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What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

March 20th, 2014 Claims Handling, Contract Interpretation, New York Court of Appeals, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part III.A

Continental Casualty Co. v. Stronghold Ins. Co.: Background

In Part II (here) we reviewed New York law pertinent to express conditions and how they can delay the accrual of the statute of limitations if the plaintiff has not satisfied them.

Now let’s turn to the U.S. Court of Appeals for the Second Circuit’s decision in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996), a case that features a fairly comprehensive recitation of New York’s reinsurance-related statute-of-limitations accrual rules as they existed in 1996, but did not apply New York’s express-condition rules consistently with controlling, New York Court of Appeals authority. This Part III.A summarizes what transpired in Stronghold and Part III.B will explain why we think the case not correctly decided.

The Stronghold Facts

Stronghold was a dispute between a United States cedent (the “Cedent”) and its London-Market reinsurers (the “London Reinsurers”) that arose under certain excess-of-loss treaties reinsuring medical malpractice liability policies the Cedent had issued to its hospital insureds.

In the 1980s the Cedent settled several medical malpractice liability claims on behalf of its insureds, but did not notify London Reinsurers of the underlying losses that resulted in the settlements, or present their reinsurance claims to the London Reinsurers, until sometime after the underlying claims were settled. The record apparently did not specify the date or dates on which the Cedent first notified the London Reinsurers of the settlements and demanded payment from the London Reinsurers.

The excess-of-loss treaties (the “Reinsurance Contracts”) provided that the London Reinsurers were “liable only for the excess of loss” incurred by the Cedent in excess of specified retentions of “ultimate net loss.” The contracts defined “ultimate net loss,” as “the sums actually paid in cash in settlement of losses [for] which [the Cedent] is liable.” They also featured notice of loss provisions that said “Loss, if any, under” a policy is “to be reported to [the London Reinsurers] as soon as practicable.”

The London Reinsurers denied each of the reinsurance claims during the period 1987-1990, and in 1991 the Cedent commenced an action for breach of contract in the United States District Court for the Southern District of New York. The London Reinsurers defended on late notice and statute-of-limitations grounds.

As respects the date on which the statute of limitations began to run on each reinsurance claim, the London Reinsurers argued that each claim accrued when the Cedent settled the claim with its insured. Each claim was settled more than six years before the Cedent commenced its action. According to the London Reinsurers, the Cedent was entitled to indemnity immediately upon payment of each settlement, even thought it did not demand payment from the London Reinsurers until a much later date. Alternatively, the London Reinsurers argued that even if their indemnity obligation was conditioned on the Cedent’s presentation of a reinsurance claim for payment,  each of the Cedent’s individual breach of contract of contract claims accrued on the date it became entitled to demand payment from the London Reinsurers, and that occurred each time the Cedent settled an underlying claim.

The Cedent argued that the claims accrued when the London Reinsurers allegedly breached the reinsurance contracts by refusing to pay the claims. Since the London Reinsurers did not refuse to pay the claims any earlier than 1987, and the Cedent commenced its lawsuit in 1991, the lawsuit would not be barred by the statute of limitation under the Cedent’s date-of-accrual theory.

Back in 1991, as some readers may recall, the New York Court of Appeals had not yet decided whether a reinsurer could successfully defend on late notice grounds without establishing prejudice. But in 1992, the London Reinsurers’ litigation strategy was dealt a painful blow when the New York Court of Appeals held, in Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576 (1992), that unless a late notice provision expressly conditions a reinsurer’s liability for the claim on timely notice—i.e., the late notice provision is an express condition, not simply a promise—a reinsurer must establish prejudice to be relieved of liability based on the cedent’s failure to provide timely notice of a claim or occurrence.

Answering a question certified to it by the United States Court of Appeals for the Second Circuit, New York’s highest Court explained that, to be express conditions, contractual provisions must unambiguously evidence the parties’ intent to make performance of a duty conditional.[1] The New York Court of Appeals also held that the notice provision before it—which required “[p]rompt notice . . . of any occurrence or accident which appears likely to involve this reinsurance’”—was not an express condition, and that accordingly, the reinsurer in that case could not be relieved of liability for the cedent’s late notice of the loss or losses sustained and reported by the insureds, unless the reinsurer could prove it suffered prejudice as a result of the late notice.

