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).
Reinsurance Claims
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).
Modified follow the fortunes provision not apply to settlements by reinsured
A UK Court has held that a follow the fortunes provision in facultative reinsurance contracts did not apply to without prejudice settlements reached by a reinsured with its insureds, since the clause provided that the reinsurance would “follow in all respects the settlements or other payments of whatsoever nature excluding without prejudice and ex-gratia settlements.” The clear contractual exclusion of without prejudice settlements from the operation of the follow the fortunes clause meant that the reinsured had to prove that the claims payments were appropriate under the underlying insurance. Faraday Capital Ltd. v. Copenhagen Reinsurance Co., [2006] EWHC 1474, [2006] All ER D 74, 2006 WL 2667603 (Queen's Bench Comm. Ct. May 4, 2006).
Court of Appeals affirms decision as to number of occurrences for World Trade Center coverage
The United States Court of Appeals for the Second Circuit has affirmed the District Court's decision with respect to coverage for the September 11 terrorist attacks on the World Trade Center towers. The District Court held that the attack consituted a single occurrence with respect to some of the insurance, and two occurrences with respect to other insurance. SR International Business Insur. Co. v. World Trade Center Properties, LLC, Case No. 04-4500 (2nd Cir. Oct. 18, 2006).