A Brief Review of Reinsurance Trends in 2022

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In 2022, arbitration issues continued to arise, with the courts enforcing the right to arbitrate and leaving much of the decision making to arbitration panels. Courts also continued to avoid non-existent presumptions and, instead, focused on the words of the contract to reach decisions on contract limits and following issues. And courts continued to allow for the discovery of reinsurance information.


Most reinsurance arbitrations fall under the Federal Arbitration Act (“FAA”). In the reinsurance context, questions of arbitrability and the powers of the arbitrators arise often.  In 2022, courts continued the trend to exercise their authority to compel arbitration and leave many questions of arbitrability to the arbitrators. The courts also enforced arbitral subpoenas, a crucial element to compelling testimony at arbitration.

Arbitrability and Motions to Compel Arbitration

Enforcing arbitration rights is complicated when the contracts with an arbitration clause are assigned or where a receiver is involved. Who has the right to compel arbitration and was the arbitration demand properly served are questions that arise.

In Darag Deutchland AG v. Logo, LLC, No. 654800/2021 (N.Y. Sup. Ct., N.Y. Co., Mar. 3, 2022), a dispute arose over reinsurance recoverables from retrocessional agreements. The petitioner acquired the liabilities of a retrocessionaire from a defunct company that obtained the liabilities through a loss portfolio transfer. The respondent acquired the claim from the liquidator of the retrocedent. The retrocedent’s successor demanded arbitration against the retrocessionaire’s successor. The retrocessionaire’s successor claimed that there was no arbitration agreement between the successors and that service of the arbitration demand was ineffective.

In ruling in favor of arbitration (and the retrocedent’s successor) in a cryptic decision, the court found that service of the arbitration demand by registered mail was effective when the postal authorities first attempted to deliver the mail and that New York favors and encourages arbitration.

In certain relationships, a non-signatory to a contract with an arbitration clause may be compelled to arbitrate because of the benefits the non-signatory gained from the contract. In Travelers Indemnity Co. v. Alto Independent School District, No. 3:21CV00909(SALM) (D. Ct, Jul. 28, 2022), several school districts were insured by an educational risk management cooperative. The cooperative was reinsured, in part, by the reinsurer through a facultative certificate. The facultative certificate contained an arbitration clause. It also allowed the reinsurer to assume the duty to investigate and defend claims after claims exceeded the retentions set forth in the declarations.

The insured school districts sued both the risk management cooperative and the reinsurer when property claims were allegedly not paid in full. In response to the lawsuit, the reinsurer moved to compel arbitration.

Although the insured school districts were not signatories to the facultative certificate, the cedent nonetheless argued that the insureds were bound to arbitrate because they directly benefited from the facultative certificate, i.e., direct benefits estoppel. The court analyzed the theory of direct benefits estoppel in detail and ultimately rejected the argument.

In dismissing the cedent’s complaint, the court relied on a Texas appellate court decision in the related Texas actions that held one of the school districts was not bound by the facultative certificate’s arbitration provision. But the court went further and explained why direct benefits estoppel did not apply.

The court conceded that the reinsurer’s claims handling obligations arose from the facultative certificate, but pointed out that “the mere fact that [the reinsurer’s] duty to perform such obligations only came to be because of the Facultative Certificate is insufficient to invoke direct-benefits estoppel.” Moreover, the court found that the reinsurer’s alleged liability did not arise solely from the facultative certificate. The reinsurer’s liability was instead “premised on insurance code, tort, and DTPA duties that are general, noncontract obligations.” The court concluded that “[i]n sum, [the reinsurer] has failed to establish that direct-benefits estoppel applies because it has not shown that [the insureds’] claims ‘arise[] solely from the contract or must be determined by reference to it[.]'”

Powers of the Arbitration Panel

Who decides whether a contractual time limitation in a reinsurance contract on when arbitration can be brought applies to bar arbitration? In Alliance Health & Life Insurance Co. v. American National Insurance Co., No. 21-2995 (6th Cir. Jul. 22, 2022) (Not Recommended for Publication), the cedent sued the reinsurer for breach of their Medical Excess Reinsurance Agreement. The reinsurer moved to compel arbitration and to dismiss. The parties disputed whether a three-year limitation in the reinsurance agreement on commencing arbitration precluded arbitration. The district court dismissed the complaint after holding that the question was for the arbitrator in the first instance. The Sixth Circuit affirmed.

In affirming, the circuit court addressed the issue of arbitrability and discussed the federal case law on the distinction between substantive and procedural questions of arbitrability. The court noted that time limitations have been considered procedural and therefore for the arbitrator to decide.

As to the cedent’s arguments, the court stated that “[b]ecause [the cedent] fails to appreciate the distinction between substantive and procedural questions of arbitrability, its arguments as to who decides miss the mark.” The court rejected the cedent’s claim that the arbitration clause was narrow, noting that “the clause covers ‘any dispute . . . with reference to the interpretation of this Agreement or their rights with respect to any transaction involved.'” Thus, the court held, this encompassed “the determination of whether the contractual time limit precludes arbitration.”

As most courts have decided, procedural issues, such as time limitations, are for the arbitrator to decide and not the courts. That trend continued in 2022.

Arbitrators have the power to issue subpoenas when necessary. Those subpoenas may be enforced in court. In reinsurance arbitrations, subpoenas are issued relatively rarely, but they do happen.

In Symetra Life Insurance Co. v. Administrative Systems Research Corp., International, No. 21-2742 (6th Cir. Nov. 7, 2022)(Not Recommended for Publication), the district court granted the cedent’s petition to compel compliance with an arbitral subpoena. The subpoena was issued by an arbitration panel in a reinsurance dispute concerning allegations of breach of an employee benefits plan reinsurance agreement when the reinsurer failed to indemnify the cedent for a settlement between it and a dialysis provider.

The subpoena compelled the custodian of records of the third-party administrator (“TPA”) of two of the employee benefit plans to appear with documents before an arbitration hearing in Michigan. The TPA was affiliated with the reinsurer. The TPA moved to quash the subpoena before the arbitration panel and the panel denied the motion and issued the subpoena.

The cedent petitioned the Michigan federal court to compel the third-party administrator to comply with the subpoena. The Magistrate Judge ruled that the arbitration panel was sitting in Michigan and ordered compliance even though the cedent had argued in an earlier proceeding that the arbitration panel would only ever sit in Washington. The district court agreed with the Magistrate Judge and issued judgment enforcing the subpoena.

On appeal, the TPA raised many issues, which the court rejected. These included a challenge to the court’s subject matter jurisdiction (“Because it does not appear to “a legal certainty” that the subpoenaed documents’ value is $75,000 or less, we find that the district court had subject matter jurisdiction”), standard of review by the district court (“Because this analysis would be proper under either the “clearly erroneous or contrary to law” standard or the de novo standard, we see no reason to remand the case”), where the arbitration panel sits, judicial and collateral estoppel (changed circumstances), compliance with Section 7 of the FAA (“Under a straightforward reading of the statute’s text, the subpoena was a proper exercise of the panel’s section 7 powers”), and materiality (materiality should be left for the arbitration panel).

