Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT AWARDS DAMAGES AND PREJUDGMENT INTEREST IN LONG-RUNNING RETROCESSION DISPUTE

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Republic Insurance was a fronting company for a syndicate of reinsurers which obtained retrocessional coverage from Group Des Assurance Nationales under LMX quota share contracts over a number of years. As we reported in an August 20, 2013 post, the Court granted summary judgment in Republic’s favor. Thereafter, the parties disputed the damages, offset, and method of prejudgment interest calculation. The Court has now ruled on those issues, awarding Republic the full amount of damages claimed, declining to award Group Des Assurance Nationales an offset against premiums paid, and awarding prejudgment interest dating back to the contract years at issue, which roughly doubled the award. Republic Insurance Co. v. Banco De Seguros Del Estado, No. 10-C-5039 (USDC N.D. Ill. March 20, 2014).

This post written by John Pitblado.

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COURT DISMISSES CLAIM AGAINST AIG FOR BREACH OF REINSURNACE CONTRACTS

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Reinsurer Transatlantic Reinsurance Company sued AIG and certain of its subsidiaries for a declaration that they breached various provisions of reinsurance certificates by transferring their risk under asbestos liability policies to another insurer. The court dismissed the claim against AIG, holding that it was undisputed that AIG itself was not a signatory to the reinsurance certificates at issue, and that the complaint failed to allege that AIG, as an “alter ego,” dominated and controlled the actions of the signatory AIG subsidiaries. The court was not persuaded into finding AIG liable by the contention that AIG was the party responsible for making the decision to transfer the insurance risk. The court explained that “TransRe’s allegations that AIG’s ‘de-risking’ strategy interfered with the Insureds’ abilities to meet their obligations under their contracts with TransRe do not permit this court to find that AIG has made a sham of the corporate formalities of the Insurers, as required to establish alter-ego liability.” Transatlantic Reinsurance Co. v. American International Group, Inc., et al., Case No. 152812/2013 (N.Y. Sup. Ct. Feb. 7, 2014).

This post written by Michael Wolgin.

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COURT ORDERS PRE-PLEADING SECURITY POSTED IN REINSURANCE DISPUTES

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Excalibur Reinsurance provided reinsurance to Travelers Indemnity.  Disputes arose and Travelers filed two lawsuits against Excalibur in United States District Court in Connecticut.  Travelers moved to require Excalibur to post pre-pleading security pursuant to Conn. Gen. Stat. section 38a-27(a).  The statute requires that unauthorized insurers post security.  Excalibur contended that the statute did not apply for three separate reasons: (1) it was authorized in Connecticut when the reinsurance agreements were entered into, although it later cancelled that authorization; (2) the reinsurance agreement was not issued and delivered in Connecticut; and (3) the reinsurance agreements contain a New York choice of law provision.  The courts disagreed, and granted the motions for security.  The statute provides a remedy with respect to insurers which are not authorized at the time that they make a filing in Connecticut courts, rather than when the insurance agreement was entered into.  The courts found that while the statutes provided an exemption for non-Connecticut direct insurance, the statutory exemption did not apply to reinsurance.  Finally, the courts found that the pre-pleading security statute was procedural, not substantive, under the Erie doctrine, resulting in the choice-of-law clause not applying.  Excalibur therefore was required to post security in one case in the amount of $824,591 and in an amount yet to be determined in the other case.  Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 11-1209 and 12-1793 (USDC D. Conn. Mar.11 and 17, 2014).

This post written by Rollie Goss.

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SERVICE OF SUIT ENDORSEMENT DEEMED TO WAIVE INSURER’S RIGHT TO REMOVE ACTION TO FEDERAL COURT

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A Missouri federal district court remanded a coverage action brought against Illinois Union Insurance Company (“Illinois Union”) by its insured, holding that the Policy’s Service of Suit Endorsement (“Endorsement”) waived Illinois Union’s right to remove the action to federal court notwithstanding the Policy’s Jurisdiction and Venue clause which stated that the Insurer did not waive its right of removal. The Endorsement provided that, at the insured’s request, Illinois Mutual will submit to the jurisdiction of any court of competent jurisdiction. The Endorsement also included the conspicuous statement “This Endorsement Changes the Policy, Please Read it Carefully.” Characterizing it as “meritless”, the Court rejected Illinois Union’s argument that the Endorsement did not waive Illinois Union’s right of removal because the Endorsement did not explicitly state that it substituted the Jurisdiction and Venue clause. Instead, citing principles of contract interpretation, the Court found that if the terms of the endorsement and the general provisions of the policy conflict, the terms of the endorsement prevail. The Endorsement in this case supplanted the Jurisdiction and Venue clause found in the general provisions of the policy and, therefore, waived Illinois Union’s right to remove the case to federal court. Both of these clauses are commonly found in reinsurance agreements, and this opinion illustrates that careful drafting is necessary to achieve the desired business result. Hazelwood Logistics Center, Inc. v. Illinois Union Insurance Company, No. 4:13-CV-2572 CAS (USDC E.D. Mo. Feb. 28, 2014).

This post written by Leonor Lagomasino.

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