As we all (or at least some of us) wait breathlessly for the New York Court of Appeals to answer the Second Circuit’s certified question in Global Reinsurance Corp. of Am. v. Century Indemn. Co., 843 F.3d 120 (2d Cir. 2016), which is now scheduled for argument on Wednesday, November 15, 2017 at 2:00 p.m., a Pennsylvania intermediate appeals court has affirmed a lower court order denying summary judgment to a reinsurer seeking to cap its liabilities based on the limits of a facultative certificate and granting judgment to the ceding companies on their claim for recovery of expenses. In a non-precedential decision, the court affirmed the lower court’s determination that the facultative certificate was ambiguous, allowed and credited the cedent’s extrinsic evidence, including expert testimony on custom and practice, and provided a detailed analysis of Bellefonte and its progeny, through Global Reinsurance.
As yet another hurricane bears down on the US, the insurance press is reporting a surge in Cat Bonds and other alternative capital. Cat Bonds and the amounts reinsured are apparently at a high. Cat bonds, as we know, respond to catastrophic loss events. Cat Bonds exist for various types of large property loss events, but windstorms make up the majority of the Cat Bonds. When the wind doesn’t blow, the Cat Bond investors make a nice profit. But when the wind blows, the Cat Bond investors often lose their investment because the bond has to pay based on the parametric trigger, often an industry wide loss figure. The projected losses for Harvey are quite large and with Irma bearing down on Florida, the projections are going to skyrocket. While you may think Cat Bonds simply either have to pay or don’t depending on the declared loss, in fact, there are some issues that have arisen that need to be considered as this string of hurricanes parades across the Southern US.
The aftermath of Hurricane Harvey will include a surge in insurance claims by homeowners and commercial entities. Property and casualty insurers should be aware of a Texas insurance reform law relating to claims dispute litigation and recent directives issued by the Texas Department of Insurance.
INITIATING CLAIMS DISPUTE LITIGATION – TEXAS HOUSE BILL 1774
House Bill 1774, signed into law by the Texas Governor in May 2017 and effective on September 1, 2017, will impact the process for insureds to initiate claims dispute litigation in Texas. The new law includes a 60-day written notice period before a lawsuit can be filed and imposes relatively short follow-up deadlines on insurers once notice is given. House Bill 1774 also reduces the amount of interest that can be awarded to a claimant and imposes new limits on recoverable attorney fees.
As noted in an August 31, 2017 Statement issued by Ken Paxton, Attorney General of Texas, HB 1774 does not impact claims under the federal flood insurance program or Texas windstorm Insurance Association. Although Attorney General Paxton’s Statement notes that “the legislation does not change the claim filing process or the time for filing claims”, the provisions of HB 1774 (and perhaps the urging of the plaintiffs’ bar) make it likely that some policyholders will try to submit claims before the September 1, 2017 effective date. In any event, the application and import of the new restrictions on interest and fees is sure to be at issue in cases filed by individual claimants and proposed class representatives.
The full text of HB 1774 is available here.
Our September 2017 Reinsurance Newsletter includes a featured article on discovery of reserves and reinsurance information as well as an update on the US-EU Covered Agreement. It also reports on recent cases, including a manifest disregard case, a case on Insurance Law 1213 security and reinsurance collection issues by the assignee of a liquidator. Please enjoy.
In many jurisdictions, a rule exists that allows the injured party to collect damages from a tortfeasor even if the injured party has received benefits from sources independent of the tortfeasor. The theory is that the tortfeasor should not be allowed to benefit from the injured party’s foresight in acquiring insurance to protect him or herself. If an insurance company suffers a loss because of the alleged malpractice of its attorney, does the collateral source rule apply to allow the insurance company, as cedent, to still obtain damages even though it obtained a reinsurance recovery on the underlying loss?
In Part III, we discuss discovery of reinsurance information.
In Part II, we will discuss discovery of reserve information in the context of a bad faith case.
In cases where an insurer is a party to an action, numerous discovery disputes have centered on a litigant’s ability to discover the insurer’s loss reserve information and communications with its reinsurers. The litigant (generally the insured or a co-insurer) may request this information in discovery, hoping to find something in the insurer’s internal communications and information that comports with the litigant’s theory of the case. There is no clear rule as to the discoverability of reserves and reinsurance communications. Many courts have noted that this information often has little, if any, relevance, because they reflect the insurer’s compliance with statutory reserving requirements and internal business decisions. Typically, this information is not relevant to coverage determinations. A number of courts, however, have held that this information can be relevant and discoverable particularly in bad faith cases, depending on the allegations, as issues related to the insurer’s subjective opinions and knowledge may be implicated. While the results of similar discovery disputes cannot be predicted with crystal clarity, examining rulings from various jurisdictions and case circumstances provides some guidance. In the next few posts, we will explore these issues further.
Elite Insurance (“Elite”) entered the UK insurance market in 2005 with a promise to address risk like no other insurer. It said that it would focus on individual insurance needs, rather than adopting a “one size fits all,” when writing property and construction professional indemnity and legal expenses risks. Rapid expansion followed with Elite offices opening in Spain and Italy and re-domiciling to Gibraltar in 2011. It is thought that Elite now has around 1.5 million policyholders across Europe.
It was then with some surprise that on 4 July 2017, Elite announced that it was closed to new business and would run off existing policies. No reasons were given at the time for the decision.
One of the criticisms leveled at arbitration is the length of time it takes to select the arbitration panel and specifically the third arbitrator or umpire. Most arbitration clauses either specify an arbitral authority to assist the parties in selecting the arbitration panel or specify in the arbitration clause the method for selection and criteria for the arbitrators. In insurance and reinsurance contracts, arbitration clauses tend to require that the arbitrators be present or former officers of insurance or reinsurance companies or underwriters at Lloyd’s of London. Some arbitration clauses go further and require that the arbitrators be experienced with a particular type of insurance or business.
When the parties cannot agree on an umpire because they cannot agree on the qualifications of the candidates proposed, they are often relegated to the court to help them resolve the impasse. In a recent case, the court did just that and appointed an arbitrator consistent with the criteria mandated by the arbitration clause, but one who was opposed by a party because of the arbitrator’s affiliation with ARIAS•U.S.