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.
Reinsurance Claims
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).
COURT RULES ABSENT SHOWING OF PREJUDICE, REINSURERS REMAIN LIABLE TO INDEMNIFY INSUREDS DESPITE LATE NOTICE OF CLAIM
In 2002, the Kansas City Southern Railroad (“KCSR”) paid $37.5 million dollars to settle claims arising out of a fatal automobile accident. This case sub judice involved a dispute between KCSR’s captive insurer, TransFin Insurance Limited (“TransFin”), and TransFin’s reinsurers, Columbia Casualty and American Re-Insurance Company (together “the Reinsurers”), relating to coverage for this claim.
The Reinsurers claimed that they were not liable to indemnify TransFin on this claim because the underlying insured, KCSR, failed to meet the necessary conditions precedent required under their policy. The court disagreed, concluding that while KCSR failed to submit a claim in writing within the required policy period, they could take advantage of the relation-back procedure for claims made after the expiration of policies.
Having concluded that TransFin properly provided coverage on KCSR’s claim, the court addressed whether TransFin’s notice to its Reinsurers was late or otherwise inadequate and, if late, whether the Reinsurers must prove prejudice before they can successfully invoke the defense of late notice by the reinsured. The court stated that it did not need to decide whether notice was timely because even assuming it was, without demonstrating they suffered prejudice as a matter of law, the Reinsurers could not avoid coverage for late notice. Columbia Casualty v. TransFin Ins. Ltd., Case No. 2:05-CV-199 (USDC D. Vt. Apr. 27, 2007).