As we have said before, it is hard for a policyholder to make a case against its insurer’s reinsurer. That proved to be true again in the Third Circuit.
In Three Rivers Hydroponics, LLC, v. Florists’ Mutual Insurance Co., No. 22-1140 (3rd Cir. Aug. 29, 2023) (Not Precedential), a greenhouse operator had a crop loss and, after its claim was not fully satisfied, sued its insurer and its insurer’s reinsurer. The claims against the reinsurer were for breach of contract and bad faith. On the reinsurer’s motion, the district court dismissed the complaint. On appeal, the Third Circuit affirmed.
As the court noted, it is fundamental in a breach of contract case that there be privity between the parties. Here, as in most reinsurance contracts, there was no privity between the hydroponics company and the reinsurer. The court focused its analysis on Pennsylvania law, which is pretty similar to the law in most states, which requires privity of contract. But the policyholder argued that it was a third-party beneficiary to the reinsurance agreement and that the reinsurer functioned as a direct insurer by interacting with the policyholder on the claim.
In rejecting the third-party beneficiary argument, the court stated
This argument holds no weight as it would be no different than if [the insurer] had contracted with an independent claims adjuster. In other words, outsourcing the claim adjustment function does not manifest an intent to benefit as an individual policyholder.
The court concluded that because the policyholder was not a third-party beneficiary to the reinsurance agreement, the district court correctly found that the policyholder failed to allege a plausible breach of contract claim against the reinsurer.
On the bad faith claim, the court stated that “[the reinsurer] is not [the policyholder’s] insurer. [the reinsurer] is not mentioned in the policy between [the insurer] and [the policyholder]. Indeed, the facts alleged do not suggest that [the reinsurer] acted as [the policyholder]’s insurer but show that it merely assisted with the claims adjustment. A claims adjuster is not an insurer under the statute.”
This case is yet another example where the courts have rejected attempts at direct right of actions against reinsurers.