Pesky Facts Result in a Denial of Summary Judgment in a Post-Settlement Allocation Case

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Since the 1970s cedents and reinsurers have been battling over long-term environmental pollution damage. Disputes have arisen over the number of retentions that the cedent should take, the manner in which settlement with the insured should be allocated and other issues. In a recent case, a reinsurer sought summary judgment on a cedent’s breach of contract claim over a specific pollution claim. Unsurprisingly, disputed facts got in the way.

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Cedent Prevails on Back-to-Back Reinsurance Recovery

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Settlement allocations of long-tail losses like pollution claims have long been a source of disputes between cedents and reinsurers. Often the allocation of the underlying settlement depends on the allocation methodology used based on the law of the relevant jurisdiction. The issue becomes more complicated where the reinsurance contract is governed by the law of a different jurisdiction that may not use the same allocation methodology. In a recent case, the United States Circuit Court for the Second Circuit addressed this issue where the cedent claimed back-to-back reinsurance and the reinsurer rejected the allocation methodology.

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Washington Federal Court Grants Motion to Compel Arbitration

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Recently, I wrote a reinsurance commentary for on reinsurance issues with captive, pools and other risk-sharing entities. Coincidentally, in January 2023, a Washington federal court had to deal with a risk-sharing pool’s claims of breach of a reinsurance contract and a reinsurer’s motion to compel arbitration.

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Reinsurer Loses First Motion to Dismiss

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A reinsurance contract is typically an agreement between a ceding insurer and a reinsurer, which affords no rights of third parties, including underlying insureds to access the reinsurance contract. Typically, an insured cannot bring a direct action against the reinsurer because there is no contractual privity. But sometimes, in some reinsurance relationships, the actions of the reinsurer, whether contractual or not, may open the door for a direct action.

In court, at the pleading stage, sometimes the reinsurer’s motion to dismiss a complaint is superseded by the insured’s motion to amend the complaint. That happened in late 2022 in a federal court in Arizona.

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Court Finds No Personal Jurisdiction in Reinsurance Dispute and Dismisses Case

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Believe it or not, jurisdictional questions still arise in reinsurance disputes that find their way to court. While those who arbitrate disputes under contractual arbitration clauses do not typically have these issues, there are plenty of reinsurance agreements without arbitration clauses. Courts cannot just take a case without determining whether the court has jurisdiction over the parties.

In a recent case, a Nebraska federal court granted the cedent’s motion to dismiss a declaratory judgment action for lack of personal jurisdiction.

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Ninth Circuit Court of Appeals Certifies COVID-19 Question to the California Supreme Court

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While insurers have been successful in dismissing most COVID-19 property damage claims, especially in federal court, many of the coverage issues that arise in federal court actions are resolved based on state law. When a federal court finds that resolution of a dispute is governed by state law and that there is no controlling state law precedent, the court may certify the state law question to that state’s supreme court for resolution.

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Arbitration Clause Upheld In Coverage Dispute

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Coverage disputes between US policyholders and non-US insurers like Underwriters at Lloyd’s of London continue to raise jurisdictional and related issues in US courts. The issues become further exacerbated when there is an arbitration clause in the insurance contract and the non-US insurer seeks to stay the coverage litigation and compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention), to which the US and the UK and most EU countries are signatories.

In a recent case, a Louisiana federal court, hearing the case after removal from the state court, granted the insurers’ motion to stay litigation and compel arbitration.

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