The Insurance and Reinsurance Report

James J. Wrynn Featured in WRIN.tv Report on European Insurance Forum

James J. Wrynn, a partner in Goldberg Segalla’s Global Insurance Services Practice Group, was featured in coverage of the 2012 European Insurance Forum by World Risk and Insurance News (WRIN.tv). Jim was a speaker on the panel “New Global Standards of Regulation” at this international conference, held May 24-25, 2012, in Dublin, Ireland.

WRIN.tv highlighted Jim in its discussion among insurance industry leaders on the challenges and threats facing the insurance industry now and in the future. It also produced a feature focused on Jim’s commentary on threats to the insurance industry, mergers and acquisitions trends, and current regulatory challenges.

View the video clips here:

• EIF 2012 on WRIN.tv: An interview with James Wrynn, Partner at Goldberg Segalla
• EIF 2012 on WRIN.tv: Executives from XL, Aon and Goldberg Segalla discuss challenges and threats to the industry

Triable Issues Of Fact Existed Regarding Policyholder’s Detrimental Reliance On Certificate Of Flood Insurance

Witkowski v. Richard W. Endlar Ins. Agency, Inc.
(Massachusetts Court of Appeals, May 29, 2012)

In this coverage dispute, the policyholder appealed an adverse summary judgment ruling dismissing its claims arising from a flood of the Shawsheen River that destroyed multiple basement residential condominium units. After the flood, a trustee of the condominium association told the four basement unit owners that their units were excluded from coverage under the association's master policy.  Also, applicable building codes prohibited units at basement level in a special flood hazard zone from being rebuilt for the purpose of human occupancy.  The plaintiff filed suit against the agency and title insurance company that originally provided coverage.

At issue was the propriety of summary judgment entered in favor of the defendants.  As to Endlar, the plaintiff contended that he relied to his detriment on a certificate Endlar furnished prior to the plaintiff's purchase of the unit, falsely representing that the unit was covered by flood insurance. As to First American, the plaintiff contended that his inability to rebuild his unit renders title to his unit unmarketable, within the meaning of the policy of title insurance he purchased incident to his purchase of the unit.

The record revealed that it was communicated to Endlar, on the plaintiff's behalf, the need for a certificate verifying flood insurance coverage for the plaintiff's unit. In response, Endlar furnished a certificate stating that the plaintiff, as owner of unit 4, "is insured" under the master policies issued to the condominium trust including, flood insurance.  Though the certificate made clear that it is not a contract of insurance, it stated clearly that the listed policies had been issued. 

The court noted that contrary to the defendant's assertions, the certificate did not contain any express statement that the policies listed thereon are subject to any other conditions or limitations, or that the recipient should review the policies themselves in order to ascertain the scope or existence of coverage. Moreover, though the policies may have contained certain implicit qualifications or limitations, the exclusion of the plaintiff's unit from coverage entirely was a particularly dramatic limitation under the circumstances.

Further, the court held that the disclaimer that the certificate is not a contract of insurance did not derogate, by its terms or in its context, from the fact that the recipient of the certificate should be entitled to rely on its accuracy, at least concerning the issuance and existence of the policies listed thereon. Particularly in the circumstances attending the request for the certificate, Endlar was aware that the plaintiff (and his mortgage lender) required proof of flood insurance coverage on his unit, and that they would rely on the insurance certificate Endlar furnished to constitute that proof. The court noted that plaintiff's claim did not rest on a claim of contract, based on the certificate; instead it rested on the contention that the plaintiff relied to his detriment on materially false information furnished by Endlar.

As such, the court reversed summary judgment concluding that there are triable questions of fact concerning whether the certificate falsely represented that the plaintiff's unit was covered under the master condominium policies of flood insurance, and whether the plaintiff reasonably relied to his detriment on that representation.

