Traditionally, a policyholder cannot sue a reinsurer without privity of contract or some exceptional circumstance. In a recent case, a Texas federal court denied a motion to dismiss the complaint filed by a policyholder against a reinsurer based on a finding that there was an implied agreement based on course of conduct.

Read more: Texas Federal Court Allows Direct Action Against Reinsurer to Continue Under an Implied Agreement

In Indorama Ventures Holdings L.P. v. Factory Mutual Insurance Co., No. 1:24-cv-00404 (E.D. Tex. Aug. 7, 2025), the policyholder brought a breach of contract and declaratory judgment action to recover the full value of business interruption losses caused by an explosion. The policyholder had already recovered $50 million and was seeking an additional $50 million. The reinsurer moved to dismiss the complaint for failure to state a cause of action (no right to sue the reinsurer).

The facts indicate that the property and business interruption policy was issued by a captive insurer and reinsured by the reinsurer. But the reinsurer was the party who was obligated to adjust and pay any claims. In fact, the reinsurer adjusted and paid the first $50 million claim. The policy was originally issued to a third-party that the policyholder purchased, and the parties signed an insurance assignment agreement. That assignment agreement was agreed to by the reinsurer, which acknowledged its role in adjusting and paying claims directly to the policyholder.

Ultimately, the court denied the motion to dismiss the complaint. The court found that the reinsurance agreement was outside the complaint and did not need to be considered. But even if the reinsurance agreement was considered by the court, the complaint still stated a cause of action. Why, because of a Texas law.

The relevant law was Texas Insurance Code Ann. § 493.055, entitled “Limitation on the Rights Against Reinsurer,” which provides that:

A person does not have a right against a reinsurer that is not specifically stated in:
(1) the reinsurance contract; or
(2) a specific agreement between the reinsurer and the person.

As the court found, “[]he relevant ‘right’ in this case is [the policyholder’s] right to sue [the reinsurer] directly.” That right, held the court, did not exist under the reinsurance agreement.

First stop, § 493.055(1). The Reinsurance Agreement clearly forecloses [the policyholder’s] right to directly sue. A section entitled “B. Cooperation of the Company” cabins the rights created by the Reinsurance Agreement: “In no event shall anyone other than [the cedent] or, in the event of [the cedent’s] insolvency, its receiver, liquidator, or statutory successor, have any rights under this Agreement.” A separate section entitled “X. Exclusive Contract” similarly provides that “[i]n no event shall any party, other than [the cedent], or in the event of [the cedent’s] insolvency, its liquidator, have any rights against [the reinsurer] under this Reinsurance Agreement.”

But that was not the end of the inquiry. Under subsection (2) of the statute, if there is a “specific agreement” between the reinsurer and the policyholder, then a direct action is possible. Ultimately, the court determined that a specific agreement existed based on course of conduct. The court’s rationale was based on its view that the Texas Supreme Court would find that an “agreement” included an agreement based on course of conduct and that the facts pled, including certain adjustment communications attached to the motion, and the insurance assignment agreement, demonstrated course of conduct leading to an agreement between the reinsurer and the policyholder that the reinsurer would adjust and pay claims under the property policy.

In denying the motion to dismiss, the court held that the policyholder has sufficiently pled a right to sue the reinsurer directly based on an implied agreement outside the reinsurance agreement.

This could not have been a shock to the reinsurer given the insurance assignment agreement and its role in adjusting and paying the claims. But as the court stated, there are some factual issues and those will come out in summary judgment or trial if the case gets that far (which it might given the $50 million claim).