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FACT QUESTIONS PREVENT SUMMARY JUDGMENT IN INDEMNITY ACTION BY ACQUIRER OF REINSURER OF AIRPLANES INVOLVED IN 9/11 ATTACK

September 24, 2012 by Carlton Fields

An acquirer of a reinsurance company sued the former parent company of the reinsurer under the relevant stock purchase agreement (SPA) for indemnification of $13.1 million in “losses” allegedly owed in connection with reinsurance contracts that covered the airplanes that were involved in the attack on the World Trade Center on 9/11. The acquirer contended that the reinsurer misrepresented the extent of its 9/11 liabilities by setting its reserves based on one “terrorism” event under the governing contracts, rather than a higher liability for two “hijacking” attacks. The acquirer argued that the reinsurer was required to reserve for two attacks because the cedents had done so, and because the reinsurer had received broker advices for two losses. The court denied the parties’ cross-motions for summary judgment, holding that factual questions existed as to whether the reinsurer’s alleged fraud constitutes a “loss” under the SPA, and if it does, whether the “loss” was caused by the falsity of the reinsurer’s misrepresentations. The court’s findings included: (1) that the SPA’s provisions providing indemnity for “loss” were ambiguous, such that the court could not determine whether indemnity was limited to only amounts paid in excess of the reinsurer’s reserves; and (2) that conflicting testimony of the parties’ experts as to whether the reinsurer misrepresented that its reserving practices complied with “U.S. generally accepted actuarial standards” created disputed issues of fact. The court also held that benefit of the bargain damages were not available under the SPA, which contained broad waivers of “all causes of action related to the transactions contemplated” by the agreement, and of consequential, indirect, and incidental damages. WT Holdings, Inc. v. Argonaut Group, Inc., Case No. 600925/2009 (N.Y. Sup. Ct. July 10, 2012).

This post written by Michael Wolgin.

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THIRD CIRCUIT HOLDS THAT REINSURER CAN DENY COVERAGE BASED ON LATE NOTICE EVEN ABSENT PREJUDICE

September 18, 2012 by Carlton Fields

A dispute arose when Pacific Employers Insurance Company demanded payment from Global Reinsurance Corporation of America under a facultative reinsurance contract. The contract reinsured part of Pacific’s exposure on an excess risk policy issued to a manufacturing company. It contained a provision requiring Pacific to “promptly provide the Reinsurer with a definitive statement of loss on any claim.” Pacific learned of the underlying insured’s exposure to significant asbestos litigation in 2001 but did not notify Global until 2008.

The district court, applying what it predicted Pennsylvania law to be, held that Global could not refuse coverage based on late notice absent evidence of prejudice, which Global had failed to proffer. The Third Circuit reversed, applying New York law, which holds that a reinsurance company can deny coverage based on late notice, even in the absence of prejudice. The Third Circuit noted, in dicta, that it could discern two reasons why a reinsurer would want to promptly receive a DSOL on a potentially serious claim: (1) to appropriately reserve, and (2) to exercise its contractual right to participate in the defense of the underlying claims. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Nos. 11-3234 & 11-3262 (3d Cir. September 7, 2012).

This post written by Ben Seessel.

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Court Grants Summary Judgment to Reinsurer on Claims Brought by Underwriting Agent

September 17, 2012 by Carlton Fields

Acumen Re Management Corporation brought suit against General Security National Insurance Company, claiming that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied that it breached those agreements. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. It was granted with respect to each of Acumen’s three claims that (1) Acumen was damaged by General’s failure to provide quarterly reports; (2) Acumen was damaged by General’s failure to consult Acumen prior to entering into the commutation agreements; and (3) Acumen was damaged by General’s improper calculation of commutation loss allocation and contingency commission allocation. As to the first issue, Acumen waived its contractual right to receive quarterly reports by failing to require them over a period of several years. As to the second claim, while General failed to consult Acumen on commutation settlements with reinsurers through whose business Acumen was receiving contingent commissions, the contract only required such consultation in situations inapplicable to the dispute. Finally, as to the third claim, the court also agreed that General properly computed the commutation loss allocation and contingency commission allocation. The court, however, denied General’s motion on Acumen’s additional claim that it was damaged by General’s improper use of erroneous data in calculating the contingent commission, finding genuine issues of material fact as to whether General’s calculation relied on erroneous data. Acumen Re Management Corp. v. General Security National Insurance Co., Case No. 09-CV-01796 (USDC S.D.N.Y. Sept. 7, 2012)

This post written by John Pitblado.

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NEW YORK ADOPTS EMERGENCY AMENDMENT TO EXCESS LINES REGULATION

September 11, 2012 by Carlton Fields

The New York State Department of Financial Services has, on an emergency basis published in the State Register on August 1, 2012, adopted amendments to Insurance Regulation 41, concerning excess (or surplus) lines insurance. The purpose of the amendment is to implement the changes to the New York insurance code which were adopted in 2011 to conform the law to the Nonadmitted and Reinsurance Reform Act portion of the Dodd-Frank Act, which addressed certain issues regarding the writing of excess and surplus lines insurance.

This post written by Rollie Goss.

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COURT DETERMINES REINSURANCE AGREEMENT AND GENERAL AGENCY AGREEMENT OBLIGATIONS STRICTLY GOVERNED BY CONTRACT

September 10, 2012 by Carlton Fields

Lincoln General Insurance Company and U.S. Auto Insurance Services, Inc., as managing general agent for State and County Mutual Fire Insurance Company, entered into general agency agreements and reinsurance agreements. Disputes arose as to the amount due to Lincoln under the agreements, and litigation ensued. Lincoln brought a variety of claims, including breach of contract, misappropriation and conversion, breach of trust and/or fiduciary duties, aiding and abetting breach of trust and/or fiduciary duties and tortious interference with contract. The court found that there was no fiduciary duty involved in these relationships, and essentially found that the relationship was governed by the terms of the written agreements, without any implied torts. It dismissed all of the claims except for the breach of contract and tortious interference with contract claims. Lincoln General Insurance Company v. U.S. Auto Insurance Services, Inc., Case No. 10-2307 (USDC N.D. Tex. Aug. 30, 2012).

This post written by Rollie Goss.

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