. In re Terrorist Attacks on September 11, 2001, Case No. 03 MDL 1570 (USDC S.D.N.Y. Dec. 16, 2011).

This post written by Michael Wolgin.

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ENGLISH COURT HOLDS INSURANCE “TOWER” OF MULTIPLE LAYERS OF EXCESS OF LOSS INSURANCE INCURRED SIMULTANEOUS LIABILITY

January 24, 2012 by Carlton Fields

An English court held that a professional indemnity insurance “tower” of multiple excess of loss policies incurred liability simultaneously, rather than sequentially as each policy’s limits were exhausted. The tower consisted of a primary professional indemnity policy upon which were three layers of excess of loss insurance written by the insured’s captive insurer, Teal Insurance. Above the excess of loss policies was a “top and drop” policy written by Teal and reinsured by W.R. Berkley Insurance providing additional coverage once the excess of loss policies were successively exhausted. All policies provided worldwide coverage except the top and drop policy, which excluded North American claims. When the insured incurred multiple American and non-American claims, Teal argued it was entitled to ignore the order in which claims were incurred, and elected to exhaust the tower’s coverage with only the American claims, so as to pass the non-American claims to the reinsured top and drop policy. Teal contended that each policy in the tower incurred liability only after the lower layer policy accepted and exhausted liability. The court disagreed with Teal, holding that liability for the tower occurred simultaneously based on the top and drop policy’s provision that the policy would “continue in force as Underlying policy” (i.e., the top and drop policy would “become” the first layer policy) once the tower was exhausted. Any other conclusion would mean Teal “could determine when they (Teal) admitted liability further up the layer and could themselves organise the lower levels to pay American claims, leaving reinsurers to face non-American claims where those claims should otherwise have exhausted the tower.” Teal Assurance Co. v. W.R. Berkley Insurance (Europe) Ltd., [2011] EWCA Civ 1570 (Eng. Ct. App. Dec. 15, 2011).

This post written by Michael Wolgin.

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DISTRICT COURT GRANTS IN PART CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT IN QUOTA SHARE AND EXCESS OF LOSS REINSURANCE DISPUTE

January 23, 2012 by Carlton Fields

Some resolution was reached in a lawsuit between Munich Re and Tower Insurance. The parties asserted claims against each other under reinsurance and retrocessional agreements wherein they agreed to indemnify each other against all or a portion of the loss sustained under certain standard insurance policies. Both parties moved for partial summary judgment. Munich Re sought a past due payment of over $3 million plus prejudgment interests. Tower sought summary judgment on certain claims pertaining to quota share agreements and a multiple line excess of loss reinsurance agreement. The federal district court granted in part and denied in part Munich’s motion, finding that: (a) Tower had already paid the alleged past due payment; (b) Munich was entitled to submit a certification setting for the appropriate prejudgment interest; and (c) a request for an order directing Tower to cease its practice of withholding disputed net balances due should be denied. Likewise, Tower’s motion also was granted in part and denied in part. Munich’s claim regarding the quota share agreements should be limited in scope; loss adjustment expenses arising out of the agreements should be denied. Finally, the court denied Tower’s claim under the excess of loss agreement. Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-2598 (USDC D.N.J. Dec. 23, 2011).

This post written by John Black.

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COURT DISMISSES FRAUD AND UNJUST ENRICHMENT CLAIMS IN DISPUTE OVER ALLEGEDLY IMPROPER DRAW ON REINSURER’S LETTER OF CREDIT

January 12, 2012 by Carlton Fields

A court dismissed reinsurer Assurecare Corp.’s counterclaim for fraud and unjust enrichment against reinsured Arrowood Indemnity Company for drawing on Assurecare’s letter of credit for the allegedly improper purpose of collecting a disputed reinsurance claim. After engaging in a choice of law analysis, the court found that Assurecare’s fraud claim, which Assurecare sought to replace with a claim that Arrowood tortiously interfered with Assurecare’s relationship with the bank that issued the letter of credit, failed because no effect on the banking relationship was alleged. Assurecare’s unjust enrichment counterclaim failed because an enforceable contract (the Assurecare-Arrowood reinsurance agreement) existed between the parties. The court rejected Assurecare’s argument that Arrowood’s conduct related exclusively to the letter of credit, holding that the reinsurance agreement governed “the conditions under which Arrowood could draw on the Letter of Credit.” Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11-5206 (USDC N.D. Ill. Dec. 15, 2011).

This post written by Michael Wolgin.

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