Policyholder Perspective : Insurance Lawyer & Attorney : Reed Smith Law Firm : Policyholder Perspective Law Blog : Indemnity, Mergers & Acquisitions

Yesterday, the United States Supreme Court handed a win to Travelers (and indirectly to chapter 11 debtors using insurance proceeds to fund bodily injury trusts), getting Travelers out of further liability arising from its actions “related to” its role as the primary insurer of Johns-Manville. These were not suits seeking proceeds of the insurance policies issued by Travelers to Johns-Manville, but suits alleging that Travelers had an independent duty to claimants arising from its knowledge of the dangers of asbestos. 

Resting on res judicata and the finality of settlements and judgments, the Court refused to address whether the Bankruptcy Court’s 1986 Orders had exceeded its authority. That time, according to the Court, had long passed:

Almost a quarter-century after the 1986 Orders were entered, the time to prune them is over.

The Court reserved for another day (never?) the question of the proper scope of Bankruptcy Court authority in these matters: 

• Email This
• Print
• Comments
• Trackbacks

 On June 5, 2009, in response to the appeal filed by Myron Corporation, a New Jersey appellate court held that Atlantic Mutual Insurance Corp. was responsible for Myron’s counsel fees incurred in fending off Atlantic’s Illinois declaratory judgment action pursuant to NJ Rule 4:42-9(a)(6). The coverage dispute centered on defense coverage for numerous cases filed against Myron, alleging that junk faxes sent by Myron violated the Telephone Consumer Protection Act (“TCPA”). Atlantic defended Myron in the cases under a reservation of rights. After the Seventh Circuit ruled that insurance coverage was not available for TCPA claims in an unrelated case [Am. States Ins. Co. v. Capital Assoc. of Jackson County, Inc.], Atlantic decided it was a good time to file a DJ action against Myron in Illinois federal court. 

The problem with this brilliant strategy was that, as the Illinois court wrote, dismissing the case: “a New Jersey court has the greatest interest in resolving an insurance coverage dispute arising from policies which appear to have been issued in New Jersey to a New Jersey corporation with its principal place of business in New Jersey.” Once in the hands of a New Jersey court, Atlantic lost. The court held that Atlantic owed a defense to Myron for the TCPA cases. The parties then settled, except on the issue of whether Myron was entitled to counsel fees for both the New Jersey and Illinois insurance coverage litigations under NJ Rule 4:42-9(a)(6). 

Things didn’t improve for Atlantic on appeal:

We agree with Myron that, unless the insured can recover its counsel fees for out-of-state litigation in this situation, an insurer could wear down the insured financially through forum-shopping. In this case, there is no doubt that Atlantic filed its action in Illinois to take advantage of a favorable Seventh Circuit ruling on coverage. While this may have been good legal strategy from Atlantic's point of view, it imposed costs on Myron to fight its way out of what the Illinois court found was an inappropriate forum, and to get the case back into an appropriate venue.

• Email This
• Print
• Comments
• Trackbacks

Because this is a policyholder blog, you might think this is an odd question since RREs are usually insurers or TPAs; but the fact is that most large corporate policyholders probably are RREs ― not just for worker’s comp claims, but for tort claims as well. 

MMSEA-111 [Medicare Secondary Payer Mandatory Reporting Provisions in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (See 42 U.S.C. 1395y(b)(7) & (b)(8))] is designed to give the government the information it needs to collect on Medicare liens against, among other things, tort settlements and awards. For those of you who have no idea of what I’m talking about, the excruciating backstory of these rules can be found Here and Here. The government’s pathway into an abyss of Orwellian proportions can be found Here and download links Here . And, just so your attention doesn’t wander, the fines for non-compliance are $1,000 per day per claimant. 

The key passage to determining who is an RRE in the 180-page MMSEA-111 guide is found on page 56:

• Email This
• Print
• Comments
• Trackbacks (1)

This post was written by Paul Walker-Bright.

On June 17, 2009, the Department of the Treasury released its “white paper” detailing proposals for comprehensive reform of financial industry regulation, entitled “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” The entire report can be found here. Among the reforms advocated by the Treasury Department is the creation of an Office of National Insurance within the Department. Treasury, which would “gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.”

• Email This
• Print
• Comments
• Trackbacks

This post was written by Douglas R. Widin.

Recently, the Court of Appeals for the Third Circuit decided Nationwide Mutual Insurance v. CPB International, Docket No. 07-4772 (April 14, 2009). CPB supplied chondroitin to Rexall for use in compounding tablets, including chondroitin and glucosamine. CPB supplied two batches of chondroitin that turned out to fall short of contractual specifications and to contain impurities. By the time these defects were discovered, Rexall had already compounded the CPB-supplied material with glucosamine, so that both compounds had become useless.

