Reinsurance Claims

D&O CARRIERS NOT RESPONSIBLE FOR LOSSES SUSTAINED IN FRAUDULENT CONVEYANCE ACTIONS

April 19, 2007 by Carlton Fields

A New Jersey federal judge ruled that an asset purchase agreement and a quota share reinsurance agreement did not obligate Hartford Fire Insurance Company (“Hartford”) and Twin City Insurance Company (“Twin City”) to step into the shoes of an insolvent insurer and provide coverage to Plaintiff for losses sustained in defending three fraudulent conveyance actions. The underlying fraudulent conveyance actions alleged that an ex-CEO played a shell game with the assets of GAF (the predecessor in interest to G-I) to shield itself from liability in pending asbestos litigation. The present action was originally filed against Reliance, but after Reliance filed for bankruptcy, Plaintiffs joined Hartford and Twin City, alleging that Defendants purchased the assets and renewal rights to Reliance’s D&O book of business and seeking coverage pursuant to that policy.

Ruling on competing summary judgment motions, the District Court said that Hartford and Twin City had no coverage obligation reasoning, among other things, that the “underlying fraudulent conveyance actions constitute a single claim that was first made under the Reliance Policy and before the inception of the Hartford/Twin City Policy” and that the Hartford/Twin City Policy and the Reliance Policy were two separate and distinct policies. G-I Holdings v. Hartford Fire Ins. Co., Case No. 00-6189 (D.N.J., Mar. 16, 2007).

RHODE ISLAND JOINS MAJORITY OF JURISDICTIONS REFUSING TO RECOGNIZE GENERAL DUTY OF DUE CARE FROM INDEPENDENT INSURANCE ADJUSTER TO INSURED

April 17, 2007 by Carlton Fields

This case arose from an insured’s allegation that its insurer both failed to defend it from claims of breach and to indemnify it for a settlement within the policy’s aggregate limit. The insured also sued the insurer’s claims administrator, presenting the novel issue of whether an independent claims administrator can be liable to an insured for bad faith claims handling, tortious interference with contractual relations, or negligence.

Applying Rhode Island law, the District Court of Rhode Island concluded that the insured could maintain a common law claim for bad faith, but could not maintain a statutory cause of action for bad faith because the statutory language limited claims to “the insurer issuing the policy.” (Emphasis added). The court also permitted the insured to proceed with a claim for tortious interference with contractual relations. The court, however, concluded that the insured could not maintain a negligence claim because “…binding [the administrator] to a duty of reasonable care viz-a-viz the insured would be illogical…without, at a bare minimum, holding…the actual insurer to the same.” In so holding, Rhode Island joined the majority of jurisdictions that have refused to recognize a general duty of due care from an independent insurance adjuster or insurance adjusting company to the insured. Robertson Stephens, Inc. and Bank of America Corp. v. Chubb Corp., Case No. 05-00360 (D.R.I. Feb. 14, 2007) .

Silence Deemed Insufficient to Preclude Aggregate Liability

February 23, 2007 by Carlton Fields

In a matter that is difficult to describe briefly, an arbitrator has entered an award in an interesting reinsurance claims issue, and the award has been confirmed. Gerling Global Reinsurance Corporation (“Gerling”) issued a certificate of facultative reinsurance to Employers’ Surplus Lines Insurance (“Employers”) reinsuring an Excess Umbrella policy providing for $5,000,000 per occurrence and aggregate losses. When Gerling refused to pay its pro rata share of certain indemnity and defense costs, Employers demanded arbitration to enforce the certificate. Gerling argued that a non-concurrency existed between the facultative certificate and the umbrella policy with regard to the aggregate liability and liability for defense costs. Gerling argued that the absence of the word “aggregate” in various sections of the certificate precluded consideration of aggregate limits of liability and that its reinsurance limits applied strictly on a per-occurrence basis. Gerling also argued that it was not required to reimburse Employers for the defense costs associated with the settlement because the “follow the settlements” clause in the certificate was subject to the condition that an indemnity payment must be made on a specific claim before any defense costs attached. Gerling argued that this language was non-concurrent with Employers’ ultimate net loss liability theory. While the arbitrator acknowledged that the presumption of concurrency is “not absolute and can be overridden by clear language of limitation in the certificate,” this was not such a case. The arbitrator concluded that the absence of the word “aggregate” was insufficient to preclude liability, stating that “silence, as an expression of limitation, strains credulity and is insufficient to preclude aggregate liability.” The arbitrator also noted Gerling’s failure to use any of the methods available to it to limit aggregate liability, such as including the phrase “Nil Aggregate” in the certificate or by adding an endorsement. With respect to liability for defense costs, the arbitrator concluded that Gerling misinterpreted the “follow the settlements” clause and that the concept of “ultimate net loss” contained in the Employers’ policy was entitled to the presumption of concurrence. As such, Gerling was responsible for its share of the defense costs. Employers’ Surplus Lines Insurance Co. v. Global Reinsurance Corp., Case No. 07-30 (USDC S.D.N.Y. Jan. 11, 2007).

UK Court denies challenge to judgments against reinsurance intermediaries

February 21, 2007 by Carlton Fields

The UK Queen's Bench Division of the Commercial Court has denied applications to vacate prior judgments in an action brought by a reinsured against several defendants which served as reinsurance intermediaries under two binders involving short tail property and contingency risks and personal accident risks. Prior liability judgments had found that the intermediary group had fraudulently abused the binders by placing risks through the binders which were not authorized, and by signing an addenda to the binders, without authority, that provided the intermediaries an extra 40% commission on the first 12 months gross premium. Prior judgments had rescinded the binders and awarded damages for fraud and conspiracy totaling approximately £17,000,000. The opinion holds that liability judgments against several of the defendants were proper. R & V Versicherung AG v. Risk Insurance and Reinsurance Solutions SA, [2007] EWHC 79 (Comm. Jan. 29, 2007).

UK Court grants partial summary judgment on reinsurance claims

February 13, 2007 by Carlton Fields

In English and American Insurance Company Ltd. v. Axa Re SA, [2006] EWHC 3323 (Comm. Ct. Dec. 20, 2006), the UK Commercial Court of the Queen's Bench Division granted summary judgment to English and American Insurance Company (“EAIC”) on ten reinsurance contracts, pursuant to which a predecessor of Axa Re reinsured EAIC for its participation in insurance of Dow Chemical Company. The losses related to claims relating to Dow's manufacture and sale of breat implant devices and silicone materials. Provisional liquidators had been apponted for EAIC in 1993, and EAIC has been the subject of a scheme of arrangement since 1995. After pursuing its solvent insurers, Dow pursued EAIC, which in turn made claims on its reinsurance. EAIC entered into what the Court described as an interim settlement with Dow, in which in effect recognized that it had a liability to Dow of at least $3,772,760. The scheme of arrangement was paying EAIC's creidtors a dividend rate of 25%. The Court granted EAIC partial summary judgment against Axa Re in the amount of $673,808, an amount which the Court found Axa Re had “no realistic prospect of successfully defending.” Apparently, the litigation will continue with respect to other amounts claimed by EAIC.