Reinsurance agreements with non-US off-shore reinsurers usually involve a reinsurance trust with a bank acting as trustee. These trust agreements typically absolve the trustee from nearly all liability because of their ministerial role in the reinsurance transaction. This is very common in off-shore life, annuity and long-term care reinsurance agreements.

In the last several years, however, trustees have come under scrutiny because some off-shore reinsurers were not quite on the up-and-up and the assets placed in the trust accounts and managed by the reinsurers’ affiliated investment managers have been substandard. This, of course, has caused the reinsurance arrangement to collapse, regulatory issues and often the total loss of the assets meant to secure the cedent’s losses. Because these reinsurers typically do not have assets on shore, some of their cedents have gone after the trustees seeking damages.

In a recent case in New York State court, the motion court granted the trustee’s motion to dismiss but the intermediate appellate court found otherwise and reversed.

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