Where the arbitration panel is sitting is an issue that often gets raised in resisting an arbitral subpoena. In an earlier proceeding, the cedent argued that the panel could only sit in Washington because the reinsurance contract named Washington the seat of arbitration. But it turned out that the venue for arbitration was disputed and that main hearing ended up being set in Texas. The court rejected the TPA’s argument that Section 7 of the FAA meant that the panel may sit in only one location, the site of the final hearing. The court held that “the FAA’s text contains no such restriction, and we decline [the TPA]’s invitation to read additional terms into the statute.” The court also noted that the arbitration panel declared that it was sitting in Michigan for the hearing on the subpoena.

              Preclusive Effect of a Prior Arbitration Award

In White Rock Insurance Co. PCC Limited v. Lloyd’s Syndicate 4242, No. 15309-15309A (N.Y. App. Div. 1st Dep’t, Feb. 15, 2022), the appellate court affirmed the motion court’s ruling that the reinsurer’s complaint was precluded by the parties’ prior arbitration award. The court found that merely because a related trust agreement did not have an arbitration clause did not mean that a different result was required.

The court ruled that the broad arbitration clause in the reinsurance contract, which provided that “[a]ll disputes and differences arising under or in connection with this Contract shall be referred to arbitration,” was sufficient to bring in the terms of the trust agreement. As the court held, “h]ere, there is a reasonable relationship between the reinsurance contract and White Rock’s argument that its liability under that contract is limited to the amount in the trust account.”

As it did before the motion court, the reinsurer argued that the trust agreement was not before the arbitration panel. The court rejected this argument and found that “plaintiff’s conduct during the arbitration made clear that it acquiesced to the panel’s consideration of the trust agreement, as it submitted evidence regarding the trust agreement and argued that the contracts at issue, as well as the parties’ commercial relationship, included the trust agreement.” Ultimately, the court held that “the claims in the arbitration are part of the same transaction as the claims in this action.”

This decision continues the trend of courts holding that broad arbitration clauses will incorporate related transactional documents even if those related documents do not have arbitration clauses themselves, especially where issues under the related documents are brought before the arbitration panel.


Courts have long held that a cedent’s settlement allocation decisions fall within the follow-the-fortunes/follow-the-settlements doctrines. In Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., No. 20-4282 (2d Cir. Sep. 15, 2022), the Second Circuit addressed an appeal of a grant of summary judgment to the cedent, which compelled the reinsurer to follow the settlements of the cedent in its allocation and cession of asbestos settlements. The key issue was whether the exhaustion of underlying excess policies by actual payments was required by the reinsured excess policy and the reinsurance contract.

In affirming the district court, the Second Circuit spent considerable time discussing whether exhaustion by actual payment of the underlying excess policies was required. The court agreed with the district court and found that the ambiguity in the language, which did not expressly require exhaustion by actual payment of losses, meant that the exhaustion requirement could be satisfied by a below-limits settlement of the underlying policies.

On the follow-the-settlements issue, the circuit court relied on its precedents and set forth the well-known aspects of the doctrine. Where, as here, the reinsurance contract contains a “follow-the-settlements” clause, the reinsurer must indemnify there insured for the settled claim “as long as the settlement decision `is in good faith, reasonable, and within the terms of the applicable policies.'” The follow-the-settlements principle applies also “to a cedent’s post-settlement allocation decisions, . . . as long as the allocation meets the typical follow-the-settlements requirements.” Importantly, a follow-the-settlements provision “does not alter the terms or override the language” of the policies at issue. Instead, “it simply requires payment where the cedent’s good-faith payment is at least arguably within the scope of the insurance coverage that was reinsured.” (citations omitted).

The court held that the reinsurance contract’s attachment point was not contingent upon payment by the underlying insurers. The court concluded that “[t]he parties could have agreed to reinsurance coverage that was far narrower in scope than the excess policy itself, but we find no suggestion in the text of the reinsurance contract that they intended to do so here.” “Because [the cedent] has adequately supported its position that [its insured’s] covered losses exceeded the attachment point of the reinsurance policy, we conclude that the portion of the settlement allocated to Policy 3 is covered by the reinsurance policy.”

But where there is no express following clause or the recovery sought is beyond the scope of coverage, courts will have no problem denying a cedent’s claim.

In Public Risk Management of Florida v. Munich Reinsurance America, Inc., No. 21-11774 (11th Cir. Jun. 29, 2022), an insurer of public entities sought reinsurance coverage for an underlying claim involving a Section 1983 claim that the local government interfered with a property owner’s rights by allowing beach access through the property owner’s property. The circuit court affirmed summary judgment granted to the reinsurer.

The cedent claimed that there was an express follow-the-fortunes clause and, even if there was none, the court should infer the follow-the-fortunes doctrine and compel the reinsurer to follow the cedent’s good faith settlement. In rejecting the cedent’s arguments, the court held that there was no express follow-the-fortunes clause and, in fact, the language of the reinsurance contract precluded the follow-the-fortunes concept.

The court also rejected the cedent’s argument that the doctrine should be implied by inference. While the court did not reach the issue of whether the doctrine could ever be inferred under the right circumstances, it declined to infer the application of the follow-the-fortunes doctrine under the circumstances of this case and in particular because of the specific language inconsistent with the application of the doctrine.

The court’s analysis and holding is consistent with recent trend where courts focus on the specific language of the contract and not on presumptions and inferences.

In Utica Mutual Insurance Co. v. Abeille General Insurance Co., 2022 NY Slip Op 03815 (N.Y. App. 4th Dep’t Jun. 10, 2022), the cedent sought reinsurance recoveries for defense costs paid under umbrella policies for underlying asbestos settlements where the primary policies had been exhausted. The reinsurance contracts covering the umbrella policies had express follow-the-settlements provisions. The reinsurers denied the claims stating that defenses costs were not covered under the umbrella policies and the reinsurance contract.

Both sides moved for partial summary judgment and the motion court denied both motions. Each side appealed. The appeals court modified the order and granted the reinsurers’ motion, holding that there was no coverage for defense costs under the umbrella policies and the reinsurance contracts.

On the merits, the court concluded that the motion court properly determined that the reinsurers established that its interpretation of the umbrella policies, i.e., that those policies did not cover defense costs in the underlying actions because those costs were covered by the primary insurance policies, is the only fair construction of those policies. The court held that “the unambiguous terms of the umbrella policies establish that [reinsurers] were not required to reimburse [cedent] under the reinsurance contracts for the disputed defense costs related to the underlying actions.”

On the follow-the-settlements argument, the court agreed with the reinsurers that, contrary to the motion court’s determination, the follow-the-settlements doctrine did not alter the analysis above. There was no dispute that the reinsurance contracts contained an express follow-the-settlements clause. The court explained the way the follow-the-settlement clause mandates the reinsurers to follow the good faith claims determinations of the cedent. But, as the court stated, there are limitations to the doctrine.

