Reinsurance Claims

UK COURT: EXCESS POINT IN REINSURANCE AGREEMENT “SCALED” TO REFLECT INSURED’S INTEREST IN LOST ASSETS

July 12, 2011 by Carlton Fields

The UK Commercial Court recently ruled on the interpretation of a reinsurance agreement related to wind storm risks for a large independent oil exploration and production venture in the Gulf of Mexico. The dispute concerns the interpretation of the coverage limit provision of a facultative reinsurance policy applied to claims from Hurricane Rita. The provision provided “to pay up to Original Package Policy limits/amounts/sums insured excess of USD250 million (100%) any one occurrence of losses to the original placement.” The cedent calculated the reinsurance claim on the basis that the US $250 million excess point was referable to 100% values of the property, and that since Devon Energy (the insured) had less than a 100% interest, the excess point had to be “scaled” to reflect its lower interest. The Court agreed, finding that the evidence was “overwhelming” that the notation “100%” in the reinsurance agreement “has a recognized and established meaning in the market … [meaning] that the limit or excess scales to reflect the assured’s interest in the relevant assets.” A claim of misrepresentation was also rejected by the court. Gard Marine & Energy Limited v. Tunnicliffe, Case No. 2007 Folio 351, 2011 EWHC 1658 (Comm. Ct. June 30, 2011).

This post written by John Black.

WHETHER ARBITRATIONS SHOULD BE CONSOLIDATED IS A PROCEDURAL MATTER FOR AN ARBITRATION PANEL TO DECIDE

June 9, 2011 by Carlton Fields

A federal district court denied reinsurer Allstate’s motion to compel two separate arbitrations and granted insurer Liberty Mutual’s cross-motion to compel Allstate to select an umpire to complete an arbitration panel that, in turn, could decide how many arbitration proceedings should be held. Allstate had filed two arbitration demands based on distinct issues and argued that the parties’ reinsurance treaties permitted each dispute to be arbitrated separately. Allstate further argued that the Federal Arbitration Act required that two arbitrations be held. The court denied Allstate’s request, however, reasoning that its job was to determine the validity and scope of the arbitration provision. The arbitrators should decide procedural questions related to the arbitration, including whether to consolidate the separately requested arbitration proceedings. Allstate Insurance Co. v. Liberty Mutual Insurance Co., Case No. 11-10415 (USDC D. Mass. May 19, 2011).

This post written by Ben Seessel.

REINSURER CANNOT DENY COVERAGE BASED ON LATE NOTICE WITHOUT SHOWING PREJUDICE

June 7, 2011 by Carlton Fields

A federal district court held that, under Pennsylvania law, a reinsurer must show prejudice to deny coverage based on an insurer’s failure to provide prompt notice of loss, even where timely notice is a condition precedent to coverage. Global Reinsurance Corporation of America claimed that Pacific Employers Insurance Company was not entitled to benefits under the parties’ facultative reinsurance contract because Pacific Employers failed to provide prompt notice of loss arising from underlying asbestos litigation. Under the contract, prompt notice was a condition precedent to coverage. New York law, which Global argued should apply, provides that a reinsurer is not required to show prejudice to avoid coverage if the insurer fails to provide prompt notice and timely notice is a condition precedent. The court concluded, however, that Pennsylvania law should apply and denied Global’s attempt to avoid paying benefits for what it called the insurer’s “technical breach” of providing late notice. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. May 23, 2011).

This post written by Ben Seessel.

MOTION TO TRANSFER REINSURANCE MATTER TO DISTRICT HEARING RELATED CASES INVOLVING DIFFERENT REINSURERS DENIED

May 18, 2011 by Carlton Fields

Plaintiff White Mountains Re, successor in interest to MONY Re, filed an action in the New York Supreme Court against Travelers asserting claims for declaratory judgment and breach of contract arising out of a dispute concerning certain reinsurance contracts. Travelers removed the action to the US District Court for the Southern District of New York and subsequently filed a motion to transfer this action to the District of Connecticut. There are a number of related cases concerning the reinsurance contracts pending in the US District Court for the District of Connecticut, although White Mountains Re is not a party in any of the Connecticut actions. The District Court denied Travelers’ motion, concluding that although the action could have been filed in the District of Connecticut originally, White Mountain Re’s choice of forum is “given great weight.” Further, the Court concluded that while the current action is related to those in the District of Connecticut, White Mountain Re’s suit was not filed in response to a direct threat of litigation in the other forum. Accordingly, Travelers failed to show that transfer was appropriate. White Mountains Reinsurance Co. of Am. v. Travelers Casualty and Surety Co., Case No. 11-390 (S.D. N.Y. Apr. 13, 2011).

This post written by John Black.

AFTER ORDER CONFUSED INSURANCE FOR REINSURANCE, COURT RE-ENTERS SUMMARY JUDGMENT BASED ON FAILURE TO NOTIFY INSURER OF CLAIM

May 5, 2011 by Carlton Fields

On March 16, 2011, we reported on a summary judgment finding Lexington Insurance Company not responsible for a $28 million claim arising under a Lexington medical malpractice insurance policy issued to United Healthcare. While the decision was based on United’s failure to comply with notice provisions in the underlying policy and the resulting prejudice to Lexington, United sought reconsideration on the grounds that the court’s opinion erroneously described the policy as reinsurance, instead of insurance. United argued that an insured should be afforded more protection against the forfeiture of benefits than a reinsured. The court has now issued an amended opinion that corrects its description of the relationship between the parties, but stands by its original conclusions. The court refused to apply rules of contract interpretation that compel a court to construe an insurance policy in favor of an insured because “United is not an innocent consumer but rather a sophisticated insurance company who negotiated, and indeed drafted, the terms of their policy.” Lexington Insurance Co. v. United Health Group, Inc., Case No.09-10504 (USDC D. Mass. April 18, 2011).

This post written by Michael Wolgin.