Reinsurance Claims

COURT DENIES MOTION TO DISMISS AMENDED PLEADING, HOLDING THAT DEFECTS IN PREVIOUSLY DISMISSED COMPLAINT WERE CURED

March 13, 2009 by Carlton Fields

In a previous post dated August 13, 2008, we noted that a federal court dismissed a complaint brought by Swiss Reinsurance America Corporation (“Swiss Re”) against the Access General Agency, Inc., Access Claims Administrators, Inc., and Access General Insurance Agency of California (“Access Entities”), alleging that the Access Entities failed to manage and administer claims properly under Swiss Re’s predecessors’ reinsurance program. The Court's opinion granted the motion to dismiss on the basis that Swiss Re’s earlier complaint failed to differentiate claims and allegations between the related but separate Access Entities.

Swiss Re amended its complaint and the defendants again filed a motion to dismiss. This time, the Court denied the defendants’ motion, finding that Swiss Re adequately cured its previous pleading by: (1) separating counts against the various Access Entities and identifying the various contracts under which claims were brought against each defendant; and (2) by pleading sufficient facts in support of its claim that the Access Entities should be jointly liable under an “alter ego” theory. Swiss Reinsurance America Corp. v. Access General Agency, Inc., Case No. 07 -3954 (USDC N.D. Ill. Jan. 26, 2009).

This post written by John Pitblado.

REINSURANCE COMPANIES VICTORIOUS IN SECURITIES FRAUD CLASS ACTIONS ARISING OUT OF CAT LOSSES

March 10, 2009 by Carlton Fields

Two reinsurance companies have prevailed on motions to dismiss in shareholder securities law putative class actions over the restatements of loss levels from cat events, illustrating that the process of estimating cat losses accurately may be challenging, and that companies are not guarantors of the completeness and accuracy of that process. PXRE prevailed in a lawsuit alleging a scheme to understate losses arising out of a series of hurricanes that devastated the Gulf Coast in 2005, restating the amount of losses several times. Judge Sullivan granted PXRE’s motion to dismiss, finding that plaintiffs “failed to plead that defendants were reckless in not knowing about the flaws in PXRE’s calculation of its loss estimates.” In re PXRE Group, Ltd., Securities Litigation, No. 06 CIV 3410 (S.D.N.Y. March 5, 2009). Judge Sullivan issued an order in a similar individual case filed against PXRE implying that he will follow the same course in that action. Anegada Master Fund Ltd v. PXRE Group Ltd., No. 08 Civ 10584 (S.D.N.Y. March 5, 2009).

Quanta Capital Holdings Ltd. (“Quanta”) issued several estimated loss projections relating to Hurricanes Katrina and Rita that ranged from $42-$68.5 million, resulting in multiple rating downgrades, forcing Quanta to cease writing new insurance and reinsurance business and to sell its remaining insurance and reinsurance portfolios. Noting the conjectural nature of insurance reserves established for losses that have been incurred but not yet reported, the court ruled that the Complaint did not put forth sufficient factual allegations such that the court could plausibly find that the loss estimate included in the offering documents was a material untruth at the time it was made, especially since the adjusted estimate was based on a single business interruption claim. The district court also held that the Complaint did not meet applicable heightened pleading requirements, and that some of the claims failed because the $68.5 million preliminary loss estimate was protected by the “bespeaks caution” doctrine. Zirkin v. Quanta Capital Holdings Ltd., Case No. 07-851 (USDC S.D.N.Y. Jan. 22, 2009).

This post written by Rollie Goss.

FEDERAL APPEALS COURT AFFIRMS DISMISSAL OF CLAIMS BY CONSTRUCTION COMPANY AGAINST ITS INSOLVENT INSURER’S REINSURER

February 23, 2009 by Carlton Fields

We previously posted on July 24, 2007 about a case brought by Jurupa Valley Spectrum, LLC (“Jurupa”) against its insurer’s reinsurer, National Indemnity Company (“NICO”). NICO reinsured Frontier Insurance Company, which was declared insolvent, and against whom Jurupa had an outstanding claim under a surety bond which Frontier issued to Jurupa. The case was dismissed by a New York federal court.

