• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

  • About
    • Events
  • Articles
    • Treaty Tips
    • Special Focus
    • Market
  • Contact
  • Exclusive Content
    • Blog Staff Picks
    • Cat Risks
    • Regulatory Modernization
    • Webinars
  • Subscribe
You are here: Home / Arbitration / Court Decisions / Illinois Federal Court Denies Motion to Dismiss Complaint Alleging Breach of Reinsurance Agreement Between Parties

Illinois Federal Court Denies Motion to Dismiss Complaint Alleging Breach of Reinsurance Agreement Between Parties

January 27, 2025 by Kenneth Cesta

In PMC Casualty Corp. v. Virginia Surety Co., the U.S. District Court for the Northern District of Illinois, Eastern Division, addressed a motion to dismiss a complaint filed by a party to a reinsurance agreement alleging that payments due to the reinsurer were being improperly withheld.

Defendant Virginia Surety Co. issued contractual liability insurance policies (CLIPs) to nonparty Protect My Car, which sold vehicle service contracts, or extended warranties, to owners of motor vehicles. The CLIPs issued by Virginia Surety were intended to insure Protect My Car’s obligations to vehicle owners under the service contracts. After it issued the CLIPs, Virginia Surety obtained insurance from plaintiff PMC Casualty Corp. to protect it against the risks it assumed under the CLIPs. Virginia Surety and PMC Casualty entered into a reinsurance agreement, which provided that “Virginia Surety ‘ceded,’ and PMC reinsured, 100 percent of the risk of any payments that might have to be made under the vehicle service contracts covered by the CLIPs.” PMC Casualty was required to maintain a trust account to secure its obligations to Virginia Surety, and the reinsurance agreement permitted withdrawal from the trust account for certain specified purposes. The parties then amended the reinsurance agreement and transferred the funds held in the trust account to a “funds withheld account” to be held by Virginia Surety, subject to the same withdrawal restrictions. Relying on a report issued by Virginia Surety, PMC Casualty then submitted a request for payment from the funds withheld account of more than $18 million, which PMC Casualty alleged was due. Virginia Surety declined the payment, alleging that the funds in the account should be used to cover its potential liabilities in a separate state court lawsuit involving another company.

PMC Casualty disputed that Virginia Surety was entitled to withhold the payment and filed a complaint for breach of contract. Virginia Surety moved to dismiss the complaint, arguing that the amounts it may be liable for in the state court action are, at least in part, the same sums that PMC Casualty is seeking, which makes them subject to the reinsurance agreement. PMC Casualty opposed the motion, arguing that the reinsurance agreement does not give Virginia Surety the sole discretion to withhold payment. The court found that the term “amount(s) relevant to the Agreement” is “arguably facially ambiguous, and it is not defined in the reinsurance agreement,” and noted that the interpretation of the agreement “may entail consideration of extrinsic evidence and thus may involve questions of fact.” The court concluded that given the ambiguities and the lack of merit of Virginia Surety’s other arguments, the complaint is not subject to dismissal on a motion to dismiss for failure to state a claim.

PMC Casualty Corp. v. Virginia Surety Co., No. 1:24-cv-07795 (N.D. Ill. Dec. 30, 2024).

Filed Under: Arbitration / Court Decisions, Contract Interpretation, Reinsurance Claims

Primary Sidebar

Carlton Fields Logo

A blog focused on reinsurance and arbitration law and practice by the attorneys of Carlton Fields.

Focused Topics

Hot Topics

Read the results of Artemis’ latest survey of reinsurance market professionals concerning the state of the market and their intentions for 2019.

Recent Updates

Market (1/27/2019)
Articles (1/2/2019)

See our advanced search tips.

Subscribe

If you would like to receive updates to Reinsurance Focus® by email, visit our Subscription page.
© 2008–2025 Carlton Fields, P.A. · Carlton Fields practices law in California as Carlton Fields, LLP · Disclaimers and Conditions of Use

Reinsurance Focus® is a registered service mark of Carlton Fields. All Rights Reserved.

Please send comments and questions to the Reinsurance Focus Administrators

Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please contact us. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites. This site may be considered attorney advertising in some jurisdictions.