Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Reinsurance Claims

Reinsurance Claims

Federal Court Dismisses Policyholder’s Third-Party Action Against Reinsurers

by

A Puerto Rico district court dismissed a third-party action by defendant-policyholder Puma Energy Caribe LLC against the reinsurers of an insurance policy issued by plaintiff Integrand Assurance Co. Puma claimed that the reinsurers breached the reinsurance agreements with Integrand, prejudiced Puma’s rights as a third-party beneficiary of those agreements, and negligently handled reinsurance claims that Integrand submitted in connection with a claim Puma had made under the Integrand policy. The reinsurers sought dismissal based on lack of privity, lack of standing, arbitration clauses in the reinsurance treaties with Integrand, and on the ground that Puma improperly sought to implead them under Federal Rule of Civil Procedure 14(a), which allows a party to implead a nonparty “who is or may be liable to it for all or part of the claim against it.”

While recognizing the reinsurers’ arguments were “powerful,” the court dismissed Puma’s third-party claims on procedural grounds. Because Puma was not seeking “indemnity” from the reinsurers, the court found that Rule 14(a) was not the proper vehicle for obtaining the relief Puma had requested. The court also considered other procedural mechanisms, including Federal Rules of Civil Procedure 13(h), 19, and 20, but found each was inappropriate here as well. The court declined to award the reinsurers’ attorneys’ fees, although it agreed that Puma’s filings “come close to obstinance or frivolity.”

Integrand Assurance Co. v. Puma Energy Caribe, LLC, No. 3:19-cv-01195 (D.P.R. Dec. 27, 2019).

Third Circuit Affirms Order Declining to Consolidate Reinsurance Dispute, but Vacates Order Denying Motion to Unseal

by

Everest Reinsurance Co. appealed from two district court orders. It claimed that this dispute with Pennsylvania National Mutual Casualty Insurance Co. was the same as a prior dispute that Penn National had arbitrated with two other reinsurers. It, therefore, sought to have this matter consolidated with and heard by the same panel as the prior dispute. The parties agreed that whether this dispute and the prior dispute were actually the same was to be decided by the arbitrators, not the court. The issue was which arbitrators: a new panel, or the panel that heard the prior dispute. The district court ordered that the question goes to a new panel, and the Third Circuit agreed, citing language in the Everest/Penn National arbitration agreement stating that consolidation is only permitted “[i]f more than one reinsurer is involved in the same dispute.” By sending the present dispute to the same panel as the prior dispute at this juncture, the Third Circuit held, Everest was essentially asking the court to prejudge the question of whether the two disputes were “the same,” and thus disregard the express language of the agreement.

Everest separately appealed an order denying its motion to unseal records from the prior dispute. The Third Circuit agreed with Everest that the district did not apply the “more rigorous common law right of access” standard. It therefore vacated and remanded for the district court to apply the legal standard articulated by the Third Circuit in Avandia Marketing.

Pa. Nat’l Mut. Cas. Ins. Co. v. New England Reinsurance Corp., No. 19-1805 (3d Cir. Dec. 6, 2019).

Court Dismisses Reinsurance Litigation in Favor of Prior Pending Action

by

The plaintiffs, U.S. Fire Insurance Co. and North River Insurance Co., issued 12 umbrella and excess umbrella liability policies for a combined coverage of $244 million to a manufacturer of respiratory protection equipment and asbestos-containing personal protective products. The plaintiffs subsequently entered into reinsurance contracts that covered the 12 policies. Beginning in March 2017, the plaintiffs billed the reinsurers for amounts they claimed were due under the reinsurance contracts as a result of the plaintiffs’ payments for settling liability under the umbrella policies.

When certain reinsurers refused to pay a portion of the reinsurance billings, the plaintiffs brought this lawsuit in the District of New Hampshire, alleging breach of several of the reinsurance contracts and seeking a declaratory judgment arising out of the reinsurers’ refusal to pay certain billings. However, less than an hour before the plaintiffs initiated the lawsuit, the plaintiffs’ reinsurers (mostly the same reinsurers in the initial action, as well as additional reinsurers) sued the plaintiffs in a New Jersey court. There, the reinsurers alleged that they had made payments to the plaintiffs pursuant to the reinsurance contracts under a reservation of rights and sought reimbursement of those amounts. The reinsurers then moved to dismiss or stay the New Hampshire case, arguing, inter alia, that the court should defer to the New Jersey action pursuant to the prior-pending-action doctrine or the related first-filed doctrine. While this motion was pending, the reinsurers filed a notice of an order issued in the New Jersey action denying U.S. Fire and North River’s motion to dismiss or stay on comity, forum non conveniens, and other grounds.

