Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER CAN DENY COVERAGE BASED ON INSURER’S LATE NOTICE

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AIU brought an action against TIG asserting breach of contract and seeking a declaratory judgment as to coverage under nine certificates of facultative reinsurance issued by TIG’s predecessor in interest in the late 1970s and early 1980s. The parties’ dispute arose in 2007 after AIU sought coverage from TIG regarding a multimillion dollar settlement AIU had reached with its insured Foster Wheeler relating to Foster Wheeler’s exposure to numerous asbestos-related lawsuits. TIG contested coverage under the certificates, arguing that AIU had failed to provide prompt notice of Foster Wheeler’s demand for payment which AIU had received in 2003 but did not report to TIG until early 2007.

AIU contended that New York law applied, under which a reinsurer must demonstrate prejudice due to late notice in order to avoid coverage. TIG argued that prejudice to TIG need not be shown in order for it to deny coverage based on late notice under applicable Illinois law. The court determined that Illinois law applied because the certificates were issued in Illinois and AIU was required to perform under the certificates in Illinois by submitting claims to TIG’s Chicago-based intermediary. The court granted TIG’s motion for summary judgment. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-civ-7052 (USDC S.D.N.Y. Mar. 25, 2013).

This post written by Ben Seessel.

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INVALID ATTORNEYS FEE PROVISION SEVERED AND ARBITRATION COMPELLED

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An arbitration provision in an employment agreement provided that the “costs and expenses of the arbitration, including the arbitrator’s fees, shall be borne equally by the parties.” The court held the provision invalid because it would have prevented the plaintiff, if successful, from recovering attorneys fees as provided for in Title VII. However, the court severed the invalid provision and compelled arbitration. Adams v. Republic Parking System, Inc., Case No. 12-1310 (USDC W.D. Okla. April 9, 2013).

This post written by Rollie Goss.

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IOWA AND MARYLAND ADOPT ACTS CONCERNING CREDIT FOR REINSURANCE

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On April 24, 2013, the Iowa State Senate adopted a Credit for Reinsurance Act that becomes effective January 1, 2014. On March 20, 2013, the Maryland State Senate adopted Senate Bill 777, an Act concerning “Insurance – Ceding Insurers and Reinsurance,” which takes effect June 1, 2013. The language of both Acts closely tracks that of the NAIC Credit for Reinsurance Model Law, which allows a ceding insurer to receive a credit for reinsurance when insurance is ceded to a reinsurer that meets certain requirements. Senate File 182, 85th Gen. Assembly (IA Apr. 24, 2013); Senate Bill 777, Gen. Assembly (MD 2013). A staff summary provides an analysis of the Maryland act.

This post written by Abigail Kortz.

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NAIC REINSURANCE TASK FORCE MEETING UPDATE

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The NAIC’s Reinsurance Task Force met on April 8, 2013, as part of the NAIC’s spring national meeting. The Task Force has published its agenda and materials for the meeting, as well as the post-meeting summary. This meeting was informational in nature, and mainly was concerned with progress in the development of the NAIC’s list of qualified jursidictions for purposes of implmenting the Credit for Reinsurance Model Law and other progress in the implementation of the revised credit for reinsurance models.

This post written by Rollie Goss.

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EIGHTH CIRCUIT AFFIRMS DISMISSAL OF CONTRACT DISPUTE BETWEEN INSURER AND REINSURANCE BROKER

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In a contract dispute between an insurer and its reinsurance broker on which we previously reported, the Eighth Circuit affirmed the district court’s dismissal of the insurer’s complaint for failure to state a claim. The brokerage sharing agreement at issue required the reinsurance broker to pay an annual fee to the insurer in exchange for status as the insurer’s exclusive broker and included a forfeiture provision which discontinued the broker’s obligation to make the annual payment upon notice of the insurer’s decision to terminate or replace the broker. The insurer replaced the reinsurance broker, the broker refused to pay the annual fee, and the insurer sued for breach of contract. On appeal, the insurer argued that the district court misconstrued several key terms in the agreement, that the terms were ambiguous, and that theories of equity therefore applied. Applying Minnesota law, the Eighth Circuit determined that an “integrated definition” of a key term and the forfeiture provision were unambiguous, the broker was no longer obligated to make annual payments after receiving notice from the insurer that the broker was being replaced, and equitable relief was not available since the contract was clear and unambiguous. Olympus Ins. Co. v. AON Benfield, Inc., No. 12-1974 (8th Cir. Ap. 1, 2013).

This post written by Abigail Kortz.

See our disclaimer.