Reinsurance Claims

REINSURANCE LAWSUIT VOLUNTARILY DISMISSED

April 6, 2011 by Carlton Fields

On August 24, 2010, we reported that Folksamerica Reinsurance (n/k/a White Mountains Reinsurance) had been given 60 days to perfect service against Constructora Del Litoral in an action arising out of Constructora’s alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. In the latest development, the parties agreed to a joint stipulation of dismissal of the action with prejudice, although Folksamerica will not be precluded from pursuing claims against the defendants in Ecuador. The district court entered an order dismissing the case on February 25, 2011. Folksamerica Reinsurance Co. v. Constructora Del Litoral, S.A., Case No. 10-20560 (S.D. Fla. Feb. 25, 2011).

This post written by John Black.

REINSURANCE DOES NOT FALL WITHIN FLORIDA’S COLLATERAL SOURCE RULE

April 4, 2011 by Carlton Fields

Cross-motions for summary judgment were denied in Nova Casualty’s federal legal malpractice action against Robert Santa Lucia, which involved the question of whether reinsurance falls within the collateral source rule. Mr. Santa Lucia had been hired to defend Nova’s insured in a personal injury suit brought in Florida state court. In the underlying action, the state court set aside a “high-low” agreement, which led to a million dollar settlement. Thereafter, Nova alleged that Mr. Santa Lucia negligently advised Nova in the negotiation and form of the high-low agreement and ultimate settlement. During the relevant times, Nova had two reinsurance contracts with GMAC Re providing reinsurance immunity. After the settlement, Nova provided GMAC with the required proof of loss and was indemnified for the entire amount above its retention.

Nova and Santa Lucia each filed motions for summary judgment, which were denied. Nova argued that Mr. Santa Lucia’s payment defense was prohibited under Florida’s collateral source rule. The court disagreed, noting that reinsurance was not listed among the collateral sources covered under the statute. Likewise, the court found unpersuasive Mr. Santa Lucia’s argument that GMAC was the real party in interest. The reinsurance contracts stated that GMAC has no right to reimbursement unless Nova succeeds in a claim related to the loss. Nova Casualty Co. v. Santa Lucia, Case No. 09-1351 (M.D. Fla. Mar. 10, 2011).

This post written by John Black.

BRITISH COURT ANALYZES TRIGGER FOR EXCESS FACULTATIVE REINSURANCE COVER

March 30, 2011 by Carlton Fields

A Justice of the UK Commercial Court (Queen’s Bench Division) has issued an opinion as a result of a trial of a “preliminary issue about the proper construction and the operation of an excess reinsurance policy of professional liability insurance, and more specifically about how it is determined whether the “excess point” that triggers the reinsurance cover has been reached.” Teal Assurance Company Limited alleged that its facultative reinsurance agreement with W.R. Berkeley Insurance (Europe) Limited and Aspen Insurance UK Limited covered certain claims arising from the operations of Teal’s insured, Black & Veatch Holding Company (Teal is a captive insurer subsidiary of Black & Veatch, a large international engineering firm), that were in excess of Black & Veatch’s primary layers of professional liability insurance. The primary insurance covered all of Black & Veatch’s claims, geographically, while the excess facultative reinsurance excluded from coverage all American liabilities. The Court held, contrary to Teal’s position, that the order in which claims should be aggregated for purposes of determining when the reinsurance was triggered (and thus, whether any non-American liabilities exceeded the primary layer), should be based on when those liabilities originated, not when they were paid to the policy limits by the primary insurer. Teal Assurance Co. Ltd. v. W.R. Berkeley Ins. (Europe) Ltd., [2011] EWHC 91 (Comm. Ct. Jan. 31, 2011).

This post written by John Pitblado.

ARBITRATION TERMINATING RETROCESSIONAL INSURANCE RULED INADMISSIBLE IN RELATED SUIT AGAINST REINSURANCE BROKER

March 21, 2011 by Carlton Fields

On April 21, 2009, we reported on a case in which reinsurance broker Aon Re prevailed at trial against reinsurer Reliastar Life. Reliastar claimed Aon failed to disclose the potential termination of the reinsurance pool’s retrocessional insurance by its retrocessionaires. An appellate court has now affirmed the judgment for Aon. The appellate court rejected Reliastar’s arguments for reversal, including the argument that the trial court erred by excluding the arbitration decision that ultimately terminated the pool’s retrocessional insurance. The arbitration decision was irrelevant and inadmissible hearsay because Aon was not a party to the arbitration. The court further reasoned that only the timing of when the retrocessionaires considered their agreement ineffective, and not the fact that an arbitration eventually terminated the agreement, was relevant to Reliastar’s claim. The arbitration decision could have mislead the jury by imputing “guilt by association” to Aon for the retrocessional insurance’s termination. Reliastar Life Insurance Co. v. Roger Smith & Aon Re, Inc., Case No. A-4484-08T2 (N.J. App. Div. Mar. 1, 2011).

This post written by Michael Wolgin.

INSURER GRANTED SUMMARY JUDGMENT BASED ON FAILURE TO COMPLY WITH CONTRACTUAL NOTICE PROVISION

March 16, 2011 by Carlton Fields

A federal district court granted summary judgment to insurer Lexington Insurance Company because insured Untied Health Care Group failed to comply with the notice provision in United’s insurance contract, prejudicing Lexington. The contract stated that United would give notice as soon as practicable of any claim where United reserved at or above 50% of its SIR of $3 million. United litigated a lawsuit filed in May 2001 for seven years, incurring nearly $20 million in legal fees and settling in May 2008 for $8.5 million. Untied did not notify Lexington of the claim in a distinct communication until April 2008, but argued that quarterly loss run reports in which the claim appeared as one line item was sufficient notice. The court agreed that such reports could constitute notice, but the reports United submitted inaccurately indicated that the claim had been settled within the SIR in 2006. Lexington was prejudiced because it was denied its contractual right to associate in the investigation, defense, or control of the claim. The court, in its order, mistakenly described Lexington as United’s reinsurer. United has moved for reconsideration, arguing that the court’s mistake in this regard materially affects the propriety of the court’s grant of summary judgment to Lexington because an insured should be afforded more protection against forfeiture of benefits than a reinsured. Lexington Insurance Co. v. United Health Group, Inc., Case No. 09-10504 (U.S.D.C. Feb. 15, 2011)

This post written by Ben Seessel.