The follow-the-settlements doctrine “insulates a reinsured’s liability determinations from challenge by a reinsurer unless they are fraudulent, in bad faith, or the payments are clearly beyond the scope of the original policy or in excess of [the reinsurer’s] agreed-to exposure” (citations omitted). The court concluded that in this case, “the reimbursement sought by [cedent} from [reinsurers] was beyond the scope of coverage in the umbrella policies and, thus, the follow-the-settlements doctrine does not apply under the circumstances.” A neat and clean analysis based on the plain reading of the relevant contracts, which contrasts with the prior trend of reading presumptions into reinsurance contracts.

Discovery and Sealing

              Production of Reinsurance Information

Parties routinely seek reinsurance information in insurance coverage cases and the courts routinely allow production of reinsurance information. Two cases in 2022 continued the trend of requiring production of reinsurance information.

In Williams International Co., LCC v. Zurich American Insurance Co., No. 4:20-cv-13277 (E.D. Mich. Mar. 7, 2022), the policyholder moved to compel production of reinsurance agreements. In granting the motion in part, the court held that the reinsurance agreements were covered by Federal Rule of Civil Procedure 26(a)(1)(A)(iv) and should have been produced as part of the insurance company’s initial disclosures (requiring disclosure of “any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” The court noted that the rule is absolute and no showing of relevance is necessary. Accordingly, the court ordered the insurance company to produce any reinsurance agreement, whether treaty or facultative, along with any declarations sheets.

Not all was lost for the insurance company, however. The policyholder’s request for “[a]ll documents [and/or] communications concerning” the reinsurance was rejected on vagueness, relevance and ambiguity grounds. In other words, you can ask for relevant reinsurance agreements but if you ask for other documents the request must be more specific and relevant to the underlying dispute.

In Computer Sciences Corp. v. Endurance Risk Solutions Insurance Co., No. 1:20-cv-01580-MKV (S.D.N.Y. Mar. 10, 2022), the court ruled, among other things, that the insurance company’s communications with its reinsurers about the disputed claim were relevant and must be produced. Notably, the policyholder asked for the reinsurance agreements, which the insurer said had no relevance where there was no issue as to the insurer’s ability to satisfy any judgment. The court focused instead on reinsurance communications involving the disputed claim and ordered those communications produced.

These cases are part of a continuing trend where the courts have allowed reinsurance information to be produced in insurance coverage disputes.


Whether courts will seal reinsurance arbitration documents when the parties come to court for judicial relief has been a significant topic for several years. Most courts refuse to seal arbitration information when motions to vacate or confirm an arbitration award are made. But that is not always the case.

In Washington Schools Risk Management Pool v. American Re-Insurance Co., No. C-21-0874-LK (W.D. Wash., Apr. 20, 2022), a Magistrate Judge was asked to seal materials filed with reply papers on applications to declare that the arbitration clause was inapplicable to the dispute and to compel arbitration. The court granted the motion largely relying on the reinsurer’s representation-which was not controverted by the cedent-that the parties would enter into a confidentiality order/agreement in the form of the ARIAS-U.S. model and, therefore, sealing the materials in the reply papers was appropriate.

Even though neither party had yet signed a confidentiality agreement, the reinsurer told the court-again unopposed-that “there appears to be a substantial likelihood that they (and the Arbitration Panel) ultimately will execute the ARIAS-US Form, `as is’ or as modified in response to revisions to be proposed by [the pool].” Accordingly, the reinsurer argued that the arbitration panel may require the parties to go back to court to ask that these arbitration materials be sealed.

The court took it on faith that some form of the ARIAS-U.S. confidentiality agreement will apply to the arbitration requiring the parties to ask the court to seal any arbitration material submitted to the court. Given the lack of opposition to the motion by the cedent, the strong likelihood that the ARIAS-U.S. form would be used and that the form requires arbitration information to be sealed, the court found that sealing the reply materials was warranted.

Direct Right of Action

To sustain a claim against reinsurers there must be a contractual relationship between the party making the claim and the reinsurers. That is the prevailing rule in all jurisdictions, subject to rare exceptions. Nevertheless, policyholders, when left without a recovery from their insurer, will try to make out a claim directly against their insurer’s reinsurers.

In 2022, in a complicated credit insurance/reinsurance transaction involving a special purpose vehicle, a policyholder left without an insurance recovery tried again to recover its loss from its insurer’s reinsurers. Unfortunately for the policyholder, the trend in denying a direct claim by a policyholder against a reinsurer continued.

In Vantage Commodities Financial Services I, LLC v. Assured Risk Transfer PCC LLC, 31 F.4th 800 (D.C. Cir. 2022), a finance company obtained credit insurance through a special purpose vehicle, which in turn obtained reinsurance from several reinsurers. The finance company issued a loan and ultimately the borrower defaulted. The finance company sought recovery under the special purpose vehicle and the parties arbitrated the claim. The finance company prevailed in arbitration but the special purpose vehicle did not have the assets to pay the award and the reinsurers all disclaimed under the terms of the reinsurance agreements.

The finance company sued the special purpose vehicle, the reinsurers and the brokers in federal court seeking, among other things, a direct recovery from the reinsurers. The district court dismissed the finance company’s breach of contract and declaratory judgment claims and ultimately granted summary judgment to the reinsurers (and the brokers).

On appeal, the circuit court affirmed the district court’s dismissal of the finance company’s breach of contract and declaratory judgment claims because, as the district court concluded, the finance company failed to plead facts sufficient to show a contractual relationship with the reinsurers. As the court found, the reinsurance agreements created no contractual relationship with the finance company. Instead, the agreements were “solely between [ART] and the Reinsurer[s]” and “nothing contained in th[e] Agreement[s] shall create any obligations or establish any rights against the Reinsurer[s] in favor of any person or entity not a party hereto.” 

The court rejected the finance company’s attempt to analogize these facts with those in cases where a direct relationship was alleged. The court also affirmed the district court’s grant of summary judgment on the remaining allegations, finding that there was no evidence to support the finding of an implied contract. In fact, the only evidence of consideration being exchanged was between the finance company and the special purpose vehicle and the separate exchange between the special purpose vehicle and the reinsurers. The lack of evidentiary support for any of its claims doomed the finance company’s appeal.

Legacy Claims

It is quite common to have a transaction where a company essentially takes over another company and reinsures its obligations 100%. Several years later, the acquiring reinsurer may sell the acquired ceding company as a “clean shell.” Of course, the new acquiring company buying the shell wants the original 100% reinsurance agreement to remain in force. After 10 years or more, sometimes things go awry.

In Sparta Insurance Co. v. Pennsylvania General Insurance Co., No. 21-11205-FDS (D. Mass. Aug. 9, 2022), the acquirer of a supposed “clean shell” sought a declaratory judgment in federal court against the seller when, allegedly, after ten years or more, legacy claims against the “shell company” that were supposedly 100% reinsured by the shell’s seller were not being administered or paid.

In analyzing whether the complaint was sufficient to withstand a motion to dismiss, the court stated that “[w]hile it is far from clear, it appears that the complaint thus alleges that claims are not being administered or paid on a wholesale basis in violation of the SPA and the reinsurance agreement. In other words, it appears to allege that claims are not being declined on an individualized basis, according to individualized coverage determinations, but that all claims are being declined, regardless of the underlying issues.” The seller’s argument focused on the lack of individualized claims being denied as injuries to the buyer. The court made it clear that the allegations of the wholesale lack of claims administration and payment is sufficient to survive the motion to dismiss.

