Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CONNECTICUT SUPREME COURT VACATES SUMMARY JUDGMENT INTERPRETING REINSURANCE AGREEMENT

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On September 24, 2007, we reported on a Connecticut Supreme Court decision addressing issues relating to a request for the posting of pre-pleading security in a case involving the interpretation of a reinsurance agreement covering losses on general liability insurance policies arising from claims for insuries resulting from the underlying insured's production and use of products containing asbestos. On remand, the principal issue on the merits of the dispute revolved around language in the reinsurance agreement relating to aggregation of losses and the definition of occurrence. The trial court granted summary judgment on that issue to the reinsurers. The Supreme Court has reversed, finding that there are disputed issues of material fact which preclude the determination of the interpretation issues in a summary judgment posture. Hartford Accident and Indemnity Co. v. Ace American Reinsurance Co., SC 17625 (officially released Dec. 25, 2007).

This post written by Rollie Goss.

HOUSE PASSES TRIA EXTENSION

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By a vote of 360-53, the House has passed a seven year extension of the Terrorism Risk Insurance Act. The enacted version mirrors the version passed by the Senate, which does not include coverage for nuclear, biological and chemical attacks or credit life insurance. Although the Bush administration favors not renewing TRIA, there have been indications that the President would sign a bill such as the one passed by the House.

CLAIMS ARISING OUT OF ALLEGEDLY PURPOSEFUL UNDERCAPITALIZATION OF CAPTIVE REINSURER SURVIVE MOTION TO DISMISS

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This case centers around the relationship between defendant, Ramona Tires (“Ramona”), Automotive Services Insurance Limited (“ASIL”), a captive reinsurance company created by Ramona, and Frontier Insurance Company (“Frontier”). Plaintiff Howard Mills, Superintendent of Insurance, as Rehabilitator of Frontier, filed suit against Ramona alleging that Ramona defrauded Frontier by purposefully undercapitalizing ASIL so as to make it unable to comply with its contractual obligations. Ramona filed a motion to dismiss for failure to plead its fraud claim with particularity under Rule 9(b) and for failure to state a claim under Rule 12(b)(6).

The Southern District of California denied Ramona’s motion to dismiss. Plaintiff’s complaint attributed the following two false statements to Ramona: (1) defendants allegedly promised that ASIL would reimburse Frontier for the first $250,000 of each claim made on the policy by Ramona; and (2) ASIL would remain adequately capitalized. The court found these averments satisfied the requirements of Rule 9(b). The court further held that plaintiff adequately pled claims for unjust enrichment, money had and received, and conspiracy. Howard Mills v. Ramona Tire, Inc., Case No. 07-CV-0052 (USDC S.D. Cal., Dec. 5, 2007).

This post written by Lynn Hawkins.

UK COURT OF APPEALS AFFIRMS RULING THAT LLOYD’S NAMES CAN NOT SUE NATIONAL GOVERNMENT OVER IMPLEMENTATION OF AN EEC INSURANCE DIRECTIVE

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On November 28, 2006, we reported on a ruling by the UK Commercial Court that Lloyd’s Names did not have a cause of action against the government for alleged damages due to the improper implementation of an EEC Insurance Directive. The UK Court of Appeals has affirmed that decision, holding that the assumed failure to transpose the requirements of the Insurance Directive into national law can not be the basis for claims against the national government by the Names. Having disposed of the appeal on this issue, the Court of Appeals did not reach the alternative holding that the claims of the Names were barred by the statute of limitation. Poole v. Her Majesty’s Treasury [2007] EWCA Civ 1021 (Oct. 24, 2007).

This post written by Rollie Goss.

DAMAGES CALCULATION REVERSED – COMMISSION ADJUSTMENTS SHOULD HAVE BEEN BASED ON ‘INCURRED’ RATHER THAN ‘REASONABLE’ LOSSES

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Transatlantic Reinsurance Company (“TRC”), a reinsurer on non-standard automobile insurance policies, and Home State County Mutual Insurance Company (“Home State”) (the ceding and fronting carrier) sued Gamma Group, the agent responsible for binding and adjusting the policies, for breach of contract. The trial court concluded that Gamma breached its contract by failing to factor the run-off into its commission adjustment and instead retaining the premiums from which the adjusted commission payments were to be made.

Gamma appealed the trial court’s judgment arguing: (1) that the trial court erred in awarding damages under the contract because losses and loss adjustment expenses on run-off claims should not have been included in the commission adjustment; and (2) that the court erred in awarding statutory attorney’s fees. In a cross-appeal, TRC and Home State argued that the court erred when it construed the contract to imply that only “reasonable” run-off payments were to be included in the commission adjustment calculation.

The Texas Court of Appeals affirmed the trial court’s judgment on the right to recover damages for breach of contract and attorney’s fees, but reversed the trial court’s judgment with respect to the amount of damages reasoning that the trial court erred by reducing the damage award based on an implied term in the contract. The court stated that “[c]ourts do not rewrite contracts to insert provisions parties could have included or imply restraints for which they did not bargain,” and concluded that “[a]lthough the trial court refer[red] to its determination as a contract construction, it …, in effect, inserted an implied covenant requiring that loss payments be reasonable. Gamma Group, Inc. v. Transatlantic Reinsurance Co. & Home State County Mutual Ins. Co., No. 05-06-00156, (Tex. Ct. App., Dec. 3, 2007).

This post written by Lynn Hawkins.