Some reinsurance disputes repeat. Either they involve different reinsurers on the same contract or different reinsurers on the same claim or different reinsurers on similar contracts on the same basic issue. Where a cedent loses an arbitration on an issue that repeats in a subsequent reinsurance dispute, should the cedent be estopped from seeking a reinsurance recovery from the other reinsurer? A Michigan federal court recently addressed this issue.
In Amerisure Mutual Insurance Co. v. Swiss Reinsurance America Corp., No. 22-cv-12298 (E.D. Mich., Mar. 28, 2024), a facultative reinsurer moved for summary judgment to estop the cedent from seeking a reinsurance recovery of costs in addition to the limits of the underlying umbrella policies because of an earlier arbitration award confirmed in court that held for a reinsurer on the same facts. In denying the cedent’s motion for summary judgment and granting summary judgment to the reinsurer, the court upheld the reinsurer’s assertion of collateral estoppel based on the earlier arbitration award.
The underlying policies were two umbrella policies that were facultatively reinsured. The underlying claims were, of course, asbestos claims. Primary policies were exhausted and the cedent started paying defense costs out of the umbrella policies, but in addition to the policy limit. The reinsurer paid its limit under the facultative certificates but refused to pay defense costs in addition to the limit.
The same issue arose with another reinsurer earlier and the issue went to arbitration. The award went in favor of the reinsurer and was confirmed by the federal court in Illinois. As stated by the Illinois federal court, the arbitration panel found that “the umbrella policies did not pay defense costs in addition to limits when their coverage was triggered by the exhaustion of underlying primary policies”; under the policies, defense costs were only to be paid outside of limits where the claims were “not covered” by the primary policies and that was not the case here.
Here, the court rejected most of the cedent’s contract interpretation arguments for why defense costs were outside the limits. Instead, it found that the issue was identical to the issue raised in the prior arbitration and that the cedent was merely arguing, in part, a new theory over the same issue: is the reinsurer liable for defense costs paid in excess of the underlying umbrella limits. The court found that the arbitration panel definitively decided the issue in dispute. The court concluded as follows:
Put simply, because the arbitration panel decided how to interpret the umbrella policies in relation to whether [the cedent] had to pay defense costs in addition to policy limits, [the cedent]’s policy interpretation arguments are precluded. [The cedent] may not avoid collateral estoppel by framing different legal theories or arguments as separate issues.
The court also rejected the cedent’s various arguments why collateral estoppel should not apply. The court tossed aside the argument that the earlier dispute was arbitrated under a facultative certificate with an arbitration clause containing an honorable engagement provision as a distinguishing factor. The court also noted that the reinsurer was using defensive collateral estoppel (an affirmative defense to the cedent’s declaratory judgment action) and not offensive collateral estoppel. The court instead found that all the factors weighed in favor of applying collateral estoppel.
The final argument rejected by the court dealt with the lack of mutuality of estoppel. Here, the court found that the lack of mutuality did not preclude the reinsurer from asserting collateral estoppel. Read the decision if this is a topic that excites you.
The court granted summary judgment to the reinsurer.