Ultimately, the court denied the seller’s motion to dismiss and allowed the buyer’s case to move forward. But the court noted that “[w]hile additional facts and details will surely be critical to resolve a motion for summary judgment, ‘their absence does not support a motion to dismiss'” (citations omitted).

Legacy reinsurance liabilities against certain non-US reinsurers that have gone into insolvency or have been absorbed by non-US governments remain an issue for many US ceding companies. Some US ceding companies have fought long and hard to win arbitrations, enter judgments and then try to enforce those judgments against the non-US reinsurers or their governments. Success in doing this has been up and down.

In TIG Insurance Co. v. Republic of Argentina, No. 18-mc-00129 (DLF) (D. D.C. Aug. 23, 2022), the cedent moved for a writ of attachment against a building in Washington, D.C. owned by Argentina in an effort to enforce two judgments. The first was against the now defunct Caja Nacional de Ahorro y Segurro, a state-owned reinsurer in Argentina. The second judgment was against Argentina directly. Both were default judgments. Obviously, Argentina objected and sought to preclude the writ of attachment.

In deciding in favor of Argentina, the court ultimately concluded that Argentina did not waive sovereign immunity and vacated the judgment against Argentina because the issuing court did not have jurisdiction to enter the judgment. The court noted that “[s]imply agreeing to handle Caja’s claims and litigation, without any indication of how, provided no guidance on Argentina’s subjective intent to subject itself to arbitration or to U.S. law.” This is important because if a foreign government that has taken over a reinsurance company agrees to be bound by the arbitration clause in a US-based reinsurance agreement, then it will likely have waived its sovereign immunity and a judgment like the cedent had in this case could be enforced (assuming there is something in the US to enforce it against).

Tortious Interference

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 several runoff entities and their affiliates.

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. 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. 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].

Don’t Cry For Me – Reinsurance Judgment Against Argentina Vacated

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Legacy reinsurance liabilities against certain non-US reinsurers that have gone into insolvency or have been absorbed by non-US governments remain an issue for many US ceding companies. Some US ceding companies have fought long and hard to win arbitrations, enter judgments and then try to enforce those judgments against the non-US reinsurers or their governments. Success in doing this has been up and down. A recent case goes into great detail in addressing one cedent’s journey to enforce judgments against Argentina.

Continue reading “Don’t Cry For Me – Reinsurance Judgment Against Argentina Vacated”

Using US Federal Courts to Aide in Non-US Arbitrations Dealt a Death Blow By the US Supreme Court

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While it did not happen often, there have been occasions where insurance and reinsurance disputes outside the US looked to the US federal court to assist in discovery of documents or depositions in the US to aide the non-US arbitration. While the federal circuits were split, several circuits permitted the district courts to aide in the non-US arbitration.

In June 2022, the US Supreme Court addressed the issue of whether a non-US arbitration was a proceeding in a foreign or international tribunal so that the district court could aide in that proceeding under 28 U. S. C. §1782(a). Many articles and blog posts have been written about this case and I do not intend to get into the technical details of 1782(a) or the various arguments presented. I do, however, discuss below the ramifications for insurance and reinsurance arbitrations.

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Federal Jurisdiction Matters to Vacate or Confirm an Arbitration Award

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Insurance and reinsurance arbitrations are often governed by the Federal Arbitration Act (“FAA”). Enforcement of arbitration rights under the FAA, however, may take place in either federal or state courts. To proceed in federal court, subject matter jurisdiction must exist. In a recent case, the United States Supreme Court addressed an open question concerning whether subject matter jurisdiction existed on competing applications to vacate and confirm an arbitration award so that the federal district court could hear the dispute.

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Prior Arbitration Precludes Law Suit Ruling Upheld on Appeal

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Back on May 27, 2021, I wrote about a collateralized reinsurance dispute where the reinsurer sued the cedent in New York state court claiming that provisions of a trust agreement relieved the reinsurer of any further liability to the cedent. See Reinsurer’s Claims Precluded By Prior Arbitration Award. The motion court granted the cedent’s motion to dismiss the complaint and now that decision has been affirmed on appeal.

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A Brief Review of Reinsurance Trends in 2021

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The big headline from 2021 is that the Second Circuit struck the final death blow to Bellefonte. While long expected this decision ends a near forty-year saga of whether the limit of liability in a facultative certificate caps a reinsurer’s indemnity and expense obligations. Courts in 2021 also addressed numerous other reinsurance matters, including those about arbitration, arbitrability, and compelling arbitration in the face of the McCarran-Ferguson Act. 

2021 also brought us more cases concerning disclosure of reinsurance information and whether tortious interference claims belong in reinsurance. Courts also made decisions concerning runoff providers and reinsurance trustees.


Most reinsurance arbitrations fall under the Federal Arbitration Act (“FAA”).  In the reinsurance context, questions of arbitrability and the powers of the arbitrators arise often.  In 2021, courts continued to exercise their authority to compel arbitration and leave many questions of arbitrability to the arbitrators. 

Arbitrability and Motions to Compel Arbitration

Who decides whether an arbitration should go forward is often a controversial issue. Is it the court or is it the arbitration panel? In Alliance Health and Life Insurance Co. v. American National Insurance Co., No. 20-cv-12479 (E.D. Mich. Aug. 31, 2021), the court determined that it was the arbitrators that had to decide whether a limitations provision in a reinsurance contract precluded arbitration.

The case involved a Medical Excess Reinsurance Agreement with a mandatory arbitration clause providing that no arbitration could be commenced more than three years after the effective date of the reinsurance contract. In this case, the arbitration was commenced after three years and the cedent claimed that because of that the arbitration provision no longer applied.

The court dismissed the complaint in part because the cedent did not dispute that it consented to arbitration when it signed the reinsurance contract, which bound the cedent to the arbitration provision. Because time limitations are a matter of procedure under Supreme Court precedent, and because there was no provision in the reinsurance agreement that required the court to determine questions of timeliness, the presumption in favor of arbitration stood and the limitations issue was for the arbitrators to decide. This case continues the trend of deference given by the courts to arbitration, especially where the arbitration provision is broad.

Two cases decided in 2021 brought the judicial trend of granting motions to compel arbitration together with the trend in several federal circuits holding that the McCarran-Ferguson Act does not reverse preempt the Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

In Green Enterprises, LLC. v. Dual Corporate Risks Limited, Civ. No. 20-1243(JAG) (D. PR. Jun. 15, 2021), the insurers moved to compel arbitration based on the New York Convention. The policyholder opposed the motion and sought to preclude arbitration based on the principle of reverse preemption under the McCarran-Ferguson Act and local insurance law precluding arbitration of insurance disputes.

The court granted the insurers’ motion to compel arbitration, holding that the McCarran-Ferguson Act did not enable Puerto Rico’s Insurance Code to reverse-preempt a treaty like the Convention, or the FAA itself, and that the arbitration provision invoked by the insurers was valid and applicable. This decision goes further than other decisions on this side of the circuit split by addressing preemption of the FAA.

