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.
Reinsurance Claims
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).
Pennsylvania court rules on letter of credit posted by cedent
A Pennsylvania court has ruled in a dispute over the sufficiency of a letter of credit posted by a cedent and draws on that instrument. The state court's opinion is available through Mealey's. Eastern Atlantic Ins. Co. v. Swiss Reinsurance America Corp., No. 2004 cv 5514 (Pa. Comm. Pls. Dauphin Co.). There had been a parallel action in federal court, in which the Court abstained to permit the state court to adjudicate the disputes. Eastern Atlantic Ins. Co. v. Swiss Reinsurance America Corp., Case No. 04-1555 (M.D. Pa. Dec. 16, 2004).
Court applies follow the fortunes doctrine and rejects late notice claim
In a summary judgment posture, a New York state court has rejected a reinsurer's late notice claim, finding that under New York law a reinsurer must prove prejudice due to late notice in order for late notice to constitute a defense to failure to pay claims. The Court found that no evidence of prejudice had been proffered. The Court then enforced a follow the fortunes clause as to the majority of the reinsurance claims at issue, finding that the reinsurer had not developed evidence in extensive discovery that the reinsured had acted fraudulently or in bad faith in paying the claims. The Court denied summary judgment as to claims relating to one underlying insured, based upon limited evidence that suggested possible bad faith in the payment of claims submitted by that party. Granite State Insur. Co. v. Ace American Reinsur. Co., Index No. 604347/04, in the Supreme Court of the State of New York, County of New York (Aug. 4, 2006).