For a copy of this decision, click here 

Thomas F. Segalla and Paul C. Steck 

Excess of Loss Facultative Reinsurance Certificate Covers Indemnity and Expenses

Ace Prop. & Cas. Ins. Co. v. R & Q Reinsurance Co.
(Pa. C.P. May 15, 2012)

The Pennsylvania Court of Common Pleas was asked to interpret the meaning of the terms “loss” and “expense” in multiple reinsurance certificates issued by defendant, a reinsurance company (hereinafter “reinsurer”), to plaintiff, a property and casualty insurance company (hereinafter “insurer”).  The reinsurer argued that the term “loss”, which is not defined in the reinsurance certificates, means indemnity only.  The insurer, on the other hand, argued that the meanings of the words were set forth in the underlying policies for which the reinsurer provided reinsurance, and that the definition therein included indemnity and expense.

The case involved a specific type of reinsurance, called facultative reinsurance, which is reinsurance for all or part of a single policy.  Under all underlying insurance policies at issue in this case, for which the insurer purchased reinsurance, the insured was sued by claimants alleging asbestos bodily injury and, in each case, the insured under each policy entered into a funding agreement with the insurer respecting the payment of such claims.  Pursuant to facultative certificates, the insurer submitted proofs of these losses to the reinsurer and sought payment for said losses as well as a declaration ensuring future payments.  The refused to pay the proofs of loss, claiming that under an “excess of loss” facultative certificate, “loss” means indemnity only.  The insurer argued that the meaning of “loss” is limited to indemnity only under circumstances in which the facultative certificate is “non-concurrent”. However, “loss” can mean indemnity and expense in other circumstances, such as under an “excess of loss” facultative certificate.

The court determined that the insurer was entitled to summary judgment as a matter of law because there was no genuine issue of material fact.  The liability of the reinsurer followed that of the insurer in the eyes of the court.  Because the reinsurer had copies of the underlying insurance policies, or at the very least had access to them, it was imputed with knowledge of the terms of those policies.  The facultative certificates at issue were “excess of loss,” as agreed upon by the contracting parties, and therefore the definition of “loss” included defense and expense costs in addition to indemnity.

For a copy of this decision, click here.

Matthew Cabral and Jeffrey Kingsley

Reinsurers on the Hook for Settlement That Arguably Included Bad Faith Claims

United States Fidelity & Guar. Co. v. American Re-Insurance Co.
N.Y. App. Div. 1st Dep’t, Jan. 24, 2012

The case arose out of litigation concerning the underlying asbestos claims spanning several decades. The Appellate Court reviewed and affirmed the lower courts Order granting the reinsured summary judgment and denying the reinsurer’s motion for summary judgment.   The reinsurance treaty involved was an excess of loss treaty with a $100,000 retention and a maximum $4.9 million payable by the reinsurers for any one loss subject to a $3 million limit for personal injury or property damage liability. The reinsurer’s refused to pay the reinsured’s claim for several reasons including the basis that the settlement included an amount for the settlement of bad faith claims which were not covered by the treaty.

The reinsurers’ argued that the lower court erred in applying the “follow the fortunes” doctrine. After a brief statement setting forth the purpose of the doctrine, the Appellate Court affirmed its applicability finding that it precluded the court’s review of the reinsured’s allocation of the loss, including any alleged bad faith claims. The court stated that the parties involved in negotiating the settlement confirmed that the settlement amount did not include costs for bad faith. Additionally, the court stated that the issue of payment for the bad faith claims was never “actually litigated” despite statements in the bankruptcy court record that the insured had “colorable claims for bad faith” and that “some portion of the $2 billion contribution to the trust was attributable to those bad faith claims.”  

The opinion drew a one judge dissent with the view that a triable issue of fact existed with regard to whether a portion of the $987.3 million was attributable to the bad faith claims not covered under the reinsurance treaty. The dissenting opinion notes the reinsured’s reliance on Peerless Ins. v. Inland Mut. Ins. for the proposition that bad faith damages are covered under the reinsurance treaty but distinguishes the cases based on the fact that the reinsurers here did not participate or acquiesce in the reinsured’s defense of the underlying action. Regardless, the dissent cites the New York Court of Appeals case, Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London for the proposition that a follow the fortunes clause does not serve to alter the terms of the contract or create coverage where none exists. The dissent points to language in the bankruptcy court opinion that clearly suggests that the court would not have approved the bankruptcy plan if it had believed that there was no payment for bad faith claims included in the settlement.

For a copy of the decision, click here.

