Reinsurance Claims

COURT DISMISSES CLAIMS AGAINST AIG FOR LACK OF STANDING

August 31, 2009 by Carlton Fields

As reported in our March 27, 2008 and April 6, 2009 posts, The National Council on Compensation Insurance (“NCCI”), as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool (“the Pool”), brought claims against AIG and several of its subsidiaries (“AIG”). The suit generally alleged that payments made by AIG in resolution of charges against it by the New York Attorney General’s office arising from an allegedly fraudulent workers compensation premium accounting scheme, were insufficient to compensate Pool members for their losses.

AIG moved to dismiss the claims brought by NCCI, asserting (1) NCCI lacked standing to bring claims in its capacity as “attorney-in-fact;” (2) NCCI suffered no direct injury; and (3) NCCI did not have associational standing to bring the claims on behalf of individual companies. The Court agreed with AIG, finding that there was no transfer of title or assignment of interest of any affected rights in the agreement Pool members made with NCCI to act as “attorney-in-fact.” The Court also agreed that NCCI suffered no direct injury of its own, and that NCCI could not demonstrate associational standing because of the underlying conflicts between member companies. However, while the Court dismissed the claims, it noted that the litigation continues because individual pool members’ claims were “reassigned for relatedness” to the Court, and those Pool members now seek to bring those claims as a class action. National Council on Compensation Ins., Inc. v. American Int’l Group, Inc., No. 07-C-2898 (USDC N.D. Ill. August 20, 2009).

This post written by John Pitblado.

APPEALS COURT DISMISSES CLAIMS AGAINST REINSURER AS UNRIPE

August 19, 2009 by Carlton Fields

New Hampshire Insurance Company brought suit in the Turks and Caicos Islands against its reinsurer, Magellan Reinsurance Company, claiming that Magellan failed to properly fund a trust set up by the parties with a Texas bank, for the deposit by Magellan of all unearned premium reserves plus outstanding loss reserves at the end of each quarter. The premiums derived from a book of vehicle service contract reimbursement policies. New Hampshire, under the terms of the reinsurance agreement, was entitled to withdraw the funds for certain purposes specified in the reinsurance agreement. New Hampshire claimed that Magellan underfunded the trust by approximately $1.4 million. Reversing the holding of the Chief Justice of the Privy Council, the Court of Appeals held that New Hampshire lacked standing to presently pursue the claim, essentially on grounds of ripeness, insofar as it failed to establish any legal right to withdrawal of the amount of funds it claimed were improperly withheld, for any of the specific purposes of withdrawal set forth in the reinsurance agreement. Rather, it merely established that such legal claim of right to those funds would accrue in the future. The appeal was thus dismissed. New Hampshire Ins. Co. v. Magellan Reinsurance Co. Ltd., [2009] UKPC 33 (July 15, 2009)

This post written by John Pitblado.

SELF-INSURER GROUP NOT ENTITLED TO COVERAGE THROUGH STATE INSURANCE GUARANTY ASSOCIATION

August 18, 2009 by Carlton Fields

On February 9, 2009, we reported on a Louisiana appellate court holding that the Louisiana Safety Association of Timbermen Self-Insurers Fund (the “Fund”) was entitled to coverage because the Fund was not an insurer and the excess coverage obtained by the Fund from Reliance Indemnity Company, which became insolvent in 2001, was not reinsurance. In this case, the Supreme Court of Louisiana reversed the judgment of the appellate court. First, the court held that the Fund was an insurer based on the court’s interpretation of state statutes and the Fund’s formative documents, which undertook to indemnify members for the full amount of workers’ compensation claims, which members paid premiums and assessments to the Fund for that purpose. Second, in finding that the excess coverage was reinsurance, the court determined that the contractual relationship between the Fund and the insolvent insurer presented a classic instance of reinsurance. Louisiana Safety Assoc. of Timbermen Self-Insurers Fund v. Louisiana Ins. Guaranty Assoc., Case No. 2009-0023 (La. June 26, 2009).

This post written by Dan Crisp.

SELF-INSURED EMPLOYERS HELD NOT TO BE “INSURERS” FOR PURPOSES OF INSURANCE GUARANTY LAWS

August 13, 2009 by Carlton Fields

The Nevada Supreme Court held that two employers (MGM and Steel Engineers), who operated as self-insured employers under the state’s workers’ compensation act, were not barred from recovering reimbursement from the Nevada Insurance Guaranty Association because they were not “insurers” for purposes of the act. Thus, they could recover payment for their covered workers’ compensation claims payable by their insolvent excess insurance carrier, for which the Association was otherwise liable. If MGM or Steel Engineers had been deemed “insurers,” their claims would have been outside the scope of “covered claims,” and the Association would not have covered them. Uncertain as to the meaning of the term “insurer,” the Association sought a declaration of its obligations. The trial court held that MG and Steel Engineers were “insurers” and precluded them from seeking reimbursement. But the Supreme Court reversed and remanded, holding that the term “insurer” has a plain meaning, and that MGM and Steel Engineers did not fall within a reasonable connotation of the term, since they were mere employers, and did not engage in the business of insurance. MGM Mirage v. Nevada Insurance Guaranty Association, No. 49445 (Nev. June 25, 2009).

This post written by Brian Perryman.

DEAL OF THE CENTURY (INDEMNITY COMPANY): REINSURANCE DISPUTE SETTLED

July 16, 2009 by Carlton Fields

Century Indemnity Company has settled and voluntarily dismissed its lawsuit against Munich Re. Century’s complaint alleged that Munich Re failed to pay amounts due under several facultative reinsurance certificates through which it reinsured Century. Specifically, Munich Re agreed to indemnify Century’s predecessor in interest, Insurance Company of North America, for payments made pursuant to various insurance policies covering asbestos losses. Century sought nearly $2.26 million in unpaid reinsurance billings. As part of the settlement, Century dismissed that portion of its complaint seeking a declaratory judgment that Munich Re was obligated to pay all future billings. Century Indemnity Co. v. Munich Reinsurance Am., Inc., Case No. 2:08-CV-5666-LDD (USDC E.D. Pa. May 22, 2009).

This post written by Brian Perryman.