Tortious Interference Claim Dismissed Again

With the proliferation of runoff companies, which either take over distressed reinsurers or absorb legacy reinsurance obligations, comes claims by insureds and cedents against those companies and their affiliated administrators for various alleged offenses. For example, claims of tortious interference with contract have been brought against a number of runoff entities and their affiliates.

But claims of tortious interference are very difficult to sustain. In a recent case, an Illinois federal court dismissed tortious interference claims for the second time.

In Stonegate Insurance Co. v. Enstar (US) Inc., No. 21 C 3523, N.D. Ill. Oct. 18, 2022), the court heard, for the second time, a motion to dismiss a tortious interference with contract claim brought by a cedent against an acquired reinsurer’s affiliated companies, all under the umbrella of a well-known runoff company. Essentially, the cedent claimed that the affiliates directed the reinsurer to breach its contracts with the cedent and delay payments and apply improper offsets. The dispute with the reinsurer was sent to arbitration and this case was only against the affiliates.

In dismissing the tortious interference claim for the second, and final, time, the court noted that “Illinois also recognizes a conditional privilege in tortious-interference claims where a defendant acts ‘to protect an interest which the law deems to be of equal or greater value than the plaintiff’s contractual rights'” (citations omitted). In other words, under Illinois law, “[a] defendant-agent is conditionally privileged to interfere with its principal’s contracts.” This is the rub in bringing these cases against these affiliated entities that manage the legacy reinsurance obligations.

To overcome this conditional privilege, which the court already found existed because of the relationships between the affiliates and the reinsurer, the cedent bore the burden to plead and prove that the affiliates’ conduct was malicious or unjustified. The court held that it was not.

Here is how the court analyzed the situation:

Here, [the cedent] fails to plead sufficient facts to overcome Defendants’ privilege to interfere with [the reinsurer’s] contracts. Accepting all the cedent’s alleged facts as true, the Court assumes Defendants directed [the reinsurer] to breach its reinsurance contracts with [the cedent], and that [the reinsurer] did breach its contracts, incurring damages for [the cedent]. But [the cedent] alleges no facts showing Defendants acted either with the sole motive to harm [the cedent’s] interests or the sole motive to benefit Defendants’ own self-interest, in opposition to [the reinsurer’s] interest.

The analysis goes much further and is worth reading as every case is fact specific. Here is another example:

The fact that Defendants’ conduct resulted in legal costs and attorneys’ fees for [the reinsurer] does not sustain a reasonable inference that Defendants intentionally acted against [the reinsurer’s] interests, such that their conduct was unjustified.

In dismissing the complaint, the court concluded that ” [the cedent’s] tortious-interference claim against Defendants [ ] is, at heart, simply repackaged breach-of-contract claims against [the reinsurer]. While there is a lot of frustration in the industry concerning the alleged aggressive behavior of companies that acquire legacy reinsurance obligations, getting a tortious interference claim to stick is difficult, at best.