Reinsurance disputes are rarely tried to a jury. They are typically arbitrated. When they are tried to a jury–just like any jury trial–there are often post-trial motions made to seek to overturn the jury verdict or modify the judgment. Motions like that are difficult to win, especially when key facts are left to the jury to determine and there is sufficient evidence in the record to support the jury’s findings. This was the case in a recent reinsurance jury trial that ended up with a judgment in favor of the cedent on its reinsurance allocation of asbestos settlements.
In Utica Mutual Insurance Co. v. Century Indemnify Co., No. 6:13-CV-995, 2019 U.S. Dist. LEXIS 207547 (N.D.N.Y. Dec. 3, 2019), post-judgment motions were made by the reinsurer seeking to overturn a jury verdict and judgment in favor of the cedent, which included pre-judgment interest on two breach of contract claims where the interest ran from the first billing to the reinsurer. Three motions were made: (a) to correct an alleged error in the interest calculation; (b) a renewed motion for judgment as a matter of law or, in the alternative, a new trial; and c) judgment as a matter of law on the cedent’s affirmative defenses. All motions were denied by the court in a detailed decision.
On the interest calculation motion, the issue was whether interest should run from the date selected by the jury (the first billing of asbestos losses under each contract) or from an intermediate point or from each date of each reinsurance billing. This is an interesting point because, as we know, reinsurance billings often come in a series over time as expenses and losses are paid by the cedent. The court went through a very careful explanation for why the motion was denied. The denial was based primarily on the jury’s selection of the date as requested in the verdict sheet and the jury charge. In other words, the reinsurer did not object to allowing the jury to select the date from which interest would run should the jury find breach of contract in favor of the cedent. The court pointed out how this issue was never raised by the reinsurer and that the reinsurer had the opportunity to argue for the selection of multiple dates. The analysis is interesting and points up the need to consider all strategic ramifications of how a judgment will look if the case goes badly for the party seeking to avoid paying more pre-judgment interest than necessary on a series of billings.
In denying the motion for judgment as a matter of law in favor of the reinsurer, the court provided a useful analysis of examining a cedent’s conduct in allocating long-tail losses and whether the reinsurance allocation is consistent with the underlying settlement with the insured. The reinsurer argued (throughout the case and on the renewed motion) that the cedent’s allocation was unreasonable as a matter of law and in bad faith. The court pointed out how the reinsurer was permitted to argue to the jury its claim that the cedent used “two sets of books” and that the “jury evidently credited some or all of [the cedent’s] evidence in siding with [the cedent].”
The court also provided a very helpful analysis of two decisions where reinsurers were successful in challenging a cedent’s allocation, pointing out that in neither case did the court pronounce any “categorical rule that inconsistent allocations are always unreasonable as a matter of law.” Allstate Ins. Co. v. Am. Home Assurance Co., 42 A.D.3d 113 (N.Y. App. Div. 2d Dep’t 2007); U.S. Fid. & Guar. Co. v. Am. Re-Insurance Co., 20 N.Y.3d 407 (2013). The court concluded that these cases signaled that “dramatically inconsistent pre-and post-settlement allocations, or perhaps ones in direct contravention of federal court rulings, can be unreasonable as a matter of law,” and that “it is sometimes appropriate to take allocation cases to trial to determine whether the cedent acted reasonably when settling with its insured.” The court noted that its jury instructions were consistent with the holding in U.S. Fidelity & Guaranty on the issue of objective reasonableness.
Other issues were also resolved in favor of the cedent and sustaining the judgment, with the court concluding that it “gave both sides a full and fair opportunity to air their grievances to a jury, which eventually sided with [the cedent].” The post-trial motions were denied because the reinsurer “failed to establish any grounds for post-trial relief.”