Fallyn Reichert and Jeffrey Kingsley

Professional Liability Monthly - May Edition is Now Available

For a free copy of this month's edition of Professional Liability Month, click here.

To be added to our circulation list whereby you receive this publication for free each month via email, please contact Brian Biggie at bbiggie@goldbergsegalla.com.

Cases for Professional Liability Monthly – May 2012 Edition

Cases provided courtesy of LexisNexis.

CERTAIN UNDERWRITERS AT LLOYDS, LONDON v. TRIDUANUM FINANCIAL, INC., et al

COLONIAL FREIGHT SYS. INC. v. ADAMS & REESE, LLP

GROSS v. RELL

HIRANI ENGINEERING AND LAND SURVEYING v. MEHAR INVESTMENT GROUP

JAMES RIVER INSURANCE COMPANY v. GARCIA

LOUIS F. JEFFERSON v. WAVENY CARE CENTER, INC. ET AL.

MASSEY v. FAIR ACRES GERIATRIC CENTER

MEDICAL PROTECTIVE COMPANY v. DUMA

MEYERS v. LIVINGSTON, ADLER, PULDA, MEIKLEJOHN & KELLY, P.C.

PIN v. KRAMER

REDDING v. ESTATE OF SUGARMAN,

RIVERDALE PEAKS HOMEOWNERS ASSOCIATION, LLOYD LAND AND EILEEN LAND v. AUTO-OWNERS INSURANCE COMPANY

TRICE, GEARY & MYERS, LLC v. CAMICO MUT. INS. CO.

U.S. BANK NATIONAL ASSOCIATION v. FEDERAL INSURANCE COMPANY

Environmental Coverage Quarterly Spring 2012 is Now Available

Goldberg Segalla’s Environmental Coverage Quarterly provides summaries of and access to the latest environmental coverage developments nationwide, and is published quarterly. Cases are organized by court and date. In addition, we provide the latest information regarding news in the environmental coverage industries. For a free copy, please click here.

If you have any questions or would like to receive the newsletter via email, please contact Paul Steck at psteck@goldbergsegalla.com or Joanna M. Roberto at jroberto@goldbergsegalla.com.

Cases for Spring 2012 Environmental Coverage Quarterly

Cases provided courtesy of LexisNexis.

Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co.

Bay Farms Corp. v. Great American Alliance Ins. Co.

Egan Marine Corp. v. Great American Ins. Co. of New York

Emergency Billing v. Allstate

Figuli v. State Farm

GreatAmer v. JWRConst

Hirschhorn v. Auto-Owners Ins. Co.

Looking Good Lawns v. SecuraInsCo

National Union Fire Ins. Co. of Pittsburgh v. Everest Reinsurance Co.

Penn. Nat. Mut. Cas. Ins. Co. v. Roberts

QBE Ins. Co. v. Estes Heating & Air Conditioning, Inc.

Racetrac Petroleum, Inc. v. Ace American Ins. Co.

Scottsdale Ins. Co. v. Pursley

Scottsdale v. Village of Crestwood

Sierra Recycling & Demolition, Inc. v. Chartis Specialty Lines Ins. Co.

State Automobile Mut. Ins. Co. v. Flexdar, Inc.

Sua Ins. Co. v. S&O Invest. LLC

Sunnyside Development Co. LLC v. Chartis Specialty Insurance Co.

Travco Ins. Co. v. Ward

Universal Image Productions, Inc. v. Federal Ins. Co.

No Early Exit for Ex-AIG Executives

People v. Greenberg (N.Y. App. Div. 1st Dep’t May 8, 2012)

On March 8, 2012 New York’s Appellate Division, First Department, denied summary judgment motions filed by two former executives of American International Group, Inc. (“AIG”), ex-CEO Maurice “Hank” Greenberg and ex-CFO Howard Smith, and New York’s Attorney General (“AG”), clearing the way for the now seven-year-old case to go to trial.

The case against the two former executives alleges violations of Executive Law § 63(12) and the Martin Act, General Business Law § 352 et seq.  The case alleges statutory violations against the former executives based upon their role in fraudulent transactions designed to portray an unduly positive picture of the insurer’s loss reserves and underwriting performance.  The insurer, formerly the largest insurance company in the world, entered into a settlement agreement with the AG.  The AG and both the former executives filed summary judgment motions.  In its motion, the AG argued that the executives knew of, and participated in, two unlawful reinsurance schemes.  For their part, the executives argued that the AG’s enforcement powers under the Martin Act and Executive Law are preempted by federal law.

