A reinsurer may proceed with its counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent misrepresentation and violation of the Connecticut Unfair Trade Practices Act, a federal district court held. The reinsurer, Universal, was a “rent-a-captive” under an alternative risk insurance program establishing a loss fund composed of the net premium under the insurance program. The loss fund was to be used to pay claims under the program. After a lawsuit was filed, Universal countersued for breach of contract, alleging that it suffered damages because it was denied access to certain funds for a year, and by virtue of its contingent liability. The plaintiff contended that this alleged breach caused only incidental expenses and unrecoverable attorneys’ fees. Construing the allegations in Universal’s favor on the motion, the court found that damages had been sufficiently alleged, but that attorneys’ fees were unrecoverable. The court next found that the elements of the breach of good faith had been pled, and that the circumstances of the alleged fraudulent misrepresentation had been stated with particularity. Finally, the court ruled that the unfair trade practices claim would survive since Connecticut courts had recognized such claims where a party consciously refuses to honor an agreement by which it is bound. Arrowood Indemnity Co. v. Universal Reinsurance Co., Case No. 06 CV 158 (USDC D. Conn. May 6, 2008).
This post written by Brian Perryman.