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).
Reinsurance Claims
Court stays enforcement of arbitral award pending ruling by liquidation court on set off claim
LDG Re reinsured workers' compensation and employers' liability risks retained by Legion Insurance and a related company under two quota share reinsurance agreements. LDG Re booked the reinsurance into a pool facility in which a number of companies participated, including Chartwell Reinsurance (which was later purchased by Trenwick America Reinsurance). When LDG failed to make timely payments under the quota share agreements, Legion demanded arbitration. A settlement was reached. When LDG allegedly failed to make payments required by the settlement agreement, Legion sought to reactivate the arbitration. LDG objected, contending that the dispute was not arbitrable and that the pool members were entitled to set off other debts owed to them by Legion. The panel entered an award purporting to enforce the settlement agreement, requiring a payment by LDG of over $5 million, not mentioning the set off request. Legion moved to confirm the award, and Trenwick moved to intervene in both the District Court action and in Legion's liquidation proceeding in Pennsylvania state court, seeking to assert a set off. In a Memorandum Opinion, followed by an Order and Judgment, the District Court confirmed the arbitration award, but stayed execution pending the submission by Legion or Trenwick of a motion in the liquidation proceeding seeking a ruling as to whether the claimed set off should be allowed. Koken v. LDG Re Corp., Case No. 06-81 (USDC ED Pa. Dec. 29, 2006).
Article on reinsurance issues relating to hurricane losses
The Fall 2006 issue of the Environmental Claims Journal contains an article by Carol Ann O'Dea and Vincent J. Vitkowsky titled Reinsurance Issues Arising from the 2005 Hurricane Season. Information about the Environmental Claims Journal may be found on the Internet.
Court holds that policies covering WTC provided for replacement only
A District Court has held that policies providing property coverage for the World Trade Center (“WTC”) complex , which provided “replacement cost” coverage, provided coverage limited to what it would cost to replace the covered buildings as they stood immediately prior to their destruction, and did not cover additional amounts to make the re-built WTC safe, modern and politically palatable. SR International Business Ins. Co. v. World Trade Center Properties LLC, Case No. 01-9291 (USDC SDNY Oct. 31, 2006).
North Korea suspected of massive reinsurance fraud
One of the more intriguing articles about reinsurance recently has been one which suggests that North Korea may be engaged in massive reinsurance claim fraud to generate hard currency for its ailing economy. All insurance in North Korea is written through one state-owned company, which reinsures the risks through Lloyds and non-Lloyds reinsurance companies. It is suspected that North Korea has been submitting bogus claims and claims with phony documentation, encompassing losses aggregating as much as $150 million. The closed nature of the society prevents reinsurers or claims agents from investigating the losses. This is interesting reading at Foxnews.com (until they archive the link).