Baylor Health Care System (“Baylor”) was insured by Church University Insurance Company, a captive insurer, which was reinsured by Employers Reinsurance Corporation (“ERC”). Following the mediation of a malpractice claim involving serious brain damage, Baylor and ERC agreed to jointly fund a settlement of the claim. A dispute arose as to whether this agreement was merely an interim funding of the settlement, subject to later apportionment between Baylor and ERC, or a final settlement of insurance obligations. Baylor filed an action for breach of contract, and seeking a declaratory judgment against ERC, and the district court entered summary judgment in favor of ERC, finding that a series of post mediation e-mails between counsel for Baylor and counsel for ERC amounted to a full settlement of all disputes between them. The Fifth Circuit reversed, finding that there were disputed issues of material fact as to whether the argreement was a complete settlement or merely an agreement to fund a settlement with the claimant, envisioning a later allocation of the settlement amount through arbitration or a mock trial. Baylor Health Care System v. Employers Reinsurance Corporation, Case No. 06-10582 (5th Cir. July 5, 2007).
Reinsurance Claims
ENGLISH HIGH COURT ISSUES RULING ON REINSURANCE CLAIMS DISPUTE
Reinsurers, Dornoch and others, sought a declaration that they were not liable under an Excess Physical Loss or Damage cover for losses sustained by the defendants, Mauritius Union Assurance (“MUA”), a Mauritian company which conducts both life and general insurance business. The Excess Reinsurance policy was written on a slip policy; the cover was excess 50 million Mauritian Rupees any one loss. It provided for “Premises” and “Transit” cover, but did not carry any general infidelity cover. It also provided for a 72 hour discovery period and contained a clause to follow all terms and conditions of the primary reinsurance policy.
The reinsurers argued they were not liable on the ground that the underlying losses were not of their nature within the physical loss or damage cover provided by the policy and that they were not discovered within the 72 hour discovery period. Additionally, they argued that the losses did not exceed the deductible (of MRS 50m x/s MRS 500,000) applicable to each loss under the policy.
The English High Court agreed with the reinsurers on all grounds. Specifically, it found that the reinsurers did not have any liability to MUA pursuant to the Excess Reinsurance because the described losses fell outside the scope of cover due to the fact that the losses sustained by the underlying insured were a direct result of employee infidelity. The court also concluded that none of the many losses alleged were discovered within 72 hours of their occurrence. Lastly, the court agreed that the underlying losses were not capable of meeting their applicable deductible of Maur Rup 50,000,000 any one loss. Dornoch Limited v. The Mauritius Union Assurance Company and Mauritius Commercial Bank, [2007] EWHC 155 (Comm. Feb. 6, 2007).
Court Approves Settlement of Coverage Dispute Involving Asbestos Liabilities and UK Scheme of Arrangement
A US Bankruptcy Court has approved a settlement with a London market insurer that includes that insurer in an earlier approved settlement with insurers providing a bankrupt copper company with coverage for asbestos-related claims. The London market insurer is itself a party to a scheme of arrangement being administered in London. This opinion is an interesting intersection of the UK scheme of arrangement process and US bankruptcy laws. The motion seeking approval of the settlement contains details of the settlement and attaches copies of pertinent documents. In re ASARCO LLC, Case No. 05-21207 (US Bank. Ct. S.D. Tex. Mar. 23, 2007).
Holder of contruction bonds does not have direct right of action against reinsurer of insolvent bond surety
Frontier Insurance Company, as surety, issued a performance bond and a payment bond for the construction of a movie theater, and reinsured its obligations with National Indemnity Company. When Frontier was declared insolvent, the holder of the bonds sued National Indemnity. The US District Court dismissed the action, finding that there was no cut through provision in the reinsurance agreement, that the reinsurance agreement explicitly prohibited non-parties from obtaining rights under the reinsurance agreement and that New York law did not provide for a direct cause of action against a reinsurer in the circumstances presented. Jurupa Valley Spectrum, LLC v. National Indemnity Company, Case No. 06-4023 (USDC SD NY June 29, 2007).
Court Rejects Argument That Custom Implies “Follow The Fortunes” Clause Into Reinsurance Contract
This controversy involved a reinsurance dispute between ERC, a reinsurer, and Laurier, an insurer incorporated in Bermuda. ERC declined to indemnify Laurier for the settlement costs of a wrongful death suit. The present matter came before the court on the parties’ motions for reconsideration of a magistrate’s rulings on the parties’ cross-motions for summary judgment.
ERC moved for summary judgment based on Laurier’s failure to provide prompt notice of the claim, and contended that the delay was unreasonable as a matter of law and that it suffered prejudice as a result. ERC also claimed entitlement to partial summary judgment because “follow the fortunes” clauses are not implied in reinsurance contracts.
The reinsurance contracts at issue did not contain a “follow-the fortunes” clause. Laurier argued that the absence of the clause constituted an ambiguity in the contract and that the Court should allow custom to imply the clause into the reinsurance contract. The court disagreed, concluding that it could not “go outside the laws of contract construction and outside the four corners of an unambiguous contract to add a clause that was not bargained for.” As such, the court granted partial summary judgment for ERC on the issue of the “follow the fortunes” clause.
The court denied summary judgment on the remaining issues, including allocation of loss, waiver of the late notice defense, and the timeliness of the notice, finding that genuine issues of material fact existed as to those issues. ERC v. Laurier Indemnity Co., Case No. 8:03-cv-1650 (M.D. Fla. June 25, 2007). [The choice of law dispute in this case was addressed in an earlier posting on this blog on June 16, 2006.]