Does a missing reinsurance agreement preclude a counterclaim for breach of that missing reinsurance contract? Not at the pleadings stage according to a Hawaii federal court.
In First Insurance Co. of Hawaii, Ltd. v. Continental Insurance Co., No. 23-00198 JMS-RT (D. Hawaii Oct. 31, 2023), an intra-company fronting deal resulted in a dispute over reinsurance coverage after the alleged reinsurer was no longer a member of the same corporate group. The alleged reinsurer brought an action to declare that it did not owe any reinsurance obligation to the cedent’s successor. The cedent’s successor brought a counterclaim for breach of an alleged reinsurance contract. The rub was that neither party could find the intra-group reinsurance contract.
The dispute is significant because it involves insurance and reinsurance coverage for revived sexual abuse claims from the late 1970s to the early 1980s against the underlying insured church.
In denying the motion to dismiss the counterclaim at the pleadings stage, the court held that the cedent’s successor adequately pled the existence of the reinsurance contract. The decision outlines the evidence describing the manner in which these companies, when they were all part of the same corporate family, entered into fronting arrangements when the alleged reinsurer could not write business directly in a particular jurisdiction. The court held that “[t]hese allegations—again, taken as true for purposes of the Motion to Dismiss—are enough to constitute a “meeting of the minds” or “mutual assent” on the basic terms of a type of reinsurance agreement.”
The court also noted that the cedent’s successor was essentially pleading a lost policy or lost contract issue and was not claiming that the parties only entered into an oral agreement. As the court stated, “Lost policy questions are matters of proof not pleading.” The court concluded as follows:
At this motion-to-dismiss stage, the Counterclaim’s allegations are sufficient to state a plausible claim for breach of an enforceable reinsurance agreement. Whether [the ceding company’s successor] can prove its allegations is not a question before the court at this juncture.
