Reinsurance Claims

EIGHTH CIRCUIT REVERSES SUMMARY JUDGMENT DUE TO FACTUAL ISSUES REGARDING ELECTRONIC TRANSFER OF CLAIM DATA TO REINSURER

September 30, 2010 by Carlton Fields

The Eighth Circuit has reversed the district court’s entry of summary judgment that had disposed of the U.S. Government’s suit on behalf of the crop insurance reinsurer, Federal Crop Insurance Corporation (FCIC), against a crop insurance agent. The Government alleged various violations of provisions of the Federal Claims Act, including Section 3729(a)(1), which renders liable any person who knowingly “causes to be presented” to the United States Government a fraudulent claim for payment. The district court held that because the Government alleged that the agent “caused to be presented” fraudulent claims to the crop insurer and not the FCIC, the agent could not have caused fraudulent claims to be presented to the Government. Among other holdings, the Eighth Circuit held that a genuine issue of material fact existed as to whether the insurance agent “caused to be presented” fraudulent claims to the Government when the agent facilitated the submission of fraudulent claims to the insurer, which, in turn, transmitted the fraudulent claim data electronically to the FCIC. United States v. Hawley, No. 08-2992 (8th Cir. Aug. 23, 2010).

This post written by Michael Wolgin.

USF&G WINS $260M JUDGMENT AGAINST REINSURERS FOR UNDERLYING CONSOLIDATED ASBESTOS SETTLEMENT

September 28, 2010 by Carlton Fields

USF&G won a significant judgment against its reinsurers under certain reinsurance agreements covering liabilities in the 1950’s and early 1960’s (particularly 1959) in New York state court. USF&G, after protracted and largely unsuccessful coverage litigation with its insured, Western Asbestos Company, settled consolidated underlying asbestos claims for approximately $987 million (the settlement generally placed the liabilities in calendar year 1959). USF&G thereafter looked to its reinsurers under certain reinsurance agreements that covered that time period. The defendant reinsurers resisted, including American Re, under a certain reinsurance agreement for which USF&G sought $202 million, and another pool of reinsurers, under a reinsurance treaty for which USF&G sought an additional $59 million. The defendants asserted numerous theories limiting or eliminating their liabilities altogether, and the parties all cross-moved for summary judgment. The court rejected each of the defendants’ arguments, focusing principally on the follow-the-fortunes doctrine, and awarded USF&G the approximately $260 million in judgments it sought, along with interest and costs. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604571/02 (N.Y. Sup. Ct. Aug. 20, 2010)

This post written by John Pitblado.

FEDERAL COURT DECLINES TO ABSTAIN FROM DECIDING REINSURANCE DISPUTE NOTWITHSTANDING FIRST-FILED STATE CASE

September 20, 2010 by Carlton Fields

A federal district judge has agreed with a magistrate judge’s recommendation to deny a motion to abstain where an earlier-filed reinsurance coverage lawsuit was pending in Connecticut state court. In May 2009, the defendant filed suit in state court, contending there was no coverage under two reinsurance agreements for losses the plaintiffs incurred regarding asbestos-related claims. Five months later, the plaintiffs filed suit in federal court, seeking monetary relief for the defendant’s alleged breaches of contract, and for a declaration of the parties’ rights and obligations. The federal suit concerned the same two reinsurance contracts at issue in the state suit, but also involved claims under eleven additional contracts between the parties.

The defendant asked the federal court to defer to the first-filed state suit, which itself had been stayed on the state court’s finding that the federal suit would be the better vehicle to resolve the disputes. The magistrate judge recommended against abstention. The parties submitted briefing on the defendant’s objections to the recommendation, including objections, opposition to the objections and a reply in support of the objections. In adopting the magistrate judge’s recommendations, the district judge noted that, while the same parties and two of the same contracts were involved in the state suit, the claims were more comprehensive in the federal court because of the additional contracts at issue, and because the damages claims were absent from the state suit. Seaton Insurance Co. v. Clearwater Insurance Co., No. 09-516 S (USDC D. Conn. Sept. 2, 2010).

This post written by Brian Perryman.

REINSURER ORDERED TO PAY $1.4 MILLION IN PRE-JUDGMENT INTEREST

September 15, 2010 by Carlton Fields

Massachusetts Mutual Life Insurance Company was awarded in excess of $1.4 million in pre-judgment interest, on a $32 million breach of contract award against its reinsurer, Employers Reinsurance Corporation. A Missouri federal court applying Connecticut law analyzed the issue under equitable principles, and found that the Connecticut statute authorizing pre-judgment interest sets a maximum of ten percent interest, but that the Court may, in its discretion, award a lesser amount. The Court found that the appropriate interest rate to be applied in the case was the one-year constant maturity Treasury rate adopted into the federal statute governing pre-judgment interest (and attested to in an affidavit indicating the current Treasury rate). The Court dated the accrual of interest back to April, 2006, when Employers Re stopped making reimbursement payments to Mass Mutual, which payments the Court previously held were required under the parties’ reinsurance treaty. Employers Reinsurance Corp. v. Massachusetts Mutual Life Ins. Co., No. 06-0188 (USDC W.D. Mo. August 19, 2010)

This post written by John Pitblado.

COURT PUNTS TO ARBITRATOR ON EFFECT OF VOLUNTARY DISMISSAL ON CLAIM AGAINST REINSURER

September 7, 2010 by Carlton Fields

A third-party complaint disputing the nature and extent of an obligation to reinsure an insurance company with respect to losses arising from assumed reinsurance risks has been dismissed without prejudice, to allow an arbitrator to decide the scope of a settlement agreement. Through a settlement agreement, the insurance company resolved its dispute with the defendant named in the original complaint. The original complaint was dismissed with prejudice. Thereafter, the insurance company contended that its claims against the third-party defendant reinsurer should be voluntarily dismissed without prejudice to allow arbitration of those parties’ claims. The reinsurer argued the voluntary dismissal should be with prejudice, as the insurance company’s claims in the third-party complaint were derivative of the claims in the original complaint. The court declined to dismiss with prejudice, finding that the question of whether the claims were, in fact, derivative was a question better left for the arbitrator. Eagle Star Insurance Co. v. Highland Insurance Co., Case No. 02-2165 (USDC S.D. Cal. July 22, 2010).

This post written by Brian Perryman.