In the second case, the Ninth Circuit joined several other circuits in holding that Article II, Section 3 of the New York Convention is self-executing and, therefore, arbitration can be compelled. In CLMS Management Services Limited Partnership v. Amwins Brokerage of Georgia, LLC, No. 20-35428 (9th Cir. Aug. 12, 2021), a policyholder sought to preclude arbitration of a claims dispute arguing that state insurance law (Washington) barred arbitration of disputes under insurance contracts. The non-US insurer sought to compel arbitration under the New York Convention. The district court granted the motion to compel arbitration.

In affirming the order compelling arbitration, the circuit court addressed the circuit split on this issue and, in a concise and well-reasoned decision, explained why McCarran-Ferguson did not apply and how the New York Convention, Art. II, Sec. 3, was self-executing. In summary, while the FAA’s Chapter 2 implemented the New York Convention—which may be reverse preempted by application of McCarran-Ferguson where there is an insurance law provision that bars arbitration of insurance disputes because it is an act of Congress—Article II, Section 3 of the New York Convention is self-executing and, as a Treaty and not an act of Congress, is not reverse preempted by McCarran-Ferguson and takes precedence over state law under the Constitution’s Supremacy Clause. Bottom line, the insurance dispute must be arbitrated.

Challenge to Arbitrator

Challenging the qualifications of an arbitrator is difficult. Most courts reject pre-arbitration challenges and require the objecting party to wait for a final award to raise a challenge. But sometimes the stars align, and the challenge is allowed. In 2021, a California federal court accepted the challenge on cross-motions to compel arbitration and disqualified a party-appointed arbitrator for not being disinterested.

In Public Risk Innovations, Solutions, and Management v. AmTrust Financial Services, Inc., No. 21-cv-035730-EMC (N.D. Calif. July 12, 2021), an objection was made to a party-appointed arbitrator as unqualified because of not being a current or former official of an insurance or reinsurance company and because of he was not disinterested. Both parties agreed that the underlying dispute was arbitrable and both parties agreed that the court should decide this dispute over the arbitrator’s qualifications.

The court rejected the challenge based on whether the arbitrator was qualified as a current or former official of an insurance or reinsurance company. The arbitrator was general counsel to several joint power authorities and self-insured joint power authorities and risk pools. The court held that in the context of the arbitration agreement the joint power authority could be seen as an insurance company, especially as a self-insured pool that essentially acts like an insurer.

Nevertheless, the court held that the arbitrator was not disinterested because he currently worked for entities that were members of the self-insured pool and could feel pressure to favor the pool’s position. Accordingly, the court found that the arbitrator was not qualified under the arbitration agreement.

Powers of the Arbitration Panel and Arbitration Awards

The great deference given to arbitrators and their awards is unquestionable in the US. Under the FAA, there is no appeal of an arbitral award. Parties can only seek to modify, vacate or confirm an arbitration award. The court’s scope of review of an arbitration award is narrow. Where, as in reinsurance arbitrations, arbitrators are given even greater leeway to decide cases—especially where there is an honorable engagement clause—the courts’ scope of review of an arbitration award is restricted even further.

In Continental Casualty Co. v. Certain Underwriters at Lloyd’s of London, No. 20-2892 (7th Cir. Aug. 23, 2021), after an arbitration hearing and the issuance of a final arbitration award, an interim arbitration award and a post final award order, the cedent sought to confirm the final award, but to vacate the last two orders. The panel, in its final award and the subsequent orders, decided not only the specific billing methodology question that reinsurers originally had presented, but also what the consequences of its ruling were for the three insured companies it named. And the panel clarified the question that remained after the final order about the applicability of its ruling to future billings relating to asbestos products losses for those three companies. The district court confirmed everything and the cedent appealed.

In affirming, the Seventh Circuit reiterated the limited scope of review given to arbitration awards by the courts. The court explained that an arbitral award must draw its essence from the contract. Accordingly, the scope of the agreement to arbitrate—whether the arbitrators were given a broad or narrow mandate—is critical to the narrow scope of review of an arbitration award. The court found several broadening factors that allowed the arbitration panel great discretion in interpreting the contract and devising a remedy, including the power to resolve the case on general principles, not just legal entitlements. The court held that the arbitration panel acted within the authority conferred by the contract. Because the court concluded that the arbitrators did not stray beyond the boundaries of their authority, the court affirmed the district court’s order confirming of all three awards and orders.

The trend toward upholding arbitration awards was also demonstrated in Adventure Motorsports Reinsurance , Ltd. v. Interstate National Dealer Services, Nos. S21G0008, S21G0015 (Ga. Sup. Ct., Dec. 14, 2021), where the Georgia Supreme Court reversed the court of appeals finding of manifest disregard of the law and remanded the matter.

After an arbitration award was issued, cross-motions were made to vacate and confirm. The trial court confirmed the award and an appeal ensued where the court of appeals vacated the award based on manifest disregard of the law by the arbitrator who the court said explicitly rejected the contract language. On appeal to the Georgia Supreme Court, the court reversed and remanded.

In reversing the court of appeals, the supreme court concluded that the court of appeals erred in reversing the confirmation of the award on the basis that the arbitrator manifestly disregarded the law in rendering the award. The court analyzed the law on manifest disregard and commented that an arbitrator who incorrectly interprets the law has not manifestly disregarded it. The court found that the arbitrator never expressed, during the hearing or in the arbitration award, that the correct law should be ignored rather than followed. Ultimately, the court held that the arbitration award drew its essence from the contracts. The court, however, remanded the decision back to the court of appeals for resolution of the argument that the arbitrator overstepped his authority in making the award and reconsideration of the trial court’s failure to enforce a delayed-payment penalty provided in the arbitration award.

The key point here is that even in state court under state arbitration law, manifest disregard of the law is a very difficult standard to meet when seeking to vacate an arbitration award. Arbitrators have wide discretion and just like in the federal courts, if the award draws its essence from the terms of the disputed contract, the award likely will be confirmed.

When parties participate in an arbitration and obtain a final award, usually that is the end of the dispute. But sometimes there are collateral agreements involved and the losing party may try to bring litigation based on those collateral agreements to obtain a different form of relief.

In White Rock Insurance Co. PCC Limited v. Lloyd’s Syndicate 4242, No. 652867/2020 (N.Y. Sup. Ct., N.Y. Cty May 18, 2021), a protected cell reinsurer sued its cedent seeking a declaration that certain provisions of a trust agreement extinguished its liability to the cedent. The cedent moved to dismiss the litigation based on a prior arbitration proceeding between the parties and the final arbitration award issued by the arbitration panel.

In granting the motion to dismiss and confirming the final arbitration award, the court held that the prior arbitration and the final arbitration award precluded this litigation. The court noted that the arbitration panel’s finding, that the collateral release did not change the reinsurer’s obligation to pay losses as they became due under the reinsurance contract despite the shortfall in the collateral in the trust fund, went to the heart of the issue in this litigation. The court pointed out that the reinsurer specifically argued that the trust fund provisions relieved it of its obligations to the cedent and asked the arbitration panel to rule on the trust fund provisions even though the trust fund did not have an arbitration clause. The court held that the arbitration panel clearly considered the trust fund issues raised in the litigation in reaching its determination.