In the lawsuit that ensued, Rexall brought a claim for breach of contract against CPB seeking return of the purchase price it had paid for the first batch, and also seeking consequential damages for the damage to the glucosamine and economic losses. CPB tendered that claim to its CGL carrier, Nationwide, which defended under a reservation of rights and also brought a declaratory judgment action to avoid any duty to defend or indemnify.

The Third Circuit held in favor of Nationwide and discharged it from any coverage obligations.

• Email This
• Print
• Comments
• Trackbacks

This post was written by Douglas R. Widin.

On April 22 , 2009, the Appellate Division of the New Jersey Superior Court published its March 9, 2009 opinion holding that the massive Aug. 13, 2003 electrical blackout of the eastern United States and portions of Canada inflicted “property damage” sufficient to support a property insurance claim. The court held that the loss of functionality that resulted when protective safety equipment shut down the power grid and caused the blackout of August 2003 qualified as “physical damage” for property insurance purposes. See Wakefern Food Corporation v. Liberty Mutual Fire Insurance Company, No. A-2010-07T3 slip op (March 9, 2009). As a result, insurers were not entitled to summary judgment in their favor on Wakefern’s claims for food spoilage and business interruption at their supermarkets resulting from the blackout.

• Email This
• Print
• Comments
• Trackbacks

Felix Salmon reads the tea leaves left by Warren Buffet and concludes that the already disastrous monoline situation is unlikely to improve any time soon. Money quote: 

Given all these reasons to buy bonds rather than insure them, I do wonder what’s going to happen to the monoline market. Historically, it’s been a license to print money — but it might be a very long time before it re-emerges.

Read his entire post Here.

Remember, when Buffett’s Berkshire Hathaway Assurance Corp. rode in to rescue the imploding monoline municipal bond insurance market at the request of the NY Insurance Department?  Now, after little more than a year in the business, Buffett wants out .

• Email This
• Print
• Comments
• Trackbacks

For those of you interested in the role of regulators in the implosion of AIG [see prior posts Here and Here,] Planet Money (an award-winning joint project of NPR News and This American Life) had a fascinating program this past weekend: “The Watchmen”. Although it has already aired, it is available to listen to on-line or for download Here. The NPR News story is available Here.

The Office of Thrift Supervision comes in for the brunt of the criticism. Although I think they got it mostly right, IMHO they let the state insurance regulators off too easy. They were responsible for securities lending and didn’t stop it.  

My favorite part is the tape of Supt. Dinallo and a bunch of assistants trying to figure out what proportion of AIG’s assets were regulated by the New York Insurance Department. The answer? 7 percent (ish).

• Email This
• Print
• Comments
• Trackbacks

As Travelers takes AIG’s spot in the Dow Jones Industrial Average, or rather Dow Jones Non-Industrial Average take a moment to check out the path of the iconic red umbrella as it passed from Travelers to Citibank (ironically, Travelers former parent also exiting the Dow) and back again. 

• Email This
• Print
• Comments
• Trackbacks

A dozen years after asbestos and environmental liabilities of U.S. companies led to the downfall of Lloyds’, London is again in the center of the liability insurance world—this time as the location for many insurance arbitrations over coverage for product and toxic tort liabilities. Foreign insurers insist upon arbitrating coverage disputes in London to avoid having their contractual obligations decided in the U.S. courts, where rulings in the 1980s and 1990s resulted in billions of dollars in insurance coverage awards and settlements for corporate America and asbestos trust funds. American companies need to be prepared for this new reality.

• Email This
• Print
• Comments
• Trackbacks

Finally, we can all rest easy. AON is taking over the Manchester United shirt sponsorship rights from AIG, starting in 2010. According to Reuters:

The deal represents a coup for Aon, which has secured one of the most prestigious advertising deals in sport with United's huge global fan base making them one of the top prizes in sports sponsorship.

Click here for full story.

• Email This
• Print
• Comments
• Trackbacks

Bloomberg News yesterday carried a report of a court filing alleging that AIG reported a claimant to Homeland Security in order to avoid paying a verdict that now amounts, with interest, to $3 million. 

The worker, Aleksander Janda, was arrested today on charges related to using someone else’s Social Security number, including identity theft, said Helen Peterson, a spokeswoman for Queens District Attorney Richard Brown. In February, Janda won the $2.7 million jury verdict from a property owner for an injury he received after falling 12 feet onto a cement floor while working. In a letter last month, a lawyer for Janda told the judge that AIG contacted Queens prosecutors to get Janda arrested and deported. AIG is the insurer for the property owner.

