Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT DISMISSES MUNICH RE’S CLAIM FOR BREACH OF THE DUTY OF UTMOST GOOD FAITH

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In a suit regarding a health insurer’s alleged over-billing of its reinsurer, Munich Re, the federal district court for the Northern District of Illinois dismissed Munich Re’s counterclaim for breach of the duty of utmost good faith. The court based the dismissal on the fact that, under Illinois law, the duty of utmost good faith is simply a “tool of construction in deciding whether a party has breached the governing reinsurance treaties,” and not a basis for an independent cause of action. The court further explained that Illinois has recognized an independent cause of action for breach of the duty of utmost good faith only in cases involving an insurer’s obligations to settle with a third-party who has sued the policyholder. Under that scenario, an independent bad faith cause of action is needed because an insurance policy does not sufficiently govern the insurer’s duty to settle. That is not the case in other insurance contexts, such as reinsurance, where the reinsurance treaty sufficiently governs the parties’ relationship. Guarantee Trust Life Ins. Co. v. Insurers Administrative Corp., Case No. 09-5129 (USDC N.D. Ill. Sept. 24, 2010).

This post written by Michael Wolgin.

MOTION TO RECONSIDER DENIED IN LAWSUIT AGAINST NATIONAL WORKER’S COMPENSATION REINSURANCE POOL

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We previously reported in a June 25, 2010 post on a lawsuit brought by plaintiff American Insurance Group, Inc., and its affiliates and subsidiaries, alleging underreporting of worker compensation premiums to the the National Worker’s Compensation Reinsurance Pool. That post discussed the court’s order on motions to dismiss brought by the defendants. The court has now ruled on a motion to reconsider the earlier order, granting the motion in part and denying it in part. Specifically, the court agreed with the Pool that the court was mistaken when it concluded that the Pool became the National Workers Compensation Reinsurance Association. The court affirmed, however, that the Pool has the capacity to be sued, since the Pool qualified as a voluntary unincorporated association that may sue or be sued in its own name. American International Group, Inc. v. Ace INA Holdings, Inc., Case No. 07 CV 2898 (USDC N.D. Ill. Sept. 16, 2010).

This post written by Brian Perryman.

NINTH CIRCUIT REVERSES CONFIRMATION OF ARBITRATION AWARD BASED ON IMPROPER FORUM

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The Ninth Circuit has reversed and remanded a district court’s confirmation of an arbitration award because the plaintiff/counterclaim defendant, a manufacturer located in Belarus, established a defense under the New York Convention. The parties agreed to an arbitration clause that requires disputes to be arbitrated where the “defendant” is located. Arbitration was commenced in California, but the plaintiff expressly reserved the right to have any counterclaims asserted against it arbitrated in Belarus. When counterclaims were filed, the arbitrator refused to dismiss them on the ground they should have been filed in Belarus. The district court confirmed the California arbitrator’s award against the plaintiff, which appealed to the Ninth Circuit.

On appeal, the court held that procedures used in the arbitration of “counterclaims” were not in accordance with the agreement. Invoking a defense under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), the plaintiff contended the “arbitral procedure was not in accordance with the agreement of the parties” because the counterclaims should have been arbitrated in Belarus. The Ninth Circuit agreed. The arbitration agreement required that any “dispute” be arbitrated at “the defendant’s [site].” The term “dispute” encompassed both claims and counterclaims. Further, a party is a “defendant” as to any dispute whenever another party seeks damages or other form of relief against it. Polimaster Ltd. v. RAE Systems, Inc., No. 08-15708 (9th Cir. Sept. 28, 2010).

This post written by Brian Perryman.

USF&G WINS $260M JUDGMENT AGAINST REINSURERS FOR UNDERLYING CONSOLIDATED ASBESTOS SETTLEMENT

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USF&G won a significant judgment against its reinsurers under certain reinsurance agreements covering liabilities in the 1950’s and early 1960’s (particularly 1959) in New York state court. USF&G, after protracted and largely unsuccessful coverage litigation with its insured, Western Asbestos Company, settled consolidated underlying asbestos claims for approximately $987 million (the settlement generally placed the liabilities in calendar year 1959). USF&G thereafter looked to its reinsurers under certain reinsurance agreements that covered that time period. The defendant reinsurers resisted, including American Re, under a certain reinsurance agreement for which USF&G sought $202 million, and another pool of reinsurers, under a reinsurance treaty for which USF&G sought an additional $59 million. The defendants asserted numerous theories limiting or eliminating their liabilities altogether, and the parties all cross-moved for summary judgment. The court rejected each of the defendants’ arguments, focusing principally on the follow-the-fortunes doctrine, and awarded USF&G the approximately $260 million in judgments it sought, along with interest and costs. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604571/02 (N.Y. Sup. Ct. Aug. 20, 2010)

This post written by John Pitblado.

GEN RE DISMISSED FROM AIG CONSOLIDATED SECURITIES LITIGATION

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A New York federal court granted judgment on the pleadings to the Gen Re defendants in the consolidated AIG securities litigation (about which we have previously posted on July 17, 2008 and November 17, 2009). The partial judgment under Rule 54 does not affect the other defendants. In 2008, Gen Re and certain of its individual officers moved for judgment on the pleadings, arguing that they were not liable to AIG as a matter of law for alleged “fraud on the market” in connection with alleged statements made pertaining to AIG, as a result of the U.S. Supreme Court’s decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008). In its recent ruling, the court agreed, holding that AIG’s pleading failed to allege the elements of “material misrepresentation or omission,” and “reliance upon that misrepresentation” under the standards set in Stoneridge, and therefore granted judgment on the pleadings to the Gen Re defendants. In re American International Group, Inc. Securities Litigation, No. 04-cv-8141 (USDC S.D.N.Y. Sept. 10, 2010)

This post written by John Pitblado.