For decades, reinsurers and the courts relied on the Second Circuit’s holdings in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and Unigard Security Insurance Co. v. North River Insurance Co., 4 F.3d 1049 (2d Cir. 1993), to cap a reinsurer’s liability under certificates of facultative reinsurance for indemnity and expenses. This reliance was sharply criticized by cedents and others in the industry. In 2021, the Second Circuit made it clear that its decisions in Bellefonte and Unigard are no longer good law.

In Global Reinsurance Corp. of America v. Century Indemnity Co., No. 20-1476 (2d Cir. Dec. 28, 2021), the Second Circuit addressed an appeal from a district court judgment denying the reinsurer’s request for a declaratory judgment that the stated limits in 10 facultative certificates capped the reinsurer’s liability for both indemnity and expenses. In affirming, the court held that the certificates’ policy limits were not inclusive of defense costs and announced that its earlier decisions on this subject were no longer good law.

The court, in affirming and holding that the reinsurer’s obligation to pay its proportionate share of the cedent’s defense costs was not capped by the certificates’ liability limits, concluded as follows:

Because the certificates do not specifically provide that the terms of [the reinsurer’s] reinsurance differ from those of the [cedent’s] policies with respect to the treatment of defense costs, the follow-form clause requires that [the reinsurer’s] payments toward [the cedent’s] defense costs be made in addition to the certificates’ limits. This conclusion follows not only from the unambiguous language of the certificates but also from evidence of custom and usage concerning the central importance of concurrency to the reinsurance market when the certificates were issued.

Notably, concerning Bellefonte and Unigard, the court explained that the New York Court of Appeals’ holding on the Second Circuit’s certified question:

. . . conflicts with our decisions in Bellefonte and Unigard, in which we held that the liability limits contained in the certificates at issue “necessarily cap[ped] all obligations owed by [the] reinsurer[s], such as defense costs, without regard for the specific language employed therein.” . . . Because [the New York Court of Appeals decision] exposed a fundamental conflict between these precedents and “New York law as determined by the New York Court of Appeals,” which we are “bound to apply,” . . . , we are “require[d] to conclude” that Bellefonte and Unigard are “no longer good law.” (citations omitted).

The bottom line: Bellefonte now resides in the scrapheap of wrongly-decided cases.

Even before Global Reinsurance Corp. of America was decided, an earlier 2021 decision by the Second Circuit foreshadowed the renewed focus on contract wording. In Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., Nos. 19-1241; 19-4335 (2d Cir. Jul. 29, 2021), the Second Circuit was faced with two appeals of two district court judgments that went in opposite directions. The cases primarily concerned whether the reinsurers must reimburse the cedent for defense costs in addition to limits of the cedent’s umbrella policies. In one case, the court, after a bench trial, held that the reinsurer did not have to reimburse defense costs in addition to the limits. In the other case, after a jury trial, the court held that the cedent was entitled to reimbursement for defense costs in addition to the limits. Obviously, the opposite results could not stand.

The circuit court affirmed the bench trial judgment (no reimbursement on a costs-in-addition basis – victory to the reinsurer) and reversed and remanded, in part, the jury trial judgment. In making its decision, the court addressed whether an amendment to the umbrella policy changed the policy from cost-inclusive to cost-in-addition. The court found that the amendment only affected the drop-down coverage, not the excess coverage, and changed the how expenses would be reimbursed only for the drop-down coverage. Accordingly, the cedent was not entitled to reimbursement for expenses in addition to the limit.

Nevertheless, the cedent argued that the follow-the-settlements doctrine required the reinsurer to pay the settlement anyway. The court rejected this argument.  Because the underlying settlement treated the umbrella policy as cost-inclusive, it contradicted the cedent’s position that the reinsurer must pay on a cost-in-addition basis.

Additionally, the court found that the follow-form facultative certificates linked the reinsurer’s liability to that of the cedent and under the umbrella policies, expenses were cost-inclusive. As the court noted, a follow-the-settlements clause does not alter the terms or override the language of the reinsurance contracts. Accordingly, the court held that the underlying settlement agreement did not independently require the reinsurers to pay defense costs in addition to the limits.

Discovery and Sealing

              Production of Reinsurance Information

Reinsurance information is now regularly requested by plaintiff’s lawyers in underlying coverage disputes.  Courts tend to allow this discovery, although it is sometimes limited to just the reinsurance contracts. 

In U.S. Tobacco Cooperative, Inc. v. Certain Underwriters at Lloyd’s, No. 19-cv-430-BO (E.D.N.C. Apr. 9, 2021), the court addressed the policyholder’s second motion to compel discovery against the insurers. The court ordered broad production of reinsurance materials based on the automatic disclosures required under Rule 26(a)(1)(A), which required the insurers to identify and produce any relevant reinsurance agreements if the reinsurers may be liable for paying part of a judgment against the insurers.

The court also addressed the insurers’ claim that the reinsurance materials were protected by the attorney-client or attorney work-product privileges. The court analyzed the parameters of the privileges and instructed the insurers to only withhold documents if they had a good faith belief that the communications related to the provision of legal services.

On the production of reinsurance materials, the court noted that the cases conflict on the issue. The court rejected the insurers’ argument that the policyholders had not shown the reinsurance information to be relevant because the burden is on the insurers to show a lack of relevance. The court found that the insurers presented no evidence showing that the reinsurance documents should be immune from discovery. No affidavits or other evidence were presented, just unsworn statements in the briefs.

Additionally, the court found that the insurers had waived the privileges because there had been both deposition testimony and some document production of reinsurance information. Accordingly, the court ordered production of the requested reinsurance documents.

There are many approaches used to resist production of reinsurance information. In 2021, one case involved the insurer invoked the “insurer-insured privilege.” In Gibson v. Chubb National Insurance Co., No. 20-CV-1069 (N.D. Ill. Sep. 27, 2021), a coverage dispute arose concerning a fire loss. During the litigation, the policyholder filed a motion to compel production of documents, including, among other things, reinsurance information. The insurer claimed insurer-insured privilege.

In granting the motion to compel, the court found that the insurer was not entitled to withhold communications with its reinsurer about the policyholder’s claim. The insurer attempted to bring the communications within an offshoot of the attorney-client privilege that related to the duty to defend the underlying claim. Illinois courts have held that communications between an insured and an insurer where the insurer has a duty to defend is privileged and that has been extended to agents of the insurer. The court rejected the argument that communications between the insurer and the reinsurer fell within the privilege. Here, the reinsurer had no duty to defend, and the court directed the insurer to produce the communications.

What happens to reinsurance-related evidence when it comes to trial? In 2021, a court answered that question. In Fluor Corp. v. Zurich American Insurance Co., No. 4:16CV00429 ERW (E.D. Miss. Jul. 16, 2021), the parties made a variety of motions in limine in advance of trial in an insurance coverage dispute. One of the insurer’s motion was to exclude evidence of reinsurance, including communications with its reinsurers concerning the underlying claims. The policyholder argued that many trial exhibits mentioned reinsurance and that it was not practical or justified to redact all those exhibits.

