Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT AWARDS $5.6 MILLION IN DAMAGES FOR COVERED CLAIMS UNDER RETROCESSION AGREEMENTS

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A federal district court has awarded Munich Re $5.6 million in damages in its breach of contract action against American National Insurance Company for ANICO’s nonpayment of certain claims the court previously determined were covered by the parties’ retrocession agreements. In previous opinions, reported here on March 10 and May 29, 2014, the court concluded that ANICO breached its payment obligations to Munich Re for claims properly and timely ceded to ANICO under those agreements. In awarding damages, the court determined that Munich Re was entitled to a sum certain based on all claims previously identified and billed by Munich Re at the time of trial, along with the appropriate amount of prejudgment interest. The court also determined that ANICO was entitled to (1) offset some damages claimed by Munich Re by the amount of outstanding premium ANICO was owed and (2) “particulars and estimates” under the reporting obligations of the retrocession agreements which obligate Munich Re, when reporting claims, to provide information sufficient for ANICO to determine that the claims fall within the scope of its obligations.  The court denied ANICO’s request that the court to take judicial notice of certain alleged admissions Munich Re made in prior litigation. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC D.N.J. May 27, 2014).

This post written by Renee Schimkat.

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JURY AWARDS STONEBRIDGE CASUALTY $5.8 MILLION ON REINSURANCE CLAIM

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A final judgment was recently entered on a jury verdict awarding $5.8 million to Stonebridge Casualty Insurance Company. The case involved a reinsurer’s failure to pay reinsurance claims arising out of an automobile tire loyalty rewards program insured by Stonebridge. The reinsurer was a motor club that had entered into a contractual arrangement with certain Lloyd’s syndicates under which the motor club agreed to be financially responsible for reinsurance claims.

Under the insured program, automobile dealerships offered their customers a reward certificate entitling the customer to two free sets of tires if they returned to the dealership for all of the manufacturer’s recommended service. Stonebridge insured the program and obtained reinsurance coverage in the event that claims exceeded $46 per certificate. After the reinsurance threshold was exceeded and Stonebridge filed reinsurance claims, the motor club and Lloyd’s contended that the tire claims were invalid and sued Stonebridge for a declaration that they were not liable. Stonebridge counterclaimed, and after seven days of trial, the jury returned a verdict in favor of Stonebridge, awarding the full amount of damages sought in the amount of $5.8 million. Stonebridge has also filed a motion seeking additional prejudgment interest of $813,226. Stonebridge Casualty Ins. Co. v. Nation Motor Club, Inc., Case No. 9:10 cv 81157 KLR (USDC S.D. Fla. Mar. 24, 2014).

This post written by Michael Wolgin.

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VERMONT AMENDS ITS CAPTIVE INSURER LAW

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Vermont has amended its captive insurer statute (H. 563) to permit a  company to elect a “dormant captive insurance company” status for a period of five years (renewable) if it meets certain criteria: (1) unimpaired, paid-in capital and surplus of not less than $25,000; (2) submission of a prescribed annual report; and (3) payment of a license renewal fee.  Dormant companies are those which: (1) do not insure controlled unaffiliated business; (2) have ceased transacting the business of insurance (including the issuance of insurance policies); and (3) have no remaining liabilities associated with insurance business transactions or outstanding insurance policies.  Dormant companies are not liable for certain premium taxes.

This post written by Rollie Goss.

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DISPUTE PENDING IN COURT MAY NOT BE MADE SUBJECT TO ARBITRATION

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An individual had a dispute over work-related issues while working at a Citicorp call center. His employment agreement required arbitration of individual disputes but did not require the arbitration of class claims. The employee filed a class action lawsuit, and left Citicorp’s employ. In what the Sixth Circuit called “a confluence of improbable circumstances,” the former employee was rehired by Citicorp while the class action lawsuit was still pending, but this time signed an employment agreement which required the arbitration of both individual and class claims. The issue was whether he could be compelled to arbitrate the pending class claims. The Court interpreted the second arbitration provision to be prospective only, designed to head off new lawsuits rather than cut off existing lawsuits. This was a question of the interpretation of the arbitration agreement, and despite the general interpretation rule favoring arbitration, the Court found that there was “no doubt” as to the scope of the arbitration provision in the new employment agreement. Therefore, the employee was not required to arbitrate the pending class claims. The Court noted that there was an ethical issue of Citicorp dealing with an employee who was represented by counsel in a pending lawsuit concerning the subject matter of the lawsuit, but found it unlikely that Citicorp’s lawyers intended the provision to be provided to parties to pending litigation. Russell v. Citigroup, Inc., No. 13-5994 (6th Cir. April 4, 2014).

This post written by Rollie Goss.

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COURT HOLDS THAT ARBITRATOR SHOULD DECIDE WHETHER AN ARBITRATION PROVISION SURVIVES THE COMMUTATION OF A REINSURANCE AGREEMENT

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A federal judge in the District of Connecticut recently analyzed whether the arbitration provision in a reinsurance agreement was extinguished by a subsequent commutation agreement. The case involved an agreement between the reinsurer, Trenwick America Reinsurance Corporation, and its reinsured Commercial Casualty Insurance Company of Georgia (CCIC). The reinsurance agreement had a “cut through” provision, permitting a direct action by CCIC’s insureds against Trenwick if CCIC became insolvent. In 2004, CCIC became insolvent, and eight years later, one of CCIC’s insureds invoked the cut-through provision and billed Trenwick directly for a claim. Shortly thereafter, Trenwick and the estate of CCIC entered into a commutation agreement under which all reinsurance obligations between Trenwick and CCIC were commuted and extinguished. After Trenwick failed to pay the claim, the insured demanded arbitration, and Trenwick filed suit in federal court seeking to enjoin the arbitration.

The court refused to enjoin the arbitration and granted the insured’s motion to compel arbitration, rejecting Trenwick’s argument that the commutation agreement extinguished the arbitration provision. The court ruled that whether the insured’s claims are subject to arbitration is a question for the arbitrator. It is up to the arbitrator to decide whether the contract containing the arbitration provision was terminated and the effect, if any, of the commutation agreement on the arbitration provision. The court ruled that because the insured was not a party to the commutation agreement, that agreement’s effect on the insured’s rights must necessarily be determined by interpreting the original reinsurance agreement, which is the responsibility of the arbitrator. Trenwick America Reinsurance Corp. v CX Reinsurance Co. Ltd., Case No. 3:13cv1264 (USDC D. Conn. May 23, 2014)

This post written by Catherine Acree.

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