Reinsurance Claims

ROMANIAN GOVERNMENT DEFEATS EFFORT TO MAKE IT PICK UP THE TAB ON REINSURANCE OBLIGATIONS

June 2, 2010 by Carlton Fields

A plaintiff insurance company (General Star National Insurance Company) unsuccessfully moved for entry of a writ of execution and restraining notice against the Romanian Bank of Foreign Trade and its purported successors-in-interest. In an underlying action in an Ohio federal district court, General Star alleged that a Romanian company (Astra) acquired the reinsurance obligations a state-owned Romanian insurance company, but failed to remit funds owed to General Star under certain reinsurance contracts. The Ohio court found that the Romanian goverment was Astra’s alter ego and permitted General Star to attach the government’s assets to satisfy a default judgment in General Star’s favor.

Unable to satisfy its judgment in Ohio, General Star sought to execute the judgment in New York, arguing that the Romanian Bank of Foreign Trade and its successors were alter egos of the Romanian government. The argument was rejected, as General Star could not demonstrate grounds for disregarding the Bank of Foreign Trade’s or its successors’ corporate forms. Among other things, there was no proof the Romanian government exercised daily control over these entities. Moreover, although the corporate form may be disregarded if necessary to prevent fraud or injustice, General Star failed to persuade the Court that the equities weighed in favor of piercing the corporate veil. There was no showing that the corporate form was used by the Romanian government to avoid payment. The writ of execution and restraining notice were denied. General Star National Insurance Co. v. Administratia Asigurarilor de Stat, Case No. 18 MS 302 (USDC S.D.N.Y. May 12, 2010).

This post written by Brian Perryman.

No McCarran-Ferguson Reverse Pre-Emption Under State Insurance Insolvency Statutes

April 28, 2010 by Carlton Fields

Acting as Rehabilitator of Centaur Insurance Company, the Director of the Illinois Department of Insurance, Michael McRaith, brought suit against two reinsurers, seeking a declaration that they are obligated to reimburse Centaur for portions of a $32 million settlement it agreed to in resolving underlying asbestos litigation. The reinsurers had removed the case to federal court, but McRaith sought a remand based on the doctrines of McCarran-Ferguson reverse preemption and Burford abstention. The court denied the motion to remand under both theories, finding that none of the McCarran-Ferguson reverse preemption criteria had been met, as the state law issues pertaining to the rehabilitation proceedings did not specifically relate to the business of insurance, and there was not a clear conflict with federal law vis-à-vis state insurance solvency rehabilitation procedure. Burford abstention was also inappropriate because the dispute pertained less to the “complex [state] regulations pertaining to insolvent insurers” than to a simple breach of contract dispute between the parties under certain reinsurance certificates. McRaith v. American Re-Insurance Co., No. 09-C-4027 (USDC N.D. Ill. Feb. 17, 2010).

This post written by John Pitblado.

COURT ORDERS PRE-PLEADING SECURITY POSTED

April 19, 2010 by Carlton Fields

In a dispute regarding two quota share reinsurance agreements, Plaintiffs Arrowood Surplus Lines Insurance Company and Arrowood Indemnity Company sought an order requiring Gettysburg National Indemnity to post pre-pleading security pursuant to Connecticut statute. Under Connecticut law, before an “unauthorized insurer” can file a pleading in a case against it, it must either post a pre-pleading security, procure proper authorization to do business in Connecticut or seek an order from the court dispensing with pre-pleading security. The District Court for the District of Connecticut determined that Gettysburg National was required to post pre-pleading security in an amount determined by the contract under the reinsurance agreement between Arrowood and Gettysburg National. Thus, Gettysburg National was ordered to post pre-pleading security in the amount of $660,389. Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat. Ins. Co., Case No. 09-000972 (D. Conn. Apr. 6, 2010).

This post written by John Black.

PREJUDGMENT INTEREST: COVERED UNDER REINSURANCE POLICY; POSTJUDGMENT INTEREST: NOT SUBJECT TO INDEMNIFICATION

April 8, 2010 by Carlton Fields

OHIC Insurance sued to recover payment of statutory interest and legal expenses incurred in a 1998 Wisconsin medical malpractice lawsuit pursuant to a clause in a reinsurance agreement with ERC indemnifying OHIC for certain “losses” and “claim expenses.” Both parties moved for summary judgment, leaving the Court to decide two primary issues: (1) whether the “prejudgment” interest imposed pursuant to a Wisconsin statute is covered by the reinsurance agreement; and (2) whether a portion of the “postjudgment” interest imposed by statute and the legal expenses incurred by OHIC in defending the malpractice suit are covered by the reinsurance agreement.

Resolving question 1, the Court concluded that OHIC’s payment of the prejudgment interest constituted a “loss” under the reinsurance agreement. Thus, ERC was obligated to reimburse OHIC as to this loss. Conversely, the Court determined that OHIC was not entitled to indemnification for a portion of the legal expenses and postjudgment interest incurred in defending the malpractice suit. In addition to these determinations, the Court also granted ERC’s request to exclude OHIC’s expert’s opinion and granted ERC’s motion to file sur-reply briefs. OHIC Ins. Co. v. Employers Reinsurance Corp., Case No. 08-cv-93 (S.D. Ohio Mar. 8, 2010).

This post written by John Black.

FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT IN FAVOR OF REINSURER ASSERTING NONCOMPLIANCE WITH PROMPT NOTICE PROVISION

April 5, 2010 by Carlton Fields

A federal district court adopted in part, and vacated in part the report and recommendation of a magistrate judge on defendant TIG Insurance Company’s motion for partial summary judgment, which sought rulings that: (1) Illinois law governed a reinsurance coverage dispute and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; (2) AIU Insurance Company breached the reinsurance contracts by providing late notice of its 2001 claim; and (3) TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982. AIU issued four umbrella insurance policies covering the period from October 1, 1978 to October 1, 1982. AIU subsequently reinsured its exposure under three of the umbrella insurance policies, covering the period from October 1, 1978 to October 1, 1981, with TIG’s predecessor company under nine reinsurance certificates. AIU later sought reimbursement for certain settlement payments pursuant to the reinsurance certificates by submitting a reinsurance claim to a TIG affiliate, which responded by citing the certificates’ prompt notice provision, and reserving its rights. On this denial, AIU brought an action alleging breach of contract and seeking declaratory relief based on TIG’s failure to pay amounts due.

The magistrate judge assigned found that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. The magistrate judge further found that TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982 because AIU conceded that after filing its complaint it became aware that TIG had not, in fact, reinsured AIU for this period. The magistrate judge, however, further recommended that TIG’s motion be denied without prejudice to the extent it sought a ruling that AIU breached the reinsurance certificates by failing to provide prompt notice of a 2001 claim. On that point, questions clouded the issue of AIU’s knowledge of potential claims. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Feb. 11, 2010) (report and recommendation of magistrate judge).

The district judge declined to adopt the report and recommendation, except to the extent the parties did not dispute that coverage did not exist between October 1, 1981 and October 1, 1982. Because discovery was still being conducted on all the issues, summary judgment was premature. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Mar. 9, 2010) (order of district judge).

This post written by Brian Perryman.