The court granted the motion based on Rule 411 of the Federal Rules of Evidence and cited a series of 8th Circuit cases on the prejudicial nature of allowing evidence of insurance or reinsurance. The court held that the evidence of reinsurance posed a high risk of prejudice to the insurer.


Reinsurance arbitrations are typically confidential and generally proceed with a confidentiality agreement in place protecting all arbitration information, including the final award, from disclosure. This contrasts with legal proceedings, including proceedings collateral to arbitrations, where generally the public’s right to judicial documents outweighs the parties’ privacy. In recent years, when parties to reinsurance arbitrations have gone into court to confirm, enforce, modify or vacate arbitration awards, courts have been reluctant to keep the final awards under seal. In fact, some parties have used this trend as a litigation strategy to “unseal” confidential final arbitration awards by going to court to confirm an award where there was no indication that the losing party would not comply with the award.

Bucking that trend in 2021, a New York federal court allowed the final arbitration award to remain sealed. In West Coast Life Insurance Co. v. Swiss Re Life & Health America, Inc., No. 21 Civ. 5317 (VB) (S.D.N.Y. Jun. 28, 2021), a final arbitration award was issued and both parties filed the award with the federal court under seal and moved to confirm the award.

Of course, the court confirmed the award as there was no objection and both parties agreed to confirmation and both parties requested that the final award be sealed in the first instance and remain sealed. The court noted that generally arbitration awards filed with a petition to confirm that award are considered “judicial documents that directly affect [] the Court’s adjudication of that petition,” and therefore sealing of the award requires that the movant demonstrate that “sealing is necessary to preserve higher values.” (Citation omitted).

Here, however, the court decided otherwise. The court’s rationale for keeping the award sealed is set forth below:

[B]ecause the parties jointly request that the Court confirm the final award, the final award itself does not “directly affect the Court’s adjudication of that petition.” Thus, the final award is not a “judicial document” subject to a presumption of access. Moreover, the Court is persuaded by the parties’ assertion that the final award should be sealed because it is subject to a confidentially agreement and contains confidential, sensitive, and proprietary information that could potentially prejudice the outcomes of related legal disputes not before the Court as well as prejudice the parties in future competitive business negotiations.

Obviously, those who wish to keep reinsurance arbitration awards confidential are overjoyed with this decision given the many other cases that have gone the other way. This outcome, however, likely will not hold up where there is a dispute about the award or where one party is opposing confirmation.

Direct Right of Action

Policyholders typically cannot sue reinsurers directly because of a lack of contractual privity. While there are exceptions in the law, those exceptions are few. But sometimes a reinsurance deal gets structured in such a way that the policyholder may be able to bring a direct action.

In Casa Besilu LLC v. Federal Insurance Co., No. 20-24776-Civ-Scola (S.D. Fla. Apr. 23, 2021), a policyholder claimed that to obtain property insurance for its property in the Bahamas it approached the reinsurers for assistance. The complaint alleged that the reinsurers engaged local brokers to obtain the insurance from a Bahamian insurer and the reinsurers provided the reinsurance. The complaint further alleged that the policyholder never dealt with the local brokers and that they filled out an insurance application given to the reinsurers requesting comprehensive liability and property insurance at specific limits, including flood insurance.

According to the complaint, flood insurance was never obtained and when a hurricane caused damage to the property, the Bahamian insurer refused to pay for any of the damages caused by storm surge. There are more facts alleged, including that the reinsurers interfered in the process and caused the Bahamian insurer to calculate water damage separate from wind damage.

Naturally, the reinsurers moved to dismiss the complaint, which contained claims of tortious interference, breach of fiduciary duty and other claims. They argued, among other things, that there was no privity of contract and, therefore, not direct right of action. The policyholder countered that they were not suing under the reinsurance contract, but for the reinsurers’ tortious interference with the policyholder’s direct insurance contract.

The court denied the motion to dismiss. Basically, the court found that the complaint had sufficient allegations to survive the motion to dismiss and the court would not convert the motion to one for summary judgment (both sides submitted evidentiary affidavits that the court would not consider).

This is an unusual case because of the relationships between a policyholder and an insurance group that typically writes direct insurance and the insurance group’s alleged involvement with placing insurance in the Bahamas and then reinsuring that insurance. Whether the policyholder will be successful in the end will require a much more detailed inquiry into the facts.

A direct right of action may arise if there is a cut-through clause in the reinsurance contract. Cut-through clauses, however, must be express. In Wells Fargo Bank, N.A. v. Lloyd’s Syndicate AGM 2488, No. 13956 (N.Y. App. Div. 1st Dep’t Jun. 1, 2021), the motion court granted facultative reinsurers’ motion to dismiss the policyholder’s claims against them and the appellate court affirmed finding that “[n]one of the reinsurance contracts at issue, including the January 4, 2010 Underwriters Reinsurance Policy (URP), issued by Lloyds contain a “cut through” provision allowing the original insured [ . . . ] to bring suit directly against the reinsurers.” The court also ruled that the policyholder’s interpretation of the reinsurance contract would lead to an absurd result and was contrary to the parties’ reasonable expectations.

Tort of Bad Faith

Can tort claims be brought against reinsurers for bad faith? In Alabama Municipal Insurance Corp. v. Munich Reinsurance America, Inc., No. 2:20cv300-MHT, 2021 WL 981495 (M.D. Al. Mar. 16, 2021), a federal court had to decide whether, under Alabama law, the tort of bad faith is recognized in the reinsurance context. In dismissing the bad faith claims, the court performed a detailed analysis of Alabama law and articulated how narrowly Alabama interpreted the tort of bad faith. Essentially, Alabama had narrowed the tort down to the consumer-based insurance relationship and refused to apply the tort to general commercial contracts.

The court distinguished the difference in motivation and sophistication between a reinsurance transaction and a standard insurance transaction in concluding that the Alabama Supreme Court would not extend the tort of bad faith to a reinsurance dispute.

In a later decision, Alabama Municipal Insurance Corp. v. Munich Reinsurance America, Inc., No. 20 cv 300-MHT (M.D. Ala. Apr. 12, 2021), the cedent moved the federal court to certify to the Alabama Supreme Court the question of whether Alabama recognizes the tort of bad faith in the reinsurance context. The court rejected the motion holding that certification would be neither necessary nor appropriate.

Runoff Managers

The proliferation of runoff providers for books of reinsurance has generated disputes involving runoff managers. For example, in Stonegate Insurance Co. v. Fletcher Reinsurance Co., No. 21 C 3523 (N.D. Ill. Dec. 6, 2021), the cedent sued a reinsurer that had been acquired by a runoff entity and two affiliated service providers for breach of contract, tortious interference with contract, and bad faith refusal to pay claims over reinsurance agreements between the cedent and the reinsurer’s predecessor. The reinsurer defendant moved to compel arbitration under the reinsurance agreements and the service provider defendants moved to dismiss the complaint for lack of personal jurisdiction and failure to state a claim for relief.