The New Hampshire court granted the reinsurers’ motion to dismiss. The court based its ruling on the prior-pending-action doctrine, which holds that the pendency of a prior action, in a court of competent jurisdiction, between the same parties, predicated upon the same cause of action and growing out of the same transaction, and in which identical relief is sought, constitutes a good ground for abatement of the later suit. The court cited to the interests of judicial efficiency and avoiding inconsistent judgments. The court found that the New Jersey action involved the same issues presented in this case: “the various reinsurers’ obligations to provide payments to plaintiffs under the Reinsurance Contracts.” The court explained: “As the [reinsurers] seek not only the return of payments they previously made to North River, but also a declaratory judgment as to the parties’ respective rights and obligations under the Reinsurance Contracts, the controlling issues in this litigation will be determined in the New Jersey Action.” The court further found that U.S. Fire and North River already moved to dismiss the New Jersey action, and the court in that case denied the motion and made several rulings that directly impacted the arguments raised by the parties in the New Hampshire case. The court concluded that “principles of comity and the convenience of the parties and witnesses weigh in favor of dismissal of this case in favor of the New Jersey Action.”

U.S. Fire Insurance Co. v. Equitas Ins. Ltd., No. 1:18-cv-01205 (D.N.H. Oct. 24, 2019).

Court Orders Stay of New Arbitration Over Disputed Reinsurance Billings and Compels Parties to Proceed Before a Predecessor Arbitration Panel

by

The case involved a “second layer special casualty excess agreement of reinsurance” under which reinsurers General Reinsurance Corp. and SCOR Reinsurance Co. agreed to cover a certain amount in excess of Chicago Insurance Co.’s $1 million per occurrence retention. An arbitration ensued after the reinsurers disputed reinsurance billings from Chicago Insurance arising out of certain asbestos insurance liability. The arbitration panel rejected Chicago Insurance’s attempt to bill its losses on the basis that each site where the insured had operated constituted an “occurrence” under the reinsurance agreement, and issued an award for the reinsurers. The award expressly retained the panel’s jurisdiction to “resolve any dispute arising out of [the] Final Award.”

Subsequent to the award, Chicago Insurance submitted a new billing to the reinsurers, which stated that the “loss allocation was prepared in accordance with the Award’s protocols.” The reinsurers disputed the new billing and alerted the prior arbitration panel. The umpire confirmed that it had retained jurisdiction but noted that Chicago Insurance’s appointed arbitrator disagreed and would not participate in the new dispute. Chicago Insurance then initiated a new separate arbitration, in which the reinsurers refused to participate, and filed a petition to compel the reinsurers’ participation and to stay the original arbitration. The reinsurers responded by filing a cross-petition to stay the new arbitration and for a declaration that the prior panel had jurisdiction to resolve the dispute.

The court denied Chicago Insurance’s petition and granted the reinsurers’ cross-petition to stay the new arbitration. The court rejected Chicago Insurance’s argument that the prior panel was functus officio by fully exercising their authority to adjudicate the issue submitted to them. The court found that the prior panel retained jurisdiction to resolve any dispute arising out of the prior award and that Chicago Insurance had consented to that by failing to dispute the award. The court also found that Chicago Insurance “repeatedly claimed that the new bill that it sent to the Reinsurers was offered pursuant to the ‘protocols’ set forth by” the prior award, and therefore, consistent with what the majority of the original panel determined, the current dispute “clearly” fell within the original arbitration jurisdiction. The court, therefore, ruled that the prior panel retained jurisdiction to adjudicate whether the new bill comported with its prior award.

Chicago Ins. Co. v. Gen. Reinsurance Corp., No. 1:18-cv-10450 (S.D.N.Y. Oct. 22, 2019).

Court of Federal Claims Finds HHS Offset Invalid Under Colorado’s Insurance Liquidating Priority Scheme

by

The U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services (HHS) operates the reinsurance and risk-adjustments program for Colorado, including the application of the “netting rule” — a method by which it would aggregate and offset money owed by or to different insurers under various Affordable Care Act (ACA) payment programs. Colorado Health Insurance Cooperative Inc. ran into financial difficulties and was put into liquidation. According to the liquidator, the HHS would offset $20,255,084 of the amount the HHS owed Colorado Health under the risk-adjustment program against $21,775,432 that Colorado Health owed the HHS under the risk-adjustment program. Ultimately, the liquidator sent the HHS a claims-determination letter, disallowing the HHS’ claims and requesting a return of all unauthorized offsets. The HHS did not timely object under Colorado law and, upon the liquidator’s motion, a Colorado court affirmed the liquidator’s claim determination.

The liquidator then sued the HHS, alleging that (1) the HHS failed to make obligatory payments under the reinsurance program; and (2) the HHS’ offset of payments it owed to Colorado Health violated Colorado law and was therefore invalid.

As a threshold matter, the court held that the ACA does not prohibit offset otherwise allowed under federal common law or state law, and dismissed the first cause of action as it did not provide an independent basis for relief. As to the second cause of action, the court held that the HHS’ offset was invalid under Colorado’s insurance liquidation priority scheme. “Because neither the ACA nor another statute authorizes the Netting Rule’s application in the insurance liquidation context, HHS must have taken its offset in its capacity as a creditor. Although federal law governs HHS’s rights as a creditor in implementing the nationwide reinsurance and risk-adjustment programs, its interest in uniformity is insufficient to warrant this Court creating a federal common law rule to displace Colorado’s insurance liquidating priority scheme.”

Conway v. United States, No. 18-1623 (Fed. Cl. Oct. 3, 2019).