Reinsurer Loses First Motion to Dismiss

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In court, at the pleading stage, sometimes the reinsurer’s motion to dismiss a complaint is superseded by the insured’s motion to amend the complaint.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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Tortious Interference Case Against Reinsurers Survives Motion to Dismiss

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 a recent case in Florida that is exactly what happened; at least at the motion to dismiss phase of the case.

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Reinsurance Trials Set Back by Pandemic

One year into the pandemic I thought it might be a good time to reflect on how the shutdowns have affected reinsurance trials. What, you say? A reinsurance trial? Aren’t they all arbitrated? Well, yes, most are, but not every reinsurance contract has an arbitration clause and, moreover, not every case brought against a reinsurer is a breach of contract case.

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Without Contractual Privity, Claim Against Reinsurer Fails

It happens ever so often. A policyholder will sue for coverage and will join its insurer’s reinsurer in the lawsuit. The majority rule in most US jurisdictions is that unless there is contractual privity between the policyholder and the reinsurer, a direct action is not allowed and the reinsurer will be dismissed from the case. While there are a few states that allow for direct actions against reinsurers, those typically are under special circumstances.

In most insurance arrangements, the policyholder is not aware of whatever reinsurance relationships have been entered into by its insurance company. In most reinsurance arrangements, the policyholder is not a party and the reinsurance contract typically has a provision that makes it clear that there are no third-party beneficiaries. There are, of course, exceptions to the rule, but not in a recent Florida case.

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