The trial court denied summary judgment to the executives, finding that there was no evidence that Congress intended to preempt the claims, and granted partial summary judgment to the AG based on a finding that the executives had knowledge of, and participated in, one of two challenged transactions, and that this behavior constituted violations of the Executive Law § 63(12) and General Business Law § 352-c(1)(a) and (c).  

On appeal, the First Department found that the record evidence presented triable issues of fact as to whether the executives knew of, or participated in, the fraudulent aspects of both schemes given the nature and degree of their personal involvement in both of the challenged transactions. The appeals court ruled that summary resolution of the executives’ knowledge and participation in the two challenged schemes was not determinable as a matter of law.  Therefore, partial summary judgment in favor of the AG was inappropriate.

With regard to federal preemption issue, the appeals court agreed that there was no evidence that Congress intended to preempt the claims: “[N]othing in the language or legislative history of the cited legislation indicates Congress intended to preempt this civil enforcement action under the Martin Act and the Executive Law.”  In their motions, the executives had sought dismissal of the entire suit, arguing that the AG’s case was “expressly” barred by the Securities Litigation Uniform Standards Act of 1998.  They also claimed that the suit conflicted with Congress’s intent to create a uniform federal standard for securities litigation, pointing to the Private Securities Litigation Reform Act of 1995 and the National Securities Markets Improvement Act of 1996.  However, the First Department came to the opposite conclusion, writing: “In fact, the cited statutes, their legislative histories and the case law presuppose an important role for state attorneys general in investigating fraud and bringing civil actions to enjoin wrongful conduct, vindicate the rights of those injured thereby, deter future fraud and maintain the public trust.”

 On May 14, 2012 the executives sought permission on to appeal the Third Department decision to the Court of Appeals, New York’s highest court. 

For a copy of the decision click here

Matthew Cabral and Jeffrey Kingsley

10th Circuit “Haunts” Insurer Reversing Summary Judgment in Haunted House Suit

Western World Ins. Co. v. Markel American Ins. Co. 10th Cir. (Okla.) May 8, 2012

In what may be the most fun the Tenth Circuit has had authoring an Opinion on a coverage matter, an insurer was stripped of its victory and held responsible for its share of the defense costs of the underlying action. In a must-read Opinion fraught with puns, the Court decided that an escape clause added to a commercial liability policy by an endorsement was unclear and therefore the reasonable expectations of the insured governed.

The clause at issue stated:

This insurance shall not apply to any entity that is already an insured under any other insurance provided by any company or that would be an insured but for the exhaustion of its limits of insurance.

Under the Oklahoma doctrine of equitable contribution, where two insurers cover the same risk, the loss will be apportioned so that each insurer pays its fair share of a common obligation. The co-insurer argued that the policy’s “escape clause” allowed it to escape liability in this case. The Court found that the clause was not clear in that its broad language did not clarify what “this insurance” or “any entity” refer to.

The Court also cited to the policy provision titled “Other Insurance” finding that this provision stated that the insurance policy provides primary coverage and that if another insurance policy also provides primary coverage, the two carriers will share the cost of coverage. Reading the escape clause as the insurer urged would make the “Other Insurance” provision a dead letter.

The Court found that the provision was unclear and awarded the tie to the insured using the “reasonable expectations” test. The Court stated that “Applying the reasonable expectations doctrine to this case, we have no doubt a reasonable insured in Brewer Entertainment’s shoes would have expected coverage from Markel.” After making this statement the Court acknowledged that this action involved only two co-insurers, both sophisticated parties, but stated that Oklahoma law does not currently have an exception to the “reasonable expectations” test that would allow a different standard to be applied here.

The Court reversed the grant of summary judgment to the co-insurer finding that “there is no escape for either of them” and remanded the case to determine the share of the costs that are attributable to the co-insurer.

For a copy of the decision click here

Fallyn Reichert and Sarah Delaney