Reinsurance Claims

In a September 19, 2007 posting, this blog reported that a district court allowed a case against Directors of Mississippi Windstorm Underwriters Association (MWUA) to proceed on the theory that the directors breached a fiduciary duty to their members by failing to secure sufficient reinsurance to cover the 2004 and 2005 hurricane seasons.

Recently, the same court denied plaintiffs’ motion for class certification. Plaintiffs sought certification of a class of over 100 insurance company members and alleged claims for breach of fiduciary duty, negligence, and declaratory judgment. As the court explained, the “lynchpin of the plaintiffs’ argument for class certification is that the Board’s decision regarding the amount of reinsurance to purchase allegedly was tainted by self-dealing, in that the Board members had a financial incentive to under-reinsure the MWUA’s risks.” The defendants responded by stating that the plaintiffs’ self-dealing theory was based on their erroneous assertion of how the costs of reinsurance were charged to the MWUA’s members. The defendants contended that most of the defendant companies bore none of the costs of reinsurance and therefore had no incentive to under-reinsure.

The court concluded that plaintiffs failed to satisfy the requirements of Rule 23. Specifically, the court found that plaintiffs did not meet their burden of showing that the number of putative class members was so numerous as to make their joinder impractical. Additionally, the court found that the plaintiffs failed to show that common issues predominated over individual issues with respect to the self-dealing aspect of the plaintiffs’ claims. Association Casualty Ins. Co., et. al. v. Allstate Ins. Co., et. al, Case No. 3:07cv525 (S.D. Miss. July 29, 2008).

This post written by Lynn Hawkins.

We reported on April 7, 2008 on an order entered by a court interpreting a reinsurance agreement in favor of a reinsured. The court has entered an Amended Order and Judgment providing for a total award of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. Princeton Insurance Company v. Converium Reinsurance (North America) Inc., Case No. 06-599 (USDC D. N.J. July 2, 2008).

This post written by Rollie Goss.

On July 18, 2007, we reported on a ruling by the New York Supreme Court’s Appellate Division in a case in which it described the conduct of the insured, American Home Assurance, as “manifest manipulation,” based upon its taking inconsistent positions on the number of insured occurrences of environmental pollution in order to minimize its liability to its insured but maximize its reinsurance recovery. The result of the ruling was the complete loss of American Home’s reinsurance cover. Without opinion, the New York Court of Appeals has denied a motion for leave to appeal, apparently ending the case. Allstate Insurance Company v. American Home Assurance Co., Mo. No. 213 (NY June 3, 2008).

This post written by Rollie Goss.

A jury in state court in San Francisco, California has found, by special verdict, that a reinsured waited too long to sue its reinsurer for failure to pay claims under two facultative reinsurance certificates. The jury rejected the contention that the running of the statute of limitation was tolled due to the ongoing investigation and negotiations between the parties. Background on the dispute is found in the Complaint. Transport Insurance Company v. TIG Insurance Company, No. CGC-06-448898 (Cal. Super. Ct. June 9, 2008).

This post written by Rollie Goss.