The Southern District of New York has concluded that an insurer’s threat to terminate a reinsurance agreement if the other insurer to the agreement did not comply with its obligations did not terminate the agreement or give the other insurer the right to terminate the agreement.
Amtrust North America Inc. and Signify Insurance Ltd. entered into a captive reinsurance agreement in which Signify reinsured a portion of certain policies issued by AmTrust. The agreement required, among other things, that Signify post collateral and that AmTrust cede certain premiums. Signify’s duties to post collateral continued after the termination of the agreement.
AmTrust sent Signify a letter accusing it of failing to post the requisite collateral and stating: “Accordingly, unless Signify posts security in full … within thirty days … [AmTrust] hereby terminates the Agreement from inception.” Signify caused a bank to issue standby letters of credit in response to the letter for most of the collateral AmTrust claimed was due, but also wrote to AmTrust accepting AmTrust’s “termination” of the agreement. According to AmTrust, Signify subsequently failed to increase the collateral as required by the agreement.
AmTrust filed suit claiming that Signify had breached the agreement and seeking a declaration that Signify was required to post collateral. Signify filed a number of counterclaims seeking, inter alia, a declaration that AmTrust had terminated the agreement, seeking rescission of the agreement, claiming that AmTrust had breached the agreement, asserting that AmTrust had been unjustly enriched, and seeking a declaration that AmTrust had to cede certain premiums.
The parties cross-moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c): AmTrust moved to dismiss Signify’s counterclaims seeking a declaration that the agreement was terminated and asking the court to rescind the agreement; Signify moved for judgment to dismiss AmTrust’s complaint and grant all of its counterclaims discussed above. The court granted AmTrust’s motion and denied Signify’s motion.
With respect to rescission, the court disagreed that AmTrust’s letter constituted a unilateral rescission. Even though the letter used the present tense phrase “hereby terminates,” it was clear when that phrase was read in context that AmTrust was threatening to terminate the agreement if Signify did not post collateral; not terminating the agreement at that time. AmTrust’s letter also was not an offer that allowed Signify to rescind the agreement, which Signify attempted to do in its reply letter. AmTrust’s letter was a threat to terminate, not an offer for Signify to do so.
Turning to Signify’s counterclaims, the court noted that AmTrust had adequately pleaded that Signify did not perform under the terms of the agreement and that Signify had not established that it had performed. Signify had not shown that the conditions that allowed it to cease posting collateral had occurred. With respect to AmTrust’s duty to cede certain premiums, the court noted that this duty arose only after certain triggering events, which had not all occurred. AmTrust’s duty to cede premiums therefore “never arose,” and the court denied Signify’s motion.
AmTrust N. Am., Inc. v. Signify Ins. Ltd., No. 1:18-cv-03779 (S.D.N.Y. July 11, 2019).