Policyholders typically cannot sue reinsurers directly because of a lack of contractual privity. While there are exceptions in the law, those exceptions are few. But sometimes a reinsurance deal gets structured in such a way that the policyholder may be able to bring a direct action. In a recent case in Florida that is exactly what happened; at least at the motion to dismiss phase of the case.
In Casa Besilu LLC v. Federal Insurance Co., No. 20-24776-Civ-Scola (S.D. Fla. Apr. 23, 2021), a policyholder claimed that to obtain property insurance for its property in the Bahamas it approached the reinsurers for assistance. The complaint alleged that the reinsurers engaged local brokers to obtain the insurance from a Bahamian insurer and the reinsurers provided the reinsurance. The complaint further alleged that the policyholder never dealt with the local brokers and that they filled out an insurance application given to the reinsurers requesting comprehensive liability and property insurance at specific limits, including flood insurance.
According to the complaint, flood insurance was never obtained and when a hurricane caused damage to the property, the Bahamian insurer refused to pay for any of the damages caused by storm surge. There are more facts alleged, including that the reinsurers interfered in the process and caused the Bahamian insurer to calculate water damage separate from wind damage.
Naturally, the reinsurers moved to dismiss the complaint, which contained claims of tortious interference, breach of fiduciary duty and other claims. They argued, among other things, that there was no privity of contract and, therefore, not direct right of action. The policyholder countered that they were not suing under the reinsurance contract, but for the reinsurers’ tortious interference with the policyholder’s direct insurance contract.
The court denied the motion to dismiss. Basically, the court found that the complaint had sufficient allegations to survive the motion to dismiss and the court would not convert the motion to one for summary judgment (both sides submitted evidentiary affidavits that the court would not consider). On the tortious interference argument, the court said this:
If the Plaintiffs were alleging claims for tortious interference against [the reinsurers] because [the Bahamian insurer] breached its contract with the Plaintiffs, the Court would agree that the Plaintiffs would not have standing to sue its reinsurers. However, that is not what the Plaintiffs are seeking to do. The Plaintiffs are suing the [reinsurers] for their tortious interference with the contract in place between [the Bahamian insurer] and the Plaintiffs, as stated above.
This is an unusual case because of the relationships between a policyholder and an insurance group that typically writes direct insurance and the insurance group’s alleged involvement with placing insurance in the Bahamas and then reinsuring that insurance. Whether the policyholder will be successful in the end will require a much more detailed inquiry into the facts.