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Reinsurance Claims

INSURANCE COMPANY SANCTIONED FOR FAILURE TO COMMUNICATE

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A New York district court sanctioned Excess Insurance Company in the amount of $4,500 for its failure to communicate with the defendants and with the court. The plaintiff initially filed this action in December 2005, seeking reimbursement under reinsurance agreements executed in 1979 and 1980 with Metropolitan Reinsurance Company. At the initial pre-trial conference, Defendant Odyssey America maintained that it was not the proper party because it was not the successor-in-interest to Met Re. Shortly thereafter, plaintiffs commenced arbitration proceedings against the proper party. For the following six months, the defendant and the court were unable to contact the plaintiff regarding voluntary dismissal of the action. The court, recognizing plaintiff’s “grossly negligent” conduct, sanctioned plaintiff’s in the amount of $4,500 and dismissed the case with prejudice. Excess Ins. Co. v. Odyssey Am. Reinsurance Co., No. 05 Civ. 10884 (NRB), (USDC S.D.N.Y. Nov. 28, 2007).

This post written by Lynn Hawkins.

COURT INTERPRETS REINSURANCE AGREEMENT BUT FINDS DISPUTE AS TO RESCISSION CLAIM

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A New York state court, in an action involving claims under a quota share reinsurance of insurance issued to automobile financing institutions covering the residual value of motor vehicle leases, has resolved some issues as to the interpretation of the reinsurance as a matter of law, finding no ambiguity in the quota share agreements. At the same time, the court denied summary judgment on a claim to rescind the reinsurance on the basis that the cedent had not disclosed to the reinsurer, at the time the reinsurance was placed, that its own actuary had projected a loss ratio of over 100% on the underlying risks. The court found that there was a disputed issue of fact as to when the cedent had knowledge of high losses, but that if it was established that the cedent had such knowledge at the time of placement, rescission would be appropriate. The interpretation issues included such important issues as determining that an entire block of risks could not be ceded to the quota share agreement and the percentage of the pool reinsured by a particular quota share reinsurer. Gulf Insurance Co. v. Transatlantic Reinsurance Co.,. No. 601602/03 (N.Y. Sup. Ct. Nov. 21, 2007).

This post written by Rollie Goss.

COURT CONFIRMS $443.5 MILLION ARBITRATION AWARD AND ORDERS $600 MILLION BOND

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The California Department of Insurance Conservation and Liquidation Office won a $443.5 million dollar arbitration award in favor of five Superior National Insurance Companies in liquidation. The award was against the United States Life Insurance Company, a subsidiary of AIG.

The arbitration arose out of a dispute of a 1998 reinsurance contract between U.S. Life and the five Superior National Companies. In 1999, U.S. Life initiated arbitration proceedings seeking rescission of the reinsurance contract, alleging misrepresentation and nondisclosure. The following year, Superior National, having suffered significant losses from its workers’ compensation business, became insolvent. California’s Insurance Commissioner seized the companies and placed them in conservation.

The arbitration panel denied U.S. Life’s claim for rescission, which was affirmed by the federal district court and Ninth Circuit. The arbitration panel then convened a second phase of arbitration to determine the amount of damages. The Final Arbitration Award ordered U.S. Life to pay the Superior National companies $443,515,724.

Following the district court’s confirmation of the award, the court entered a memorandum opinion requiring that U.S. Life post a $600 million dollar supersedeas bond (Order on bond memorandum decision) to provide adequate security for the judgment pending appeal. United States Life Ins. Co. v. Superior Nat'l. Ins. Co., Case No. 07-850 (USDC C.D. Cal.). This case is a consolidation of two cases.

This post written by Lynn Hawkins.

JURY FINDS AMERICAN RE-INSURANCE ACTED IN BAD FAITH AFTER SUMMARY JUDGMENT IS DENIED

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On June 19, 2007, we reported on a decision of a district court that refused to imply a follow the fortunes provision into a reinsurance agreement. Based on that finding, American Re, the reinsurer, moved for summary judgment, contending that the contracts at issue unambiguously provided that it was only obligated to pay claims that fell within the scope of the facultative certificate and it was entitled to summary judgment because Plaintiff could not make that showing. The Court disagreed, finding that because the reinsurance agreement provided the reinsured the right to settle claims in some instances, a genuine issue of material fact existed as to whether the underlying claim was covered by the facultative certificate.

Two weeks after this decision, the case went to trial, and a jury found that American Re breached its duty of good faith and fair dealing in refusing to reimburse its reinsured for the amount paid to settle the claim at issue. American Motorists Ins. Co. v. American Re-Insurance Co., Case No. C 05-5202 CW (USDC N.D. Cal. Dec. 4, 2007).

This post written by Lynn Hawkins.

UK COURT OF APPEALS REVERSES DECISION ON TIMELINESS OF NOTIFICATION OF LOSS

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On December 6, 2006, we reported on the decision of a UK court, which interpreted a provision requiring notice to a reinsurer of a claim. The issue was whether the reinsured had knowledge of a loss when its stock price fell due to accounting restatements. While the Commercial Court decided that such activity did not amount to knowledge of a loss, the Court of Appeals disagreed. The UK Court of Appeal therefore reversed, finding that the notification of loss was late under the requirements of the reinsurance agreement. AIG Europe v. Faraday Capital Limited [2007] EWCA Civ 1208 (Nov. 22, 2007).

This post written by Rollie Goss.