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In court, at the pleading stage, sometimes the reinsurer’s motion to dismiss a complaint is superseded by the insured’s motion to amend the complaint.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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Update – Tort of Bad Faith in Reinsurance

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Recently, I blogged about a case where the court rejected an argument that the tort of bad faith applied to a reinsurance agreement. The losing party in that case petitioned the federal court to certify the question to the Alabama Supreme Court.

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Tort of Bad Faith Does Not Apply to a Reinsurance Relationship

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Last year, I discussed a California case where tort claims were brought in the reinsurance context and the court threw them out. A federal court in Alabama recently addressed a similar issue, where a municipal insurer brought bad faith tort claims against its reinsurer when the reinsurer failed to pay certain losses under a series of reinsurance contracts. Like California, the federal court in Alabama ruled that the tort of bad faith did not extend to reinsurance and dismissed the claims.

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