Reinsurance Claims

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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A New York appellate court decided an appeal of a grant of summary judgment and dismissal of an action relating to a 1993 settlement of massive coverage litigation regarding the manufacture of polychlorinated biphenyl (PCB). After the 1993 settlement, the underlying insured who manufactured the PCB became the subject of claims for bodily injury and property damage related to PCB. The insured settled those cases for roughly $600 million, $150 million of which was paid by National Union and its affiliates. National Union turned to its reinsurers for reimbursement; the reinsurers refused to pay. Normally, reinsurers are bound by settlements entered into by a ceding insurance company in good faith. Here, however, the appeal court found that there were issues of fact related to whether National Union settled in good faith. Though there was no evidence that National Union negotiated in bad faith, a 1993 Delaware superior court decision called into question the propriety of National Union’s dealings. Accordingly, the grant of summary judgment was overturned. American Home Assurance Co. v. National Union Fire Insurance Co. of Pittsburgh, No. 06-6430 (N.Y. App. Div. Dec. 27, 2011).

This post written by John Black.

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A court has granted a motion for judgment on the pleadings, under the theory that an underlying policyholder lacks a cause of action against its insurer’s reinsurer. National Indemnity Company (“NICO”) was brought in as a third party to insurance coverage litigation between Canal Insurance Company, its insured, Montello, Inc., and various other insurers in a declaratory coverage action pertaining to underlying asbestos litigation arising from Montello’s operations. Montello’s claim against NICO was unique, as it was the only reinsurer brought in to the action, and allegedly had in effect a reinsurance agreement with one of the defendants that purportedly had retroactive effect. NICO moved for judgment on the pleadings, arguing that an underlying policyholder has no direct cause of action against its insurer’s reinsurer. The court granted NICO’s motion, finding that the reinsurance agreement did not contain a cut-through provision enabling a direct action, and that neither of the exceptions permitting direct action were applicable. Canal Insurance Co. v. Montello, Inc., No. 10-CV-411 (USDC N.D. Okla. Sept. 26, 2011).

This post written by John Pitblado.