“It was AIG who contacted the Queens District Attorney’s office and the U.S. Department of Homeland Security in an effort to have the plaintiff arrested on criminal charges and then deported,” the worker’s lawyer, Brett J. Nomberg of Brand Brand Nomberg & Rosenbaum LLP in New York, wrote May 29 to the state court judge in charge of the case, Bernice D. Siegal.

Marie Ali, an AIG spokeswoman, declined to comment.

After the Feb. 17 verdict, the property owner asked the judge to set aside the award and order a new trial, Nomberg said in a phone interview. If Janda is deported, he won’t be able to appear at the new trial, Nomberg said.

Click here for full story.

• Email This
• Print
• Comments
• Trackbacks

This post was written by John B. Berringer and Michael N. DiCanio.

Policyholders and their counsel should check out a May 27 ruling denying summary judgment to the insurance company defendants in Bray & Gillespie IX, LLC v. Hartford Fire Insurance Co., et ano. In the B&G decision, a magistrate judge in the Middle District of Florida relied in part on the so-called Broad Evidence Rule. Under that rule, any evidence logically tending to establish a correct estimate of the value of damaged or destroyed property may be considered by the trier of fact to determine “actual cash value” at the time of the loss. This means that replacement cost, wholesale cost, a contractor’s estimate, even the owner’s own testimony, are among the many types of evidence that a jury could consider to determine “actual cash value.” The judge in the B&G case characterized the Broad Evidence Rule as a “liberal admissibility standard.”

In the same decision, the magistrate judge suggested that a much tougher evidentiary standard must be met by an insurance company alleging fraud or misrepresentation by a policyholder. 

• Email This
• Print
• Comments
• Trackbacks

This post was written by Ann Kramer and Paul Walker-Bright.

By now most of us have received notices of the Equitas-Speyford Part VII transfer. A court hearing to approve the transaction will take place in London on June 24^th and the transaction is to take effect on the 30^th of June. The letter asks policyholders to set forth any objections by June 9^th: “If you intend to make written representations and/or appear at the Court hearing, either in person or by Counsel, you are requested to provide the written representations or written notice of your intention to appear at Court and details of your concerns as soon as possible, and preferably by no later than 9 June 2009.”

The Names seemingly are the big winners from this deal, although policyholders will get the benefit of an additional $1.3 billion in reinsurance limits from Berkshire Hathaway’s National Indemnity Company. 

Hugh Stevenson, Equitas chairman, said: “This transfer and reinsurance will … mean that the Names will finally be able to walk away under English law.

“We would like to say to the Names that as best we can judge you no longer have to worry.”

According to Equitas’ letter to the Names advocating the transaction:

In the very unlikely event that Equitas subsequently becomes insolvent, no policyholder with an unsatisfied claim will be able to recover it from any Name anywhere in the European Economic Area – that is all of the European Union, together with Iceland,Norway and Liechtenstein.

We are still considering the extent to which it is practicable to seek recognition of the Part VII transfer in other major overseas jurisdictions, in particular the United States of America.

The independent actuary’s report ― of course, with none of the underlying data available for review ― says that policyholders will be better off with the additional reinsurance than with access to the Names. However, policyholders have (a) no way to verify that the reserve level for pending and future claims is adequate and (b) no valuation of the assets of the Names that they are being asked to give up their rights to. 

So if we assume, as the independent actuary asks us to, that the impact of this on policyholders is more theoretical than real [Which policyholders have the appetite to go after the Names individually?], what is the harm? 

Think about the next step for Speyford. Under UK law, the Names, and hence Equitas, could not implement a Solvent Scheme of Arrangement (a unique process to shut down solvent insurance companies permitted only by the UK). Speyford, on the other hand, can. The pull to do a Solvent Scheme will likely become irresistible, and indeed there appears to be no reason for the proposed transfer other than to clear the way for an eventual Solvent Scheme. Equitas claims that it has no present plans to do a Scheme but will not promise not to do one.

The advent of a solvent scheme for Speyford is when policyholders with large IBNR {incurred but not reported) claims will be really devastated. The valuations of IBNR under both solvent and insolvent schemes of arrangements ― with no realistic appeal rights ― often pitifully undervalue the risks that policyholders assume when these schemes wipe out policyholder rights under policies purchased decades earlier. Coverage that cannot be replaced. This process was bad enough when it happened with individual London Market companies, but think about it writ large, across the millions of Lloyd’s policies sold prior to 1993. 

• Email This
• Print
• Comments
• Trackbacks