Reinsurance Claims

GRANITE RE ENTITLED TO PRE- AND POST-JUDGMENT INTEREST IN BANKRUPTCY ACTION

March 10, 2011 by Carlton Fields

Following a $9 million judgment in its favor, Granite Re was further awarded pre- and post-judgment interest on that judgment. Granite Re filed a proof of claim in Acceptance Insurance’s bankruptcy action for the amount of $10.9 million, the balance of the premium due under a reinsurance contract plus interest. Acceptance disputed the claim, arguing it no longer needed reinsurance, and filed a separate adversary proceeding against Granite Re alleging unjust enrichment. The Eighth Circuit’s Bankruptcy Appellate Panel reversed the bankruptcy court’s ruling in favor of Acceptance. The Eighth Circuit affirmed the Bankruptcy Appellate Panel’s ruling. Granite Re moved for an entry of judgment, requesting $9 million under the claim plus 1.5% pre- and post-judgment interest. The bankruptcy court ruled that because the exception for unilateral performance applied, Acceptance’s repudiation did not accelerate premium payments and thus Granite Re was entitled to pre-judgment interest. Likewise, Granite Re was entitled to post-judgment interest at the rate specified by federal statute. In re Acceptance Insurance Co., Case No. 05-80059 (Bankr. D. Neb. Jan. 20, 2011).

This post written by John Black.

MERGER CLAUSE IN ONE REINSURANCE AGREEMENT DOES NOT PRECLUDE OFFSET OF AMOUNTS OWED UNDER ANOTHER REINSURANCE AGREEMENT

March 9, 2011 by Carlton Fields

In a suit surrounding the application of an offset provision in one reinsurance agreement to amounts allegedly owed under a second reinsurance agreement, a court narrowly construed a merger clause in the first agreement, denying a motion to dismiss. American Medical and Life Insurance Company and Guarantee Trust Life Insurance Company entered into two separate reinsurance agreements. In the first, the former would reinsure the latter with respect to certain insurance business. In the second, the latter would reinsure the former with respect to other insurance. After GTL allegedly failed to perform under the second agreement, American Life used an offset provision in the first agreement and refused to pay its share of claims under the first agreement. GTL then sued for breach of the first agreement and American Life counterclaimed for breach of the second agreement. GTL moved to dismiss American Life’s counterclaim, contending the first agreement’s merger clause prohibited linking the second agreement with the first agreement. The court denied GTL’s motion, holding that the offset provision, which permitted offset based on “any other agreement between the parties,” could not be barred by the merger provision in that same contract. Further, the merger provision applied only to “the business reinsured hereunder,” so unrelated business reinsured under a separate agreement would fall outside that provision’s reach. Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co., Case No. 10 C 2125 (USDC N.D. Ill. Feb. 3, 2011).

This post written by Michael Wolgin.

ENGLISH COURT UPHOLDS ENGLISH JURISDICTION OVER EXCESS LOSS REINSURANCE DISPUTE

March 8, 2011 by Carlton Fields

Glacier Re unsuccessfully appealed the decision of an English court allowing Gard Marine and Energy to bring proceedings under their participation in a contract of excess of loss reinsurance. Gard invoked English jurisdiction under the Lugano Convention, contending it brought claims against a London-domiciled participant and that the risk of irreconcilable judgments favored bringing all claims together at once. Glacier argued that its participation in the agreement was governed by Swiss law, so there was no risk of irreconcilable judgments. The appellate court determined that the parties to the excess loss reinsurance contract had chosen English law, and that the reinsurance arose out of Glacier’s participation in the London market. The underlying policy also was governed by English law. Further, the court determined that it did not make commercial sense for one portion of the contract to be considered under English law, and another under Swiss law. For these reasons, the appeal was dismissed. Gard Marine and Energy, Ltd. v. Tunnicliffe, Case No. A3/2009/2376; EWHC 2388 Comm (Ct. App. Q.B. June 10, 2010).

This post written by John Black.

DESPITE ABSENCE OF FORMAL REINSURANCE AGREEMENT, COURT APPLIES “FOLLOW THE FORTUNES” DOCTRINE AND FINDS BAD FAITH

March 7, 2011 by Carlton Fields

In a dispute between reinsurers Trenwick America Reinsurance Corp. and IRC Re Limited regarding the alleged breach by IRC Re of a retrocessional reinsurance agreement, a court applied the “follow the fortunes” doctrine to find that IRC violated the agreement in bad faith. The dispute arose when IRC Re “at the 11th hour” denied the existence of a written reinsurance agreement and refused to pay its share of the liabilities arising from the underlying insurance program. The court found that an unwritten agreement existed based on IRC Re’s conduct (e.g., accepting premium payments), correspondence, and testimony from other parties involved in the program. The 56 page opinion contains extensive discussion regarding the existence and terms of the reinsurance contract, its place in a larger reinsurance program, and IRC’s conduct in the reinsurance dispute. IRC Re was not permitted to raise claim payment defenses due to the “follow the fortunes” doctrine. The court found that the doctrine was customary in the reinsurance industry and was therefore applicable even in the absence of a written agreement. The court further held that IRC Re, its CEO, and IRC Re’s affiliate responsible for managing the underlying insurance program, violated the Massachusetts unfair and deceptive trade practices statute. With the program’s manager and the program’s reinsurer “aligned on the same side” there was “little chance of resolving the claim in a timely fashion and surely without litigation” and they “did everything they could to obfuscate the issues and stall their ultimate resolution.” Trenwick America Reinsurance Corp. v. IRC, Inc., Case No. 07-12160 (USDC D. Mass. Feb. 16, 2011).

This post written by Michael Wolgin.

U.K. HIGH COURT ENDORSES EXPOSURE TRIGGER FOR ASBESTOS-RELATED LIABILITIES

March 1, 2011 by Carlton Fields

The U.K. Court of Appeals ruled on trigger of coverage issues in a consolidated appeal of cases involving underlying personal injury litigation arising from exposure to asbestos, in light of employers liability policies that generally cover liability for injury “sustained” during the policy year in question. The opinion discusses the unique long latency of mesothelioma, a cancer caused by exposure to asbestos, but which typically does not manifest into disease for as long as forty years or more. The court held generally that the insurer on the risk at the time of exposure — not the time of manifestation of the disease — is responsible for the liability. The ruling is grounded in industry custom, but addresses recent conflicting precedents, generally arising from differing policy wordings over time. The court distinguished a prior ruling, Wasa Int’l Ins. Co. Ltd. v. Lexington Ins. Co., [2009], which involved a conflict between the plain language of a reinsurance contract and a presumption arising from industry custom that insurance and reinsurance cover the same risks, and which ultimately applied the plain policy language as written, despite the presumption. Nevertheless, the court distinguished the Wasa case, noting the varying policy wordings in the employers liability policies at issue. It also recognized the consequences of its ruling on reinsurance liabilities and wordings as well, which it noted have likewise varied over time. Employers’ Liability Insurance “Trigger” Litigation, [2010] EWCA Civ. 1096 (U.K. Court App. Civ. Div. Oct. 8, 2010).

This post written by John Pitblado.