Frontier Insurance Company, as surety, issued a performance bond and a payment bond for the construction of a movie theater, and reinsured its obligations with National Indemnity Company. When Frontier was declared insolvent, the holder of the bonds sued National Indemnity. The US District Court dismissed the action, finding that there was no cut through provision in the reinsurance agreement, that the reinsurance agreement explicitly prohibited non-parties from obtaining rights under the reinsurance agreement and that New York law did not provide for a direct cause of action against a reinsurer in the circumstances presented. Jurupa Valley Spectrum, LLC v. National Indemnity Company, Case No. 06-4023 (USDC SD NY June 29, 2007).
Judge dismisses claims against former KPMG personnel
In a stern rebuke to federal prosecutors, a US District Judge has dismissed criminal tax-fraud claims against 13 former KPMG executives based upon the government's “intolerable” prosecutorial abuses. The Court had previously found that the government's pressuring KPMG not to pay the executives attorneys' fees violated their constitutional rights. The Court has now decided that dismissal of the charges is the appropriate remedy for such conduct. The government conceded that if the Court's constitutional analysis was correct, that dismissal was appropriate, presumably to clear the way for an appeal of the issue. The case will proceed to trial against other defendants. Prior posts on this case on this blog cover the arbitrability of attorneys' fee issues (post date September 26, 2006) and an appellate brief filed by the US District judge on that issue (post date January 22, 2007). United States v. Stein, Case No. 05-crim-0888 (USDC SD NY July 16, 2007).
District Court Denies U.K. Defendant’s Motion to Dismiss For Lack of Personal Jurisdiction
Defendants, employees of the U.K. based Marsh Services Limited, provided services to plaintiff Guy Carpenter & Company (“Guy Carpenter”) in the field of facultative reinsurance. In April 2007, the Defendants resigned from Marsh Services to join Integro, a competitor of plaintiffs. By doing so, Plaintiffs allege that defendants breached a non-solicitation provision of their contract. This contract contained two forum selection clauses.
One of the defendants, Ron Whyte, moved to dismiss on the basis that the court lacked personal jurisdiction over him and on based upon the doctrine of forum non conveniens. Whyte argued that the existence of a second forum selection clause in “Schedule II.D” of the contract created an ambiguity which rendered the forum selection clause in the body of the Agreement unenforceable. The court disagreed, denying the motion to dismiss, and holding that the forum selection clause in Schedule II.D did not apply to the issue, and was, in any event, non-exclusive. Guy Carpenter & Co. v. Julian Samengo-Turner, Ron Whyte, and Marcus Hopkins, Case No. 07 Civ. 3580 (USDC S.D. N.Y. June 29,2007).
Court Grants Partial Summary Judgment on Defamation and Interference Claims in Reinsurance Relationship
In a September 22, 2006 post to this blog, we reported on a judgment entered by the UK Commercial Court for damages arising out of a commission addendum entered into by a reinsurer's employee, without authorization from his employer, and a reinsurance intermediary, which provided for an additional “commission” to the intermediary in the amount of 40% of the gross premiums collected for reinsurance placed pursuant to a binder. At a trade conference in the US, an underwriter for the reinsurer made disparaging statements about the intermediary and its US affiliate, and the US affiliate filed suit, inter alia, for damages for breach of contract, interference and defamation. The US Court stayed the prosecution of a breach of contract claim, since it was the subject of the UK action, and granted the reinsurer summary judgment on the remaining claims. Part of the basis for the ruling was a determination that the UK trial court’s judgment amounted to a finding that the European affiliate of the intermediary had defrauded the reinsurer, which carried the reinsurer’s burden to prove the defense that the allegedly defamatory statements were true. Risk Insur. and Reinsur. Solutions v. R + V Versicherung, Case No. 04-61119 (USDC S.D. Fla. June 7, 2007).
Court Refuses to Apply Follow-the-Fortunes Doctrine Due to Inconsistent Positions Taken by Reinsured
American Home Assurance issued insurance covering environmental pollution at multiple sites, and contended throughout its dispute with its insured that the insured had suffered multiple occurrences at multiple sites, in order to maximize the number of deductibles that would apply. After settling with its insured, American Home filed reinsurance claims based upon the theory that there had been only one occurrence per year at each site, in order to minimize the deductibles on its own reinsurance. Although it prevailed against its reinsurers on that theory at the trial court level, an appellate panel has held that such inconsistent conduct, which it termed “manifest manipulation,” resulted in the follow-the-fortunes provision of the reinsurance agreements not applying, apparently resulting in the complete loss of reinsurance coverage since the losses, as allocated consistently with the position taken with the insureds, were all within the deductibles of the reinsurance agreements. Allstate Insurance Co. v. American Home Assurance Co., No. 602594/03 (NY Sup. Ct. App. Div. June 12, 2007).