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You are here: Home / Arbitration / Court Decisions / Interim or Preliminary Relief / COURT ENFORCES PERSONAL GUARANTEE OF REINSURANCE CONTRACT AGAINST INSURED’S CHAIRMAN AND CEO

COURT ENFORCES PERSONAL GUARANTEE OF REINSURANCE CONTRACT AGAINST INSURED’S CHAIRMAN AND CEO

September 9, 2008 by Carlton Fields

Defendant, Centrix Financial, LLC (“Centrix”), sought default protection insurance (“DPI”) covering its “Portfolio Management Program” – a program it created to protect lenders of sub-prime auto loans which Centrix bundled – against the risk of deficiency loan balances and property damage connected with default repossessions. Having been informed by its prior DPI carrier of non-renewal, Centrix approached the plaintiffs, Everest National Insurance Company and Everest Reinsurance Company (“Everest”) to underwrite the risk. When Everest expressed reservation about reinsurance, Centrix’s Chairman and CEO, co-defendant Robert Sutton, offered, as part of a letter of intent memorialized between the parties in an integrated contract, to personally guarantee a reinsurance contract issued by Founders Insurance Company, Ltd. (“Founders”), a Bermuda-based company owned by Sutton.

Everest and Founders ultimately proceeded to arbitration as a result of losses, and the arbitration panel ordered Founders to post security in the amount of $70,000,000. Founders failed to comply with the order, and Everest thereafter looked to Sutton to satisfy his obligation to post the security. Sutton resisted, claiming the guarantee obligation was unenforceable as it was fraudulently induced and made under economic duress. Everest sued in federal court and moved for summary judgment. The court rejected Sutton’s defenses, finding that the economic duress he faced in the course of negotiating the various agreements with Everest was not of Everest’s making, and that Sutton’s fraudulent inducement claims, even if true, were barred under the parol evidence rule as the claims were contradicted by the terms of the integrated contract entered into by the parties. The court granted summary judgment in favor of Everest. Everest National Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J., Aug. 13, 2008).

This post written by John Pitblado.

Filed Under: Interim or Preliminary Relief, Week's Best Posts

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