Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT REJECTS INSURER’S ARGUMENT THAT IT CONTRACTED TO ITS REINSURER ALL OBLIGATIONS OWED UNDER A CEDED POLICY

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A federal district court has denied an insurer’s motion for summary judgment on a breach of contract claim, rejecting Liberty National Life’s argument that it contracted to its reinsurer all obligations owed under a ceded policy. At issue was a reinsurance and assumption agreement where Liberty ceded to its reinsurer a number of policies. The reinsurer agreed to “assume and carry out all contractual terms, conditions and provisions” in the ceded policies and “assumed the obligations of the liabilities” for all losses and claims arising out of the ceded policies. Liberty argued that the terms of the agreement absolved it from all contractual liability owed to its policyholders. The court disagreed. Though the agreement was an assumption (as opposed to an indemnity) reinsurance agreement and the reinsurer therefore stepped into Liberty’s shoes with respect to the ceded policy, Liberty remained liable unless there was a novation of the ceded policy substituting the reinsurer for Liberty. Finding Liberty had not submitted sufficient evidence to show a novation, the court denied Liberty’s motion for summary judgment on the breach of contract claim. The court did grant Liberty summary judgment on the bad faith claim, finding the plaintiff had failed to show any tortious or unreasonable act on Liberty’s part. The court also rejected arguments as to the inadmissibility of Liberty’s summary judgment evidence, finding that Liberty’s admissions and the agreement itself were admissible and could be considered. Evans v. Liberty National Life Insurance Co., No. 13-CV-0390 (USDC N.D. Okla. Nov. 12, 2014).

This post written by Renee Schimkat.

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COURT CONFIRMS AWARD OVER ARGUMENTS OF “MANIFEST DISREGARD,” “EVIDENT PARTIALITY,” AND “CORRUPTION”

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A transported liquid chemical had been found degraded after shipping from Texas to South Korea. The chemical company contended that the shipper was responsible for the losses as samples taken from the chemical prior to its transport tested satisfactorily. The dispute went to arbitration where the panel determined that the company failed to show that the chemical was damaged aboard the ship, and denied the claim. The chemical company attempted to vacate the award but the court found there was no manifest disregard of the law, because the petitioners could not show error beyond a possible erroneous interpretation of the Carriage of Goods by Sea Act, and in any event, “there [was] no indication the majority [of the panel] knew that was not the law but chose to hold petitioners to a different standard.” The court also found there was no misconduct by one of the arbitrators who failed to disclose that he was suffering from a terminal brain tumor at the time of his service on the panel, notwithstanding potential arbitration rule or ethics code violations. The nondisclosure did not cause prejudice and did not rise to “evident partiality or corruption” or misconduct under the FAA, under which “an arbitrator is under no duty to disclose medical conditions.” Finding no reason to vacate the award, the court ordered the award confirmed and granted the respondents’ motion to award attorney’s fees and costs incurred in connection with the motion to vacate. Zurich American Insurance Co. v. Team Tankers A.S., Case No 13cv8404 (USDC S.D.N.Y. June 30, 2014).

This post written by Michael Wolgin.

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CEDENT LOSES MOTION FOR REINSURANCE PAYMENTS DUE TO LATE NOTICE AND “UNSATISFACTORY” PROOF OF LOSS, NOTWITHSTANDING “FOLLOW THE SETTLEMENTS” PROVISIONS

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In a reinsurance coverage dispute involving coverage for an underlying settlement of asbestos liability, a New York court considered whether the defenses of failure to provide prompt notice and failure to provide satisfactory proof of loss precluded summary judgment in favor of the cedent. The cedent relied on “follow the settlements” provisions contained in each of the relevant four facultative reinsurance certificates. The court, however, was not convinced that these provisions entitled the cedent to coverage. One of the certificates, the court found, provided for prompt notice as a condition precedent to coverage. The court ruled that the cedent, which had submitted notice of claim to the reinsurer in 2010, had been required to provide notice of the asbestos settlement “in 2006 at the latest, when the settlement agreement was executed.” As a result, no prejudice from the late notice needed to be demonstrated, and the reinsurer was not obligated to indemnify the cedent for unpaid losses under that certificate. For the three other reinsurance certificates, which did not contain provisions deeming prompt notice a condition precedent to coverage, the court still denied the cedent summary judgment as premature, finding that the cedent failed to demonstrate that it had satisfied the certificates’ requirements to “provide[] proofs of loss in a form satisfactory to” the reinsurer. The court did rule in favor of the cedent, however, with respect to one of three reinsurance billings, where the reinsurer waived its defenses by making an initial payment without any reservation of rights. Lexington Insurance Co. v. Sirius America Insurance Co., Index No. 651208/2012 (N.Y. Sup. Ct. Sept. 18, 2014).

This post written by Michael Wolgin.

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SEVENTH CIRCUIT DECLINES TO REQUIRE PRE-PLEADING SECURITY FROM URUGUAY’S STATE-OWNED REINSURER AND REFUSES TO COMPEL ARBITRATION

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The Plaintiff, Pine Top Receivables of Illinois, LLC brought an action in Illinois federal court against Banco de Seguros del Estado, an entity wholly owned by Uruguay. Pine Top claimed that Banco de Seguros owed Pine Top $2,352,464.08 under certain reinsurance contracts. Pine Top’s complaint sought to compel arbitration, and alternately sought entry of judgment for breach of contract. Banco Seguros answered the complaint, and Pine Top moved to strike the answer for failure to post pre-pleading security as required under Illinois’s unauthorized foreign insurer statute, § 215 ILCS 5/123(5).

The trial court held, and the Seventh Circuit affirmed on interlocutory appeal, that Banco Seguros was not required to post security, following Second Circuit precedent which held that an attachment of any sort (like pre-judgment security) was violative of the broad grant of immunity to foreign governments afforded by the Foreign Sovereign Immunities Act.

The Seventh Circuit also affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, finding that Pine Top’s rights under the reinsurance contracts, which had been assigned to it by the Liquidator of the defunct primary insurer that originally entered into the agreements with Banco Seguros, were limited to the collections of certain debts, but it was not assigned all rights and duties under the treaties, and thus was not assigned the right to arbitrate. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Nov. 7, 2014)

This post written by John Pitblado.

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COURT REFUSES TO SEAL “SUBSTANTIVE RULINGS” IN ARBITRATION AWARD

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A federal court in Michigan was recently presented with a motion to seal the briefing associated with a motion to confirm an arbitration award. The arbitration concerned a reinsurance dispute and had been conducted pursuant to a confidentiality agreement that required the final award and any court submissions be kept confidential. Noting the “long-established legal tradition of public access to court documents,” the court ordered that only limited portions of the Final Award should be sealed – those that identified non-parties. The court refused to seal other portions of the award, rejecting the argument that public filing of the award’s “substantive rulings” could harm the reinsurer’s financial interests. The reinsurer argued that other reinsureds could cite to the blanket pronouncements in the Final Award to support their claims, despite the confidential nature of the arbitration. The court ruled that unlike situations where the arbitration award contains confidential business data or trade secrets and therefore is properly sealed, the request to seal the Final Award in this case was made merely to prevent unhelpful portions of the Final Award from becoming public in an effort to avoid future litigation. The court cited Sixth Circuit precedent holding a party’s interest in shielding prejudicial information from public view, standing alone, cannot justify the sealing of that information.  Amerisure Mut. Ins. Co. v. Everest Reinsurance Co., No. 14-CV-13060, 2014 WL 5481107 (E.D. Mich. Oct. 29, 2014).

This post written by Catherine Acree.

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