American Re-Insurance provided a facultative reinsurance certificate to Specialty National Insurance (now known as American Motorists Insurance Co.), which had reinsured the Montana Municipal Insurance Authority, a municipal insurance pool that provides insurance to its member entities, including the city of Great Falls, Montana. A dispute arose under the facultative reinsurance when a claim was paid and American Re disagreed as to the interpretation of some of the coverage underlying its reinsurance. Although the facultative certificate did not contain a typical “follow the settlements” provision, American Motorists contended that language in the certificate had the same effect. Interpreting the facultative certificate, the district court disagreed, finding that there was no follow the settlements provision in the certificate. The court therefore granted summary judgment to American Re with respect to a declaratory judgment claim that sought a declaration that American Re was obligated to indemnify American Motorists under the certificate pursuant to the follow the settlements doctrine. American Motorists ins. Co. v. American Re-Insurance Co., Case No. 05-5202 (USDC N.D. Cal. May 29, 2007).
Reinsurance Claims
WTC Insurance Settlement Already Results in Reinsurance Arbitration
On June 6, we reported on a settlement reached with a number of insurers with respect to the destruction of New York’s World Trade Center towers. SCOR, which provided reinsurance to one of the settling insurers, Allianz Global Risks, has issued a press release stating that the settlement agreement “does not respect the terms and conditions of the Certificate of Reinsurance between SCOR and Allianz,” and stating that SCOR has requested that the issue of whether the settlement is within the coverage of its reinsurance be referred to arbitration.
Silverstein Properties reaches settlement with seven World Trade Center insurers
New York Governor Eliot Spitzer and Insurance Superintendent Eric Dinallo have assisted in negotiating a settlement of all outstanding insurance claims arising from the destruction of the World Trade Center with seven insurers: Travelers Companies; Zurich American Insurance Company; Swiss Reinsurance Company; Employers Insurance Company of Wausau; Allianz Global Risks US Insurance Company; Industrial Risk Insurers; and Royal Indemnity Company. The amount of the settlement is $2 billion. A press release announcing the settlement states that this will clear the way for construction on the site.
Survey on US run-off operations
PriceWaterhouse Coopers has published an interesting report on a survey that it conducted relating to US run-off operations. The report covers various aspects of run-off operations and strategies. Especially combined with the recent Lloyd’s report on capitalization and operation of Lloyd’s run-off syndicates, which was the subject of a post on this blog on May 28, this makes interesting reading.
UK COURT DECLINES TO FIND REINSURANCE COVERAGE DESPITE FOLLOW THE FORTUNES PROVISION SINCE DAMAGES OUTSIDE POLICY PERIOD
This case involves a situation in which a U.S. court found that an insurance policy covered a portion of damages incurred prior to and after a policy period based upon a manifestation coverage trigger. The insured then entered into a settlement agreement, and sought coverage from its reinsurers for the amount of the settlement. The resulting reinsurance dispute was litigated in a UK court. The UK court found that even though it was apparent that the insured had acted in good faith and prudently in negotiating the settlement to minimize its loss, the reinsurance did not cover damage that occurred outside the time period of the coverage of the reinsurance agreement. This decision illustrates an important area of risk for companies which may have their insurance and reinsurance governed by different applicable law, whether the laws of different U.S. states, which may have different coverage trigger or damage allocation theories, or the laws of a U.S. state and the UK. Care should be taken in establishing reinsurance programs to attempt to avoid such a scenario. Wasa International Ins. Co. v. Lexington Ins. Co., [2007] EWHC 896 (Queen’s Bench Commercial Court April 25, 2007).