New reinsurance-related and arbitration developments from Carlton Fields
We earlier posted on a report issued by the U.S. Treasury Department that might provide a preview of the Trump Administration’s agenda for the insurance industry. A more detailed analysis of that report appears in a Special Focus article.
This post written by Rollie Goss.
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The Connecticut Insurance Department recently issued two bulletins, both of which mandate financial reporting by insurers to the Department. Bulletin Number FS-4AR-17, issued on December 6, 2017, requires all accredited reinsurers doing business in Connecticut to submit to the Department a report of its financial condition as of December 31, 2017, by March 1, 2018, as well as a copy of the company’s 2017 independent audit report, by June 1, 2018. Bulletin Number FS-4C-17, issued on December 11, 2017, requires each captive insurance company domiciled or licensed in Connecticut to file financial reports with the Department by either March 1 or March 15, 2018, depending on the type of captive.
This post written by Jeanne Kohler.
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A Magistrate Judge in the U.S. District Court for the Southern District of New York has recommended that a default judgment totaling more than $221 million be entered against the Islamic Republic of Iran and in favor of insurers who paid claims to their insureds for property damage, business interruption and other losses arising out of the terrorist attacks on 9/11. In doing so, however, the magistrate also recommended denying the insurers’ application for an additional $305 million reflecting payments made under reinsurance contracts.
The plaintiff-insurers argued that they were entitled to all amounts they were compelled to expend under applicable policies of insurance and reinsurance resulting from 9/11. The court concluded, however, that the insurers were only entitled to recover under the doctrine of subrogation. The court explained that subrogation allows an insurer to “stand in the shoes” of its insured for purposes of seeking payment from third-parties whose wrongdoing caused the losses for which the insurer was obligated.
While finding that the insurers were subrogated to over $221 million in damages under direct insurance policies, the court recommended denying their application for over $305 million in losses incurred under reinsurance contracts with primary insurers that paid claims relating to 9/11. Noting that reinsurance contracts operate solely between the reinsurer and the reinsured primary insurer, the court stated that there is no contractual privity between a reinsurer and the policyholder who suffered the initial loss. Because the damaged policyholders have no rights under the reinsurance contracts at issue, the magistrate judge found that plaintiffs, as reinsurers, have no subrogation rights as to the 9/11-related losses sustained by these policyholders.
In re Terrorist Attacks on September 11, 2001, Case No. 04-cv-05970 (USDC S.D.N.Y. Nov. 27, 2017).
This post written by Alex Silverman.
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Following a jury trial, Utica Mutual Insurance Company was awarded $35 million, plus interest ($29,092,191.78) on its claims against Fireman’s Fund Insurance Company to enforce the terms of the certificates of reinsurance issued by Fireman’s Fund to Utica. The Court, ruling on Utica’s Motion for Judgment on Partial Findings, dismissed Fireman’s Fund’s counterclaims for intentional and negligent misrepresentation. Post-trial motions are to be filed by December 29, 2017.
Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 6:09-CV-0853 (USDC N.D.N.Y. Dec. 15-16, 2017)
This post written by Nora A. Valenza-Frost.
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A group of Kentucky hospitals sought reimbursement for legal fees incurred in two lawsuits related to the insolvency of their insurer, Reciprocal of America (“ROA”). In the 1970s and 1980s, the hospitals created two trusts to provide the hospitals with workers’ compensation and employers’ liability coverage. In 1997, the trusts were merged into ROA, and ROA agreed to assume the trusts’ business liabilities and to indemnify the trusts and their member insureds, including the hospitals, “in defending [themselves] against any claim Damages arising from or connection with the Damages.”
In 2003, ROA was placed into receivership and was later found insolvent and ordered liquidated. This led to two judicial proceedings in which the hospitals were involved—one that they joined as claimants seeking to have ROA continue to pay worker’s compensation claims that ROA had assumed from the trusts, and one seeking a declaration that the Kentucky Insurance Guaranty Association (KIGA) was obligated to cover the hospitals’ claims that ROA had assumed but could not pay. After both matters were resolved, the hospitals filed claims with ROA’s Special Deputy Receiver for reimbursement of the legal fees and costs incurred in those matters under ROA’s indemnification obligations. The claim was denied, and the case ended up before the Virginia Supreme Court.
The court affirmed the denial of the hospitals’ claim. The court explained that the plain meaning of the phrase “defending against any claim” and the specific contractual definition of “Damages,” together support the characterization of the agreements as an assumption reinsurance transaction in which ROA stepped into the shoes of the trusts. ROA’s indemnity could rise no higher than the pre-merger obligations of the two trusts — for those were the only liabilities that ROA assumed, and thus the only “Damages” for which it was responsible to indemnify the trusts. This contractual definition of “Damages” necessarily excludes any obligation for ROA to indemnify the trusts and their member insureds for the legal fees and costs incurred in the underlying judicial proceedings. The court rejected the hospitals’ argument that ROA’s duty to pay for the expense of defending against claims covered the expense of asserting claims. While it may have been good legal strategy for the hospitals to proactively assert such claims, this did not turn the assertion of claims into the defense of claims covered by ROA’s indemnification agreement. Appalachian Regional Healthcare v. Cunningham, Case No. 161767 (Va. Nov. 22. 2017).
This post written by Jason Brost.
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