Reinsurance Claims

EXISTENCE OF DEEMER CLAUSE UNDOES JUDGMENT AGAINST REINSURER

September 21, 2009 by Carlton Fields

We previously reported (April 7, 2008) on a federal district court’s interpretation of the liability limit of an employers’ liability reinsurance agreement in a summary judgment setting, finding in favor of the position advanced by the reinsured. We subsequently noted (August 6, 2008) the district court’s entry of judgment in the total amount of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. It appears, however, that the district court was in error, as the Third Circuit vacated the judgment, and remanded the case for further proceedings. The central issue was whether the warranty provision in the agreement limited the reinsurer’s liability for EL claims. The district court held that the contract was unambiguous and contained no such limitation. The Third Circuit held the problem with this conclusion was that it fails to account for the phrase “or so deemed” in the warranty provision. The existence of this “deemer clause” meant the warranty provision could not be interpreted as the district court saw it, solely as a promise or guarantee. The consequence of the reinsured’s failure to comply with the warranty is that, at least in some circumstances, the reinsured was deemed to have complied, so the deemer clause effectively redefined the EL limits in the underlying policies in a way that limited the reinsurer’s liability. Princeton Insurance Co. v. Converium Reinsurance (North America) Inc., No. 08-2136 (3d Cir. Sept. 14, 2009).

This post written by Brian Perryman.

COURT DISMISSES EQUITABLE CONTRIBUTION CLAIM IN MULTI-PARTY COVERAGE DISPUTE

September 15, 2009 by Carlton Fields

The parties to this insurance dispute sought to determine which insurance company, if any, must provide coverage to Charleston Area Medical Center, Inc. (“CAMC”) in regards to a verdict and resulting settlement. In the Second Amended Complaint, the plaintiff, Executive Risk Indemnity, Inc. (“ERI”), asserted two claims, which were a declaratory judgment action and a claim for equitable contribution against a captive insurance company, Vandalia Insurance Company (“Vandalia”), and an assumption reinsurer, Employers Reinsurance Corporation (“ERC”). CAMC and Vandalia brought cross claims against ERC, and ERC moved to dismiss all claims.

On ERI’s equitable contribution claim, the court found that one part of the policy assumed by ERC was in excess to the policy issued by ERI and that two other parts of the policy assumed by ERC did not insure the same risk as the policy issued by ERI. Thus, the court dismissed ERI’s equitable contribution claim. The court then denied the dismissal of ERI’s, CAMC’s, and Vandalia’s declaratory judgment cause of actions against ERC because a substantial live controversy existed between the parties and the issuance of a declaration of rights or other legal relations was warranted. Executive Risk Indem., Inc. v. Charleston Area Med. Ctr., Inc., Case No. 08-00810 (USDC S.D. W. Va. July 30, 2009).

This post written by Dan Crisp.

CASE UPDATE: JUDGMENTS REVERSED BY HOUSE OF LORDS IN APPEALS ASKING WHETHER COVERAGE UNDER A PROPORTIONAL FACULTATIVE REINSURANCE CONTRACT IS COEXTENSIVE WITH COVERAGE UNDER THE INSURANCE CONTRACT

September 8, 2009 by Carlton Fields

In an April 8, 2008 post, we reported on a UK Court of Appeals decision, Wasa International Insurance Co. v. Lexington Ins. Co., [2008] EWCA Civ. 150 (Feb. 29, 2008), reversing a lower court’s decision denying reinsurance coverage despite a follow the fortunes provision, based on a finding that the damages occurred outside the coverage period of the reinsurance, and despite the conclusion of a US court on the underlying claim finding liability for damage occurring outside the coverage period of the underlying policy. The Court of Appeals found that the coverage provision of the reinsurance should be interpreted in the same manner as the coverage provision in the underlying insurance. The Court of Appeals agreed that the insurance and reinsurance contracts were not entirely “back-to-back” in terms of the coverage periods, but concluded that although there were some differences in the contracts, the parties intended that they should have the same effect, so the reinsured’s settlement of the insurance claim did fall within the terms of the reinsurance contract.

The UK House of Lords allowed consolidated appeals from the Court of Appeals. These appeals raised the question of the extent to which the coverage under a proportional facultative reinsurance contract is, or should be construed as being, coextensive with the coverage under the insurance contract. The House of Lords, as articulated by Lord Collins, found that the reinsurer takes a proportional share of the premium and bears the risk of the same share of any losses. Normally reinsurance of that kind is back-to-back with the insurance, and the reinsurer and the original insurer enter into a bargain that if the insurer is liable under the insurance contract, the reinsurer will be liable to pay the proportion which it has agreed to reinsure. Any loss within the coverage of the insurance will be within the coverage of the reinsurance. In the view of Lord Phillips, the result of the appeals was dictated by the fact that the subject reinsurance contract was governed by English law and by the principle under English law that a reinsurance contract in relation to property is a contract under which the reinsurers insure the property that is the subject of the primary insurance; “it is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance.” Lexington Insurance Co. v. AGF Insurance Ltd., [2009] UKHL 40 (July 30, 2009).

This post written by John Black.

COMMUTATION, SETTLEMENT AGREEMENT, AND RELEASE BETWEEN INSURER (IN LIQUIDATION) AND REINSURER APPROVED

September 3, 2009 by Carlton Fields

A Pennsylvania state court recently approved a Commutation, Settlement Agreement, and Release (“Settlement Agreement”) between Reliance Insurance Company (“Reliance”) and Munich Reinsurance America, Inc., formerly known as American Re-Insurance Company (“Munich Re”). Under the Settlement Agreement, Munich Re agreed to pay the Reliance estate $73,250,000 to terminate and commute the Reinsurance Agreement and release Munich Re from all liability under the Reinsurance Agreement. The court approved the Settlement Agreement, accepting representations that the Settlement Agreement constituted a fair and reasonable settlement of Munich Re’s past, present, and future obligations to the Reliance estate. Ario v. Reliance Ins. Co., No. 269 M.D. 2001 (Pa. Commw. Ct. July 15, 2009).

This post written by Dan Crisp.

PARTIES STIPULATE TO DISMISSAL IN TIG V. CENTURY INDEMNITY SUIT

September 2, 2009 by Carlton Fields

We previously reported on May 20, 2009 and June 25, 2009, about TIG Insurance Company’s suit against Century Indemnity Company, which alleged that Century breached its reinsurance agreement with TIG’s predecessor-in-interest, in connection with certain reinsured losses arising from underlying Honeywell asbestos suits. As previously reported, in April, 2009 the Court allowed TIG to amend its complaint to add breach of contract claims on two additional reinsurance contracts. In June, 2009, the Court denied Century’s motion to transfer venue from New York City to Philadelphia. All parties have now stipulated to dismissal with prejudice of all claims and cross-claims. TIG Ins. Co. v. Century Indemnity Co., No. 08-7322 (USDC S.D.N.Y. July 17, 2009).

This post written by John Pitblado.