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Reinsurance Claims

ASSIGNEE OF REINSURANCE CLAIMS NOT EXEMPT FROM ARBITRATION

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Plaintiff, the assignee of remaining reinsurance claims possessed by the estate of the insolvent insurer, originally brought an action against the defendants in state court, but the defendants removed to federal district court by alleging that the New York Convention (the “Convention”) and the Federal Arbitration Act governed the arbitration clauses in the excess-of-loss reinsurance contracts. Plaintiff then moved to remand and defendants moved to stay the action and compel arbitration. In granting the defendants’ motion, the district court ruled that the parties’ dispute was encompassed by the arbitration clauses and thus fell under the Convention, the liquidator’s right not to be compelled to arbitrate was not assigned to the plaintiff, and the service-of-suit clauses in the reinsurance contracts did not constitute a waiver of the defendants’ right to removal. B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyds, London, Case No. 08-3435 (USDC S.D.N.Y. Mar. 31, 2009).

This post written by Dan Crisp.

APPELLATE COURT AFFIRMS DISMISSAL OF CEDENT’S LEGAL MALPRACTICE AND BREACH OF FIDUCIARY DUTY CLAIMS

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A California appellate court recently affirmed the dismissal of a cedent’s legal malpractice and breach of fiduciary duty claims pursuant to California's one-year statute of limitations. This dispute involved the legal representation of the cedent insurer with regard to the coverage of a claim tendered to the insurer by one of its insureds. In affirming the dismissal, the court found that the insurer sustained “actual injury” more than one year prior to bringing suit. The statute of limitations was not tolled because representation of the cedent ended more than one year prior to bringing the suit, and the claim for breach of fiduciary duty is also governed by the one-year statute of limitations. Norcal Mut. Ins. Co. v. Sedgwick, Detert, Moran & Arnold, Case No. B203357 (Cal. Ct. App. Mar. 19, 2009).

This post written by Daniel Crisp.

FEDERAL COURT STRIKES AIG’S DEFENSES AND DISMISSES SOME OF ITS THIRD PARTY CLAIMS IN ACTION BROUGHT BY NATIONAL WORKERS COMPENSATION REINSURANCE POOL

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As reported in our post on March 27, 2008, The National Council on Compensation Insurance, Inc. (“NCCI”), as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool (collectively “The Pool”) sued AIG and certain of its subsidiaries for allegedly engaging in a fraudulent scheme to avoid paying their proportionate share of the insurance costs in the residual market for workers compensation insurance.

AIG asserted a number of special defenses and counterclaims to NCCI’s complaint, and asserted third-party claims against certain members of the Pool. The defenses and claims were all generally based on the theory that various Pool members engaged in a premium accounting methodology similar to that utilized by AIG and found by the New York Attorney General to have been unlawful in various respects in its investigation of AIG. NCCI moved to strike the special defenses, and moved to dismiss the counterclaims. Affected members of the Pool moved to dismiss the third-party claims. The Court granted NCCI’s motion to strike each of the special defenses, but denied its motion to dismiss the counterclaims, finding that NCCI is itself a party, and not merely a representative of Pool members. The Court granted in part and denied in part the Pool members’ motion to dismiss, allowing AIG to maintain claims for breach of fiduciary duty, fraud, and unjust enrichment against specified Pool members. The Court held that New York law applies to these common law claims. National Council on Compensation Ins., Inc. v. American International Group, Inc., Case No. 07-2898 (USDC N.D.Ill. Feb. 23, 2009).

This post written by John Pitblado.

FEDERAL COURT GRANTS SUMMARY JUDGMENT TO REINSURER BASED ON EXCLUSION IN UNDERLYING POLICY FOR CLAIMS SEEKING SOLELY EQUITABLE RELIEF

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A federal court granted summary judgment to Northfield Insurance Company (“Northfield”) on claims brought by the Pennsylvania Counties Risk Pool (“PCORP”), and the Counties of Monroe and Beaver, Pennsylvania (“the Counties”), after Northfield declined a claim under a reinsurance agreement with PCORP, which reinsured insurance issued by PCORP to the Counties. The plaintiffs sought coverage pertaining to an underlying class action suit brought by residents against the Counties, which suit alleged that various county officials failed to provide state-mandated per diem foster care payments to “kinship caregivers” of special needs foster children. The suit sought declaratory and injunctive relief, as well as costs and attorneys fees. The underlying suit eventually settled, with the result that PCORP paid an amount which “include[ed] the settlement and attorneys fees and litigation expenses,” of $213,799.71.

Northfield denied the reinsurance claim based in part on an endorsement to the underlying policy which excluded coverage for “any costs or expenses incurred by the Assured in any claim or suit seeking solely declaratory, injunctive, or equitable relief, including but not limited to any attorney’s fees or expenses incurred to defend the claim.” The Court agreed with Northfield that, strictly confined to the four corners of the operative pleading, the underlying suit did not seek compensatory damages or any other form of legal relief, but was limited in its demand to solely declaratory and injunctive relief, both of which are strictly equitable forms of relief. The Court disagreed with the plaintiffs that the catch-all claim for relief alleged in the underlying suit for “such additional or alternative relief which [the] Court deems just, proper, or equitable” did not negate the proper application of the exclusion. Pennsylvania County Risk Pool v. Northland Insurance, Case No. 07-00898 (USDC M.D. Pa. Feb. 27, 2009).

This post written by John Pitblado.

CASE UPDATE: MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION LOSES MOTION FOR SUMMARY JUDGMENT IN BREACH OF FIDUCIARY DUTY CASE

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In two prior posts, this blog reported on a breach of fiduciary duty case filed against Directors of the Mississippi Windstorm Underwriters Association (MWUA) for failing to secure adequate reinsurance to cover the 2004-2005 hurricane seasons. (MWUA is composed of all insurers who write property insurance on a direct basis anywhere in Mississippi). The defendants filed a motion for summary judgment arguing that they did not owe any fiduciary duty to the plaintiffs and asserted that, regardless, the decisions made by the alleged Board members relating to the 2004-2005 reinsurance purchase met the applicable standard of care and are protected from liability by the business judgment rule.

The district court agreed that the business judgment rule applied, but denied summary judgment concluding that there were “myriad factual disputes regarding whether the decisions regarding reinsurance were indeed an exercise of good business judgment.” Association Casualty Ins. Co., et. al. v. Allstate Ins. Co., et. al, Case No. 07-525 (USDC S.D. Miss. July 29, 2008).

This post written by Lynn Hawkins.