What happens when you enter into a fronting deal with an offshore reinsurer owned by car dealerships? Sometimes you get to go to court.
Read more: Auto Service Contract and Warranty Reinsurance Deal Results In a Default JudgmentIn Wesco Insurance Co. v. Sunfund Reinsurance Ltd., No. 653136/2024 (N.Y. Sup. Ct. N.Y. Co. Jul. 23, 2025), a cedent entered into a 100% quota share reinsurance contract with a Turks & Caicos domiciled reinsurer covering vehicle service contracts and limited warranties. The reinsurance contract required a trust fund to secure the reinsurer’s liabilities. Claims came in, the trust fund was not funded, and requests for payment of claims in excess of premium go unheeded. Some of you might have heard this story before.
The cedent brought a breach of contract action and sought a conditional dismissal for the reinsurer’s failure to comply with New York Insurance Law section 1213(c) (requiring a New York license or security to file an answer). The cedent then moved for a default judgment when the conditional order under 1213(c) was not met.
In granting the default judgment the court found that the cedent met the requirements for breach of contract and specific performance for funding the trust fund (after payment of the outstanding losses). The court also granted attorney fees (specifically allowed by the reinsurance contract) but gave a 10% haircut to the cedent’s attorney fees for block billing and a lack of detail in some of the time entries.
None of this is surprising, but there are a few things to note. If you are going to do business with a captive off-shore reinsurer you might want to have the trust fund collateralized up front before any business is written to the reinsurance contract. Second, if you want attorney fees, be reasonable and have descriptive time entries showing the value of the legal work performed. Finally, while a default judgment is nice it does not pay any bills. Now you have to collect the judgment against an off-shore undercapitalized reinsurer or chase its principals under an alter-ego theory to breach the corporate veil. That too costs money.