On February 4, 2009, the Second Circuit Court of Appeals affirmed the decision, agreeing with the trial court that (1) the contract between Frontier and NICO did not contemplate direct action by Frontier’s insureds against NICO; (2) the contract could not fairly be read to contain a “cut through” provision, as the contract made clear that all rights against the reinsurer inhered only with the insurer; and (3) the contract did not violate of a New York statute, which requires reinsurance contracts to contain “cut through” provisions when an insurer issues a surety bond in an amount exceeding ten percent of its surplus, because at the time of issuance of the surety bond, Frontier’s surplus exceeded ten percent of the value of Jurupa’s bond. Jurupa Valley Spectrum, LLC v. National Indemnity Co., No. 07-3211 (2d Cir. Feb. 4, 2009).

This post written by John Pitblado.

APPELLATE COURT HOLDS THAT SELF-INSURER GROUP IS ENTITLED TO COVERAGE THROUGH STATE INSURANCE GUARANTY ASSOCIATION

February 9, 2009 by Carlton Fields

The Louisiana Safety Association of Timbermen – Self Insurers Fund (the “Fund”) is a self-insurance group formed by member companies as a means of securing workers compensation coverage for their employees. In 1998, the Fund obtained statutorily required excess coverage from Reliance Indemnity Company, and in 2001 Reliance became insolvent. The Fund filed proofs of claim against Reliance with the Louisiana Insurance Guaranty Association (“LIGA”). LIGA denied the claims, asserting that the Fund was an insurer and the excess coverage was reinsurance, thus removing the claims from coverage by LIGA under the terms of governing state statutes. The fund brought suit to establish coverage for all past and future claims.

The trial court granted summary judgment to the Fund. The Louisiana Appellate Court affirmed, citing the terms of applicable workers compensation and insurance guaranty association statutes to support its determination that the excess coverage the Fund obtained was not “reinsurance” as that term is used under applicable statutes and that the Fund is not an “insurer” causing it to become statutorily exempt from coverage through LIGA. The Court also rejected LIGA’s argument that a statutory exclusion of coverage to any self-insured corporation with a net worth above $25,000,000 should apply to the Fund’s member companies in the aggregate. The court found that the member companies were not “affiliates” of one another as the term is used in the statute and thus held that their net worth should not be aggregated for purposes of the statutory exclusion. Louisiana Safety Assoc. of Timbermen – Self Insurers Fund v. Louisiana Ins. Guaranty Assoc., No. 43,615–CA (La. Ct. App. Dec. 3, 2008).

This post written by John Pitblado.

REINSURER LIABLE UNDER WORKERS’ COMPENSATION POLICY

January 21, 2009 by Carlton Fields

PEO Services provided SMJ Environmental with laborers to perform asbestos removal at construction sites. SMJ hired Feliz Amado Jara as one such laborer, retained the right to control and direct his work, and furnished him with the equipment necessary to do his job. When PEO could no longer provide SMJ with workers’ compensation coverage, SMJ obtained a policy from Frontier Insurance, which was reinsured by Clarendon National.

Jara was injured on the job and submitted a claim for workers’ compensation to SMJ. The workers’ compensation law judge determined that SMJ was Jara’s sole employer and that Clarendon National, as the reinsurer of Frontier, was liable for the payment of benefits. On appeal, the court affirmed the finding regarding the employment relationship as having been supported by substantial evidence. The court also rejected the insurers’ argument that the workers’ compensation coverage covered only four employees, since the only specific exclusion was in the policy was for SMJ’s president. Jara v. SMJ Environmental, Inc., Case No. 500512 (N.Y. App. Div. Oct. 30, 2008).

This post written by Brian Perryman.