Reinsurance Runoff Manager’s Motion to Dismiss Denied

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Legacy books of business are often handed over to an agent to run off the business. This handover can happen through a simple third-party administrator contract, via a portfolio transfer or as part as an outright purchase of the legacy company. The legacy transfer process may involve direct business or reinsurance business, and may be in the property and casualty arena or the life and health segment of the industry.

In a recent case, a court was asked to address claims brought by cedents against the reinsurer’s runoff manager for intentional interference with contractual relations and inducing breach of contract when the claims stopped being paid.

In California Capital Insurance Co. v. Enstar Holdings US LLC, No. 20-cv-7806-ODW (C.D. Calif. Apr. 14, 2021), a group of cedents brought suit against the runoff manager of its reinsurer for intentional interference with contractual relations and inducing breach of contract. The cedents alleged that after the reinsurer’s business was transferred to the runoff entity, the claims process changed and the manager directed the reinsurer to breach its reinsurance obligations. Additionally, the cedents alleged that the reinsurer stopped paying certain losses and demanded the return of reinsurance proceeds already paid under certain categories of  taxi and limousine livery, trucking, and habitability claims.

The runoff manager moved to dismiss the complaint. The runoff manager also asked the court to give judicial notice to two Intercompany Services Agreements between the reinsurer and the runoff manager. The court refused to grant the runoff manager’s judicial notice request holding that the runoff manager failed to show that the documents were generally known or that they were incorporated by reference.

As to the motion to dismiss, the court granted the unopposed portion of the motion dismissing the case against the runoff manager’s holding company, but denied the motion as to the rest of the runoff manager’s entities. The court found that the complaint provided sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively, even though the cedents did not allege exactly how the runoff manager directed the reinsurer to breach the treaty. The court refused to grant the motion to dismiss because the complaint was sufficient under pleading standards to withstand the motion.

The court also discussed the agency liability theory under the two Intercompany Services Agreements. Because the agreements were not subject to judicial notice, the court could not consider them and denied the motion to dismiss on the agency theory. The court directed the remaining runoff manager entities to file answers to the complaint.

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