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Reinsurance Claims

MUTUAL MARINE AND BRITISH LAW INSURANCE DISMISS CASE TO ALLOW FOR ARBITRATION

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In May of 2010, insurer Mutual Marine Office Inc. commenced an action against one of its excess-of-loss reinsurers, British Law Insurance Co. (now known as Sun Alliance Insurance UK Ltd.), in New York County Supreme Court. Mutual Marine and British Law have now agreed to dismiss the case and go to arbitration. The dispute pertains to the application of a settlement into which Mutual Marine and British Law’s parent company had previously entered. The settlement permitted Mutual Marine to submit aggregated claims to British Law, which would be payable on a discounted basis, despite the fact that the governing reinsurance treaties did not contain an express aggregate extension clause. Mutual Marine Office, Inc. v. British Law Ins. Co., Case No. 10-cv-4306 (USDC SDNY, Sept. 15, 2010)

This post written by Michael Wolgin.

NINTH CIRCUIT AFFIRMS ATTORNEY’S FEE AWARD FOR ARBITRATION, CONFIRMATION, AND COLLECTION, BUT NOT FOR LITIGATION WITH REINSURERS

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In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).

This post written by Michael Wolgin.

REINSURANCE CLAIM BARRED BY AGREEMENT’S EXPRESS TIME LIMITATIONS

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A reinsured lost its case for reinsurance benefits because the reinsured’s settlement of an underlying claim fell outside the time limits imposed on the reinsurer’s potential liability. Arrowood Surplus Lines Insurance Company filed suit against Westport Insurance Company for amounts purportedly owed under a liability reinsurance agreement and arising from Arrowood’s settlement of a claim under an insurance policy it issued to Equity Residential. The trial court dismissed the complaint for failure to state a claim. Arrowood appealed to the Second Circuit. The appellate court held that, by its terms, the reinsurance agreement provided reinsurance coverage for policies that become effective after the agreement’s inception date of February 1, 1999 with respect to occurrences taking place before the agreement’s termination date of August 18, 2000. Insurance policies issued for multiple years “become effective” on the anniversary of their inception. An optional run-off provision provided further coverage for policies that became effective before the termination date through the anniversary of their inception. The Equity policy was issued on December 15, 1999, and Arrowood elected to maintain run-off coverage thereon through December 15, 2000. The Equity policy dispute involved coverage periods beyond December 15, 2000, so those periods were not covered by the agreement because they fell outside its time limitations. The Second Circuit declined to accept Arrowood’s argument that the agreement’s “follow the fortunes” provision expanded coverage beyond the agreement’s express time limitations. Arrowood Surplus Lines Insurance Co. v. Westport Insurance Co., No. 10-0397-CV (2d Cir. Oct. 8, 2010).

This post written by Brian Perryman.

US DISTRICT COURT DENIES MOTION TO DISMISS “PARALLEL” REINSURANCE CASE

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Guarantee Life filed an Illinois state action seeking a declaration that an unexecuted 2006 reinsurance agreement with American Medical and Life was null and void. Despite numerous problems in its dealings with American (such as the state action), Guarantee Life entered another reinsurance agreement with American in 2008. No surprisingly, the 2008 agreement led to litigation. Guarantee Life filed a federal suit against American alleging breach of the 2008 agreement and violations of the Illinois Insurance Code. Because of the pendency of the Illinois state action, American moved to dismiss the federal complaint asking the court to abstain from hearing the case.

The United States District Court for the Northern District of Illinois denied American’s motion to dismiss finding that although the state and federal cases were parallel, abstention was not appropriate. The Court held that American failed to demonstrate the “clearest of justifications” or anything “extraordinary” that would overcome its “virtually unflagging” obligation to exercise its jurisdiction. Guarantee Trust Life Ins. Co. v. American Medical & Life Ins. Co., Case No. 01-02125 (USDC N.D. Ill. Sept. 15, 2010).

This post written by John Black.

MOTION TO RECONSIDER DENIED IN LAWSUIT AGAINST NATIONAL WORKER’S COMPENSATION REINSURANCE POOL

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We previously reported in a June 25, 2010 post on a lawsuit brought by plaintiff American Insurance Group, Inc., and its affiliates and subsidiaries, alleging underreporting of worker compensation premiums to the the National Worker’s Compensation Reinsurance Pool. That post discussed the court’s order on motions to dismiss brought by the defendants. The court has now ruled on a motion to reconsider the earlier order, granting the motion in part and denying it in part. Specifically, the court agreed with the Pool that the court was mistaken when it concluded that the Pool became the National Workers Compensation Reinsurance Association. The court affirmed, however, that the Pool has the capacity to be sued, since the Pool qualified as a voluntary unincorporated association that may sue or be sued in its own name. American International Group, Inc. v. Ace INA Holdings, Inc., Case No. 07 CV 2898 (USDC N.D. Ill. Sept. 16, 2010).

This post written by Brian Perryman.