Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Reinsurance Claims

Reinsurance Claims

Seventh Circuit Finds Illinois’ ‘Insurance Producers Limitations Act’ Does Not Apply to Reinsurance Intermediaries

by

This case arose out of reinsurance agreements between BCS and a third party, Insurance Specialists. The agreements were negotiated by BCS’ former reinsurance intermediary, Guy Carpenter & Company Inc. (“Guy Carpenter”). BCS alleged that Guy Carpenter failed to obtain adequate reinsurance for BCS and that Guy Carpenter’s actions resulted in an arbitration award against BCS in favor of its London reinsurers, exceeding $4.8 million dollars.

The district court granted summary judgment for Guy Carpenter, finding that five of the six claims asserted by BCS fell within the purview of the Illinois Insurance Producers Limitations Act (IPLA) and were barred by IPLA’s two-year statute of limitations. The district court also granted summary judgment for Guy Carpenter on the sixth claim, for implied indemnity, because BCS was unable to show it was derivatively liable in the arbitration for Guy Carpenter’s actions.

In a de novo review, the Seventh Circuit reversed the district court’s finding that five of BCS’ claims were governed by IPLA. Relying on briefing from the Illinois Attorney General, the Court concluded that “IPLA does not apply to reinsurance intermediaries and therefore does not govern the disputed agreements between BCS and Guy Carpenter.” The Seventh Circuit affirmed the district court’s finding that BCS failed to state a claim for implied indemnity because BCS failed to demonstrate that its liability resulted solely from the actions of Guy Carpenter. BCS Ins. Co. v. Guy Carpenter & Co. Inc., No. 06-1050 (7th Cir. June 18, 2007).

Captive Insurer’s Claims Against Reinsured Survive Motion To Dismiss

by

Mount Mansfield, a captive insurance company for workers’ compensation claims, filed a Complaint against its reinsured, American International Group (AIG) and several of its affiliates alleging that AIG and its affiliates improperly handled workers’ compensation claims, inflated the value assigned to Mount Mansfield’s reserve requirements, and unnecessarily forced Mount Mansfield into rehabilitation, resulting in damage to the corporation.

The circuit court dismissed the Complaint, finding that the claims were barred by the doctrine of res judicata based upon a prior lawsuit. The prior proceeding involved a dispute between Mount Mansfield’s sole shareholder, MMIG, and AIG. The Illinois Court of Appeals reversed the circuit court’s ruling, concluding that Mount Mansfield was not a party to the prior action nor in privity with the parties that brought that action. Under Illinois law, privity is said to exist between parties who adequately represent the same legal interests.

In reaching its decision, the court explained that “a shareholder of a corporation has no personal or individual right to pursue an action against third parties for damages resulting indirectly to the shareholder because of an injury to the corporation.” Because MMIG was unable to establish its right to bring an action on Mount Mansfield’s behalf, MMIG could not adequately represent the legal interest of Mount Mansfield in those proceedings. Mount Mansfield Ins. Group v. American International Group, Inc., No. 05-L-6662 (Ill. Ct. App., Third Division, March 30, 2007).

Court Rejects Implication of Follow the Settlements Provision into Facultative Reinsurance Certificate

by

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).

WTC Insurance Settlement Already Results in Reinsurance Arbitration

by

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

by

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.