Reinsurance Claims

COURT DISMISSES CLAIMS AGAINST REINSURER AND THIRD PARTY ADMINISTRATOR FOR LACK OF CONTRACTUAL RELATIONSHIP TO PLAINTIFF

October 29, 2008 by Carlton Fields

Plaintiff Samuel Brand sued his disability insurer, AXA Equitable Life Insurance Company (“AXA”), for failing to pay and improperly handling his disability claim. Brand also sued the third party administrator who handled the claim, Disability Management Systems, Inc. (“DMS”), and Centre Life Insurance Company (“Centre”), AXA’s reinsurer for its disability claims. Centre and DMS moved to dismiss Brand’s breach of contract and statutory bad faith claims on the basis that they had no contractual relationship with the plaintiff.

The district court agreed with the defendants, noting that the breach of contract claims failed because Brand was not a party to any contract with DMS or Centre. The court also rejected Brand’s theory that he was a third-party-beneficiary of AXA’s contracts with DMS and Centre, holding that the defendants’ contracts with AXA did not reflect an expectation that DMS or Centre would have a direct obligation to any AXA policyholder such as Brand. The court dismissed the statutory bad faith claims because neither DMS nor Centre qualified as Brand’s “insurer” as that term is defined and construed under Pennsylvania’s insurance bad faith statute. Brand v. AXA Equitable Life Ins. Co., No. CV-08-2859 (USDC E.D. Pa. Sept. 16, 2008).

This post written by John Pitblado.

UNDERLYING INSURED DENIED RIGHT TO SEEK DISCOVERY FROM FORMER REINSURER

October 7, 2008 by Carlton Fields

A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

CLAIMS START UP FEE COMPENSABLE AS LOSS ADJUSTMENT EXPENSE UNDER REINSURANCE AGREEMENT

September 29, 2008 by Carlton Fields

In this contract construction case, the parties disagreed over whether a “claims start up fee” paid pursuant to an administrative services agreement should be included in calculating the losses incurred under a reinsurance contract. Both parties filed motions for partial summary judgment on the issue. The trial court granted American Southwest’s motion, and Employers appealed. In reversing the trial court and granting Employers’ motion for partial summary judgment, the appellate court held that the fee should be included in calculating Employers’ losses incurred. The decision turned on the characterization of the fee. The court ruled that the fee was a compensable loss adjustment expense. Employers Reinsurance Corp. v. Am. Sw. Ins. Managers, Inc., No. 05-06-01284 (Tex. App. Aug. 14, 2008).

This post written by Dan Crisp.

INSURER HAS NO STANDING TO SEEK A DECLARATORY JUDGMENT ON HYPOTHETICAL CLAIMS

September 15, 2008 by Carlton Fields

Tall Tree insured Hewlett Packard, and was reinsured by Munich Reinsurance for amounts Tall Tree was required to pay to Hewlett Packard. Hewlett Packard was involved in litigation under which liabilities arose. Rather than first indemnifying Hewlett Packard, Tall Tree sued Munich Reinsurance in federal district court, seeking a declaratory judgment that Tall Tree was obligated to pay Hewlett Packard and that, in turn, Munich Reinsurance was obligated to pay Tall Tree. The court would not entertain the case: Tall Tree lacked standing to assert its claims. As to the question of whether Tall Tree was obligated to pay Hewlett Packard, the court noted that there was no live controversy before it; Tall Tree “can simply pay HP.” There was also no live controversy on the question of whether Munich Reinsurance was obligated to pay Tall Tree. The “follow the fortunes” doctrine did not apply because Tall Tree had not yet paid Hewlett Packard; there was essentially no “fortune” yet to follow, and the request for declaratory relief hence was premature. The case was dismissed. The Tall Tree Insurance Co. v. Munich Reinsurance America, Inc., Case No. C-08-1060 (USDC N.D. Cal. July 29, 2008).

This post written by Brian Perryman.

COURT TO REINSURER: “FOLLOW THE FORTUNES”

September 2, 2008 by Carlton Fields

“The Corporation shall reimburse the Reinsured or its legal representative promptly for loss against which indemnity is herein provided.” Is this a “follow the fortunes” clause in a reinsurance treaty? Undoubtedly, a federal district court answered on Mass Mutual’s (the cedent) motion for summary judgment against its reinsurer, Employers Reinsurance Corporation. “Nowhere in the Treaty does it state that ERC may question claims once those losses are incurred and paid.” The fact that ERC had a right of joint participation in adjusting the claims did not undermine this conclusion. Mass Mutual retained the right to be the final decision maker in all determinations. The court found additional support in the parties’ thirteen-year course of conduct, inasmuch as during most of that period ERC “consistently and continually” paid out claims without questioning Mass Mutual’s handling of those claims. The court found for Mass Mutual again on the question of whether ERC breached the treaty’s offset provision by withholding disputed reimbursements to Mass Mutual. The provision stated that the parties could offset loss or claim expenses due from one to the other; disputed sums did not count.

As a consolation prize, the court dismissed Mass Mutual’s counterclaim against ERC for violations of the Connecticut Unfair Trade Practices Act: “A simple breach of contract claim is not in and of itself a violation of CUTPA.” The court previously had dismissed other claims that Mass Mutual had asserted, including a claim for breach of fiduciary duty. (See April 24, 2007 post to this blog.) The court essentially brought the dispute down to a simple breach of contract dispute, which was determined based upon the follow the fortunes doctrine. Employers Reinsurance Corporation v. Massachusetts Mutual Life Insurance Company , Case No. 06-0188 (USDC W.D. Mo. Aug. 19, 2008).

This post written by Brian Perryman.