In a suit surrounding the application of an offset provision in one reinsurance agreement to amounts allegedly owed under a second reinsurance agreement, a court narrowly construed a merger clause in the first agreement, denying a motion to dismiss. American Medical and Life Insurance Company and Guarantee Trust Life Insurance Company entered into two separate reinsurance agreements. In the first, the former would reinsure the latter with respect to certain insurance business. In the second, the latter would reinsure the former with respect to other insurance. After GTL allegedly failed to perform under the second agreement, American Life used an offset provision in the first agreement and refused to pay its share of claims under the first agreement. GTL then sued for breach of the first agreement and American Life counterclaimed for breach of the second agreement. GTL moved to dismiss American Life’s counterclaim, contending the first agreement’s merger clause prohibited linking the second agreement with the first agreement. The court denied GTL’s motion, holding that the offset provision, which permitted offset based on “any other agreement between the parties,” could not be barred by the merger provision in that same contract. Further, the merger provision applied only to “the business reinsured hereunder,” so unrelated business reinsured under a separate agreement would fall outside that provision’s reach. Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co., Case No. 10 C 2125 (USDC N.D. Ill. Feb. 3, 2011).
This post written by Michael Wolgin.