The district court granted the reinsurer’s motion to compel arbitration, which the cedent did not oppose. On the service providers’ motion to dismiss, the court rejected the personal jurisdiction argument, but ultimately found that the complaint did not state a claim against the service providers. The court found that the service providers were agents of the reinsurer and, therefore, they were conditionally privileged against a claim that they intentionally interfered in the contractual relationship of their principal. The court held that the allegations in the complaint did not rise to the level of malicious or unjustified conduct, which would have negated the conditional privilege.

In another case, a court addressed claims brought by cedents against the reinsurer’s runoff manager for intentional interference with contractual relations and inducing breach of contract when the claims stopped being paid. In California Capital Insurance Co. v. Enstar Holdings US LLC, No. 20-cv-7806-ODW (C.D. Calif. Apr. 14, 2021), a group of cedents brought suit against the runoff manager of its reinsurer for intentional interference with contractual relations and inducing breach of contract. The cedents alleged that after the reinsurer’s business was transferred to the runoff entity, the claims process changed, and the manager directed the reinsurer to breach its reinsurance obligations. Additionally, the cedents alleged that the reinsurer stopped paying certain losses and demanded the return of reinsurance proceeds already paid under certain categories of  taxi and limousine livery, trucking, and habitability claims.

The runoff manager moved to dismiss the complaint. The court granted the unopposed portion of the motion dismissing the case against the runoff manager’s holding company but denied the motion as to the rest of the runoff manager’s entities. The court found that the complaint provided sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively, even though the cedents did not allege exactly how the runoff manager directed the reinsurer to breach the treaty. The court refused to grant the motion to dismiss because the complaint was sufficient under pleading standards to withstand the motion.

Reinsurance Trustees

Reinsurance agreements with non-US off-shore reinsurers usually involve a reinsurance trust with a bank acting as trustee. These trust agreements typically absolve the trustee from nearly all liability because of their ministerial role in the reinsurance transaction. This is very common in off-shore life, annuity and long-term care reinsurance agreements.

In the last several years, however, trustees have come under scrutiny because some off-shore reinsurers were not quite on the up-and-up and the assets placed in the trust accounts and managed by the reinsurers’ affiliated investment managers have been substandard. This, of course, has caused the reinsurance arrangement to collapse, regulatory issues and often the total loss of the assets meant to secure the cedent’s losses. Because these reinsurers typically do not have assets on shore, some of their cedents have gone after the trustees seeking damages.

In Bankers Conseco Life Insurance Co. v. Wilmington Trust, National Association, No. 13185 (N.Y. App. Div. 1st Dep’t Apr. 20, 2021), a long-term care reinsurance deal resulted in serious problems for the cedent when the regulator declared that many of the assets in the trust account were not eligible assets. Not only were the assets not eligible, but they were non-negotiable. The cedent was forced to recapture the business and terminate the reinsurance agreements while taking a substantial loss. The reinsurer, which was not involved in this lawsuit, was the alter ego of a private equity fund that devised a scheme to defraud insurance companies.

While the trust agreement limited the trustee’s liability and responsibility—it was not responsible to determine whether the assets were eligible under state law to be placed into a reinsurance trust account—the agreement did have certain provisions that the court found important:

However, the agreements did provide that [the trustee] was not to accept into the trusts any “non-negotiable” assets, meaning assets that were not capable of being liquidated at a moment’s notice without the need to clear any administrative hurdles. Further, the agreements provided that [the trustee] would “only be liable for its own negligence, willful misconduct, or lack of good faith in connection with its performance” and that “in no event shall [the trustee] be liable under or in connection with this . . . Trust Agreement for indirect, special, incidental, punitive or consequential losses or damages of any kind whatsoever.”

In reversing the motion court and reinstating the causes of action for breach of contract and breach of fiduciary duty against the trustee, the court agreed with the cedent that the breach of contract claim was prematurely dismissed prior to factual and expert discovery. On the breach of fiduciary duty claim, the court held that the trustee’s designation raised the question of whether the trustee owed a fiduciary duty to the cedent as beneficiaries of the trust separate from the trustee’s contractual duties under the trust agreement.

Cases like these are important to financial institutions that serve as reinsurance trustees but are more important lessons to cedents who are attracted to off-shore deals that may be too good to be true. Keeping a watchful eye on the character and quality of the assets in any trust agreement or funds withheld account where the reinsurer is managing the investments through a related affiliate is crucial to avoiding what happened to the ceding company in this (and related) cases.

Georgia Supreme Court Reverses and Remands Appellate Court Order Reversing Order Confirming Arbitration Award

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There is a whole world of automobile service contracts sold by car dealers that are sometimes “reinsured” by affiliated reinsurers. Many disputes have arisen out of these deals and many of these disputes are arbitrated.

In a recent case in Georgia, an arbitration award in an auto service contract dispute was issued and confirmed by the court. On appeal, the court of appeals vacated the arbitration award based on manifest disregard of the law. The Georgia Supreme Court took the case on certiorari and reversed the court of appeals and remanded the matter.

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Seventh Circuit Reiterates the Great Deference Given to Arbitral Awards

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The great deference given to arbitrators and their awards is unquestionable in the US. Under the Federal Arbitration Act, there is no appeal of an arbitral award. Parties can only seek to modify, vacate or confirm an arbitration award. The court’s scope of review of an arbitration award is narrow. Where, as in reinsurance arbitrations, arbitrators are given even greater leeway to decide cases–especially where there is an honorable engagement clause–the courts’ scope of review of an arbitration award is restricted even further.

In a recent case, the Seventh Circuit reiterated these concepts in the context of a reinsurance arbitration with multiple awards involving the billing of asbestos-related losses.

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Confirming a Reinsurance Arbitration Award

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Reinsurance arbitration awards, like most commercial arbitration awards, are subject to confirmation in the courts. This turns the final arbitration award into a court judgment ripe for enforcement if necessary. This is nothing new and when there is no opposition to the petition to confirm there is no mystery as to the result. While the odd case does exist where the court will not confirm an arbitration award, generally an unopposed confirmation will be granted. So why talk about this then? Because sometimes it is good to revisit basic rules and concepts. That’s what a federal court did recently in confirming an unopposed reinsurance arbitration award.

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New York Federal Court Allows Final Arbitration Award to Remain Sealed

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Reinsurance arbitrations are typically confidential and generally proceed with a confidentiality agreement in place protecting all arbitration information, including the final award, from disclosure. This is in contrast to legal proceedings, including proceedings collateral to arbitrations, where generally the public’s right to judicial documents outweighs the parties’ privacy. In recent years, when parties to reinsurance arbitrations have gone into court to confirm, enforce, modify or vacate arbitration awards, courts have been reluctant to keep the final awards under seal. In fact, some parties have used this trend as a litigation strategy to “unseal” confidential final arbitration awards by going to court to confirm an award where there was no indication that the losing party would not comply with the award.

Bucking that trend, a New York federal court recently allowed the final arbitration award to remain sealed. Is the tide turning?

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