Reinsurance Claims

REINSURANCE DISPUTE VOLUNTARILY DISMISSED AFTER ENTRY OF TOLLING AGREEMENT

March 3, 2010 by Carlton Fields

Republic Indemnity Co. of America voluntarily dismissed its suit against Transatlantic Reinsurance Company, shortly after the parties sought entry of a tolling agreement. Presumably, the dismissal indicates that the parties have agreed to resolve their dispute by an alternative dispute resolution. Republic alleged that Transatlantic breached obligations under a facultative reinsurance certificate allegedly requiring it to reimburse Republic for certain costs under excess policies issued by Republic to its insured, a distributor of insulation products who had been sued in connection with asbestos-related injuries stemming from the 1980’s. Republic Indemnity Co. of America v. Transatlantic Reinsurance Co., No. 09-Civ-8871 (USDC S.D.N.Y. Jan. 19, 2010).

This post written by John Pitblado.

ENGLISH COURT OF APPEALS AFFIRMS RULING CONFERRING EXCLUSIVE JURISDICTION ON ENGLISH COURTS, SETS ASIDE RULING CONFINING FRAUD TO CLAIMS OF DECEIT

February 17, 2010 by Carlton Fields

This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.

COURT DENIES SERBIAN REINSURER’S MOTION FOR RECONSIDERATION OF REMAND ORDER

February 11, 2010 by Carlton Fields

In the latest development in the case of DiNallo v. Dunav Ins. Co., defendant Dunav moved for reconsideration of the Southern District of New York’s order remanding the suit to New York State Court. Dunav argued that the Court’s order overlooked the fact that Dunav Re was a Serbian reinsurance company rather than Underwriters at Lloyds. Further, Dunav Re asserted that the Reinsurance treaties were among the first entered into by the company in the US and it lacked the sophistication and expertise of insurance companies who regularly did business in London or the US. Dunav Re additionally argued that it thought that the Service of Suit provision was “required by law” and that none of the parties indicated that Dunav Re was being asked to waive its removal rights. The Court determined that, given the strict standard for motions for reconsideration, Dunav Re had failed to demonstrate that the Court had overlooked important factors. Further, to the extent that Dunav Re grounded its motion on previously unconsidered issues, the motion for reconsideration was untimely. Dunav Re’s motion was denied. DiNallo v. Dunav Ins. Co., Case No. 09-5575 (S.D. N.Y. Feb. 1, 2010).

This post written by John Black.

REINSURER NOT LIABLE FOR LOSSES, “FOLLOW THE FORTUNES” CLAUSE NOT APPLICABLE

February 2, 2010 by Carlton Fields

Royal Surplus Lines Insurance Company, the plaintiff’s predecessor, assumed the liabilities and acquired the related assets of an insurer that provided a one-year general liability policy to Equity Residential (“Equity”). Employers Reinsurance Company, the defendant’s predecessor, reinsured this policy until it terminated the reinsurance agreement on August 18, 2000. In this action, the plaintiff, Arrowood Surplus Lines Insurance Company (“Arrowood”), sought reimbursement for a settlement payment to Equity and claim expense in connection with losses occurring between December 15, 2000 and December 15, 2002, and the defendant, Westport Insurance Corporation (“Westport”), moved for judgment on the pleadings, arguing that Westport has no liability for losses after December 15, 2000. Arrowood argued that the Equity settlement was covered under the reinsurance agreement under the “follow the fortunes” clause.

The court, however, found that the losses under the Equity policy were outside of the reinsurance agreement, which stated that a policy issued for a period of more than one year shall be considered as “becoming effective” on the policy’s anniversary date while the policy is in force. Even if the runoff option was exercised, the policy would only be in effect until the anniversary date. Therefore, the reinsurance coverage period was limited to one year at a time, regardless of the length of the underlying insurance contract. Losses after the anniversary date would not be covered because the Equity policy could not “become effective” under a terminated reinsurance agreement. Moreover, the “follow the fortunes” clause only applies to a reinsurance contract in force. The court thus granted Westport’s motion for judgment on the pleadings. Arrowood Surplus Lines Ins. Co. v. Westport Ins. Corp., Case No. 08-1393 (USDC D. Conn. Jan. 5, 2010).

This post written by Dan Crisp.

WHICH COURT WANTS THIS CASE?

February 1, 2010 by Carlton Fields

AXA Belgium S.A. (“AXA”) reinsured Century Indemnity Co. (“Century”) under certain treaties dating back to the 1970’s. In 2005, Century disputed AXA’s fulfillment of certain payment obligations, and the parties arbitrated the matter. The award, rendered in 2007, was in Century’s favor on a number of issues, and ordered AXA to make payments to Century. After AXA refused to make the ordered payments, Century filed an action in Pennsylvania in 2009 to confirm the award, and the award was confirmed. Thereafter, Century claims AXA still did not make required payments, and moved for contempt in the Pennsylvania action.

For its part, AXA claims that correlated issues involving the parties that were not subject to the arbitration impact AXA’s payment obligations because they entitle AXA to offsets or credits against its payment obligations ordered in the arbitration and confirmed in court. AXA thus filed its own action in New York federal court, seeking to compel arbitration of the offset issues it claims impact its payment obligations. The New York court deferred and transferred the action, suggesting that AXA was engaged in forum shopping, and finding that the Pennsylvania court was already familiar with the issues and was the appropriate forum for AXA to raise its claims pertaining to the offset. However, in an Order ironically issued the same day as the New York Order, the Pennsylvania court – plainly displeased by the bitter tone of the parties’ dispute – refused to enjoin the New York litigation, but did not grant Century’s motion for contempt, based on its review of the arbitration award, finding that the award did not command the payment of a sum certain by AXA. It also held that the arbitrability of the offset issue should be determined in the New York action. Both courts have now deferred the resolution of this issue to the other court. AXA Belgium, S.A. v. Century Indemnity Co., 09-9703 (USDC S.D.N.Y. Jan. 11, 2010); Century Indemnity Co. v. Certain Underwriters at Lloyd’s, No. 09-94 (USDC E.D.Pa. Jan 11, 2010).

This post written by John Pitblado.