Auto Service Contract and Warranty Reinsurance Deal Results In a Default Judgment

Blog, Contract Interpretation, Law 1 Minute

What happens when you enter into a fronting deal with an offshore reinsurer owned by car dealerships? Sometimes you get to go to court.

Read more: Auto Service Contract and Warranty Reinsurance Deal Results In a Default Judgment

In Wesco Insurance Co. v. Sunfund Reinsurance Ltd., No. 653136/2024 (N.Y. Sup. Ct. N.Y. Co. Jul. 23, 2025), a cedent entered into a 100% quota share reinsurance contract with a Turks & Caicos domiciled reinsurer covering vehicle service contracts and limited warranties. The reinsurance contract required a trust fund to secure the reinsurer’s liabilities. Claims came in, the trust fund was not funded, and requests for payment of claims in excess of premium go unheeded. Some of you might have heard this story before.

The cedent brought a breach of contract action and sought a conditional dismissal for the reinsurer’s failure to comply with New York Insurance Law section 1213(c) (requiring a New York license or security to file an answer). The cedent then moved for a default judgment when the conditional order under 1213(c) was not met.

In granting the default judgment the court found that the cedent met the requirements for breach of contract and specific performance for funding the trust fund (after payment of the outstanding losses). The court also granted attorney fees (specifically allowed by the reinsurance contract) but gave a 10% haircut to the cedent’s attorney fees for block billing and a lack of detail in some of the time entries.

None of this is surprising, but there are a few things to note. If you are going to do business with a captive off-shore reinsurer you might want to have the trust fund collateralized up front before any business is written to the reinsurance contract. Second, if you want attorney fees, be reasonable and have descriptive time entries showing the value of the legal work performed. Finally, while a default judgment is nice it does not pay any bills. Now you have to collect the judgment against an off-shore undercapitalized reinsurer or chase its principals under an alter-ego theory to breach the corporate veil. That too costs money.

Published by Larry P. Schiffer, Schiffer Law & Consulting PLLC

After 38-years with boutique and global law firms, Larry P. Schiffer launched an independent legal and consulting practice, Schiffer Law & Consulting PLLC, where he provides services as a lawyer, counselor, consultant, mediator, arbitrator and expert witness. He practices commercial, insurance, and reinsurance litigation, arbitration, and mediation. He provides advice on a wide variety of insurance and reinsurance issues, including claims and disputes, policy wording analysis and drafting, insurance insolvency issues, due diligence for transactions and have insurance or reinsurance components, insurance and reinsurance education and other advice. He is available to appear for clients outside of NY at mediations and conferences as needed on a per diem basis. He is active in legal and trade associations where he has held various leadership positions. He has lectured and has been widely published on reinsurance and other insurance topics. He serves as an Expert Commentator on reinsurance for IRMI.com and co-authored the chapter on reinsurance in the New York State Bar Association’s Insurance Law Practice treatise. He is the editor of the ARIAS•U.S. Quarterly. Mr. Schiffer received his J.D. from Albany Law School, where he graduated cum laude, was a member of the Albany Law Review and a member of the Justinian Society, and received his B.A. magna cum laude from Brooklyn College of the City University of New York. He was admitted to practice in New York in 1980.

Published

Leave a ReplyCancel reply