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).
Reinsurance Claims
UK Court denies challenge to judgments against reinsurance intermediaries
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
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.
Connecticut statute requiring posting of collateral by unauthorized reinsurer enforced
A District Court has enforced a Connecticut statute requiring that prior to filing any pleading in any court action, non-admitted insurers post collateral in an amount “sufficient to secure the payment of any final judgment.” Conn. Gen. Stat. section 38a-27. The Court held that this statute applied to reinsurers, but instead of striking an answer that had been filed, gave the defendant 15 days to post the required security, failing which its Answer would be stricken. Security Ins. Co. of Hartford v. Universal Reinsurance Co., Case No. 06-158 (D. Ct. Jan. 25, 2007).
District Court rules on reinsurance of auto lease residual value insurance policies
Swiss Re provided a type of reinsurance to Reliance Insurance Company for insurance of residual value insurance policies covering certain automobile risks. When Reliance became financially impaired, Swiss Re litigated liability and damage issues directly with the insured, Keybank USA. In a complicated 67 page opinion on cross motions for summary judgment, the District Court granted in part and denied in part the motions of both parties. This opinion considers multiple issues of contract interpretation, mitigation of damages and expert testimony. The Court recently entered an Order denying the motion of Keybank for reconsideration of the portion of the prior Order that granted partial summary judgment to Swiss Re with respect to auto leases that were part of Keybank's lease extension program. Reliance Insurance Co. v. Keybank U.S.A., Case no. 01-62 (USDC N.D. Ohio Dec. 20, 2006).