Not too long after the New York Court of Appeals’ landmark reinsurance-law decision answering the Second Circuit’s certified question, the Second Circuit issued its own landmark decision in the Unigard case, holding, among other things, that the reinsurers were unable to establish either prejudice—i.e., “economic injury”—resulting from late notice or that the cedent acted in bad faith in failing to provide timely notice (which would have relieved the reinsurer from liability even without a showing of prejudice).[2]

The London Reinsurers apparently concluded that they could not establish the requisite prejudice to prevail on their late notice defense, a decision which apparently prompted the parties to enter into a stipulation designed to facilitate summary judgment on the merits in favor of one party or the other on the statute of limitations issue. To that end the London Reinsurers agreed to waive their late notice and all other defenses other than statute of limitations, and stipulated with the Cedent that: (a) New York law governed; (b) New York’s six-year statute of limitations applied; (c) the Cedent satisfied all conditions of the Reinsurance Contracts; (d) the Cedent had settled its claims with its insureds more than six years prior to commencing the action; and (e) the Cedent had commenced the action within six-years of the London Reinsurers’ earliest denial of any of the claims.

The parties cross-moved for summary judgment, and the district court ruled in favor of the Cedent, holding that no breach of the Reinsurance Contracts occurred until the London Reinsurers refused to pay the Cedent’s claims. The district court granted summary judgment in favor of the Cedent, holding that the Cedent’s causes of action did not accrue until the London Reinsurers denied the Cedent’s claims.

The London Reinsurers appealed to the United States Court of Appeals for the Second Circuit, which affirmed the district court’s judgment. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

March 4th, 2014 Claims Handling, Contract Interpretation, Internal Controls, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Arbitration, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part II

In Part I (here) we determined the probable success of Reinsurer R’s motion to dismiss turns on whether the reinsurance contract expressly makes Cedent C’s presentation of claims a condition precedent to R’s obligation to pay them.  This Part II discusses in some detail New York law pertinent to contract statute-of-limitations accrual as it existed both before and after the Second Circuit’s 1996 decision in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2nd Cir. 1996), and before the New York Court of Appeals decided Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 771 (2012).

Parts III and IV will discuss Stronghold and Hahn in some detail, and explain why we believe Stronghold misapplied New York law by concluding that the reinsurance contract before it expressly conditioned the reinsurers’ obligation to pay on the cedent presenting claims for payment. This Part II provides readers with the background required to understand better why we think that is so. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

February 24th, 2014 Claims Handling, Contract Interpretation, Internal Controls, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part I

Wendy “Bulldog” Worrylittle is a partner in a New York City law firm who has just landed her first reinsurance case. Her client, Cedent C, an insurance company domiciled and licensed to do business in New York, told her that the case involves a single excess-of-loss contract between C and participants in a reinsurance pool fronted by Reinsurer R, which is domiciled in Delaware and has its principal place of business in South Carolina. The reinsurance contract does not contain an arbitration agreement, but provides that “New York shall govern this contract,” and that R consents to personal jurisdiction in any court of competent jurisdiction in New York State.

The dispute concerns three reinsurance claims, which R has not paid. Each arose out of C’s settlements with three of  its insureds, each one of which had commenced a declaratory judgment action against C seeking a declaration of coverage for asbestos or environmental property damage or bodily injury claims brought by third parties. Cedent C tells Wendy that each of the claims was billed a month or so shy of six-years ago, the parties negotiated for a few years and R subsequently informed C in writing that it rejected the claims as presented.

Cedent C asks Wendy to commence an action against R in the United States District Court for the Southern District of New York. Wendy notes that a statute-of-limitations issue may be looming, as she recalls that New York’s statute of limitations for a breach of contract claim is six years and that it runs from the date of the breach. In light of the potential statute-of-limitations problem, she quickly confirms her understanding outline.

Based on what she remembers and has confirmed about the statute of limitations, and on her limited knowledge of the facts, she reasons that, because the reinsurance contract expressly contemplates that C will present claims through a reinsurance intermediary, the statute of limitations cannot have begun to run at any time prior to C billing R. She does not consider whether the statute of limitations might have begun to run at any earlier time, because R could not have breached the contract at any time prior to C presenting the claims, let alone giving R an opportunity to decide whether to pay them.

So Wendy files and serves C’s complaint within the six-year period as measured from the dates on which C presented the claims. Upon the deadline for responding to the complaint, Reinsurer R, represented by Karen “Cardozo” Iknowlaw, files not an answer but a motion to dismiss on the ground that C’s claims are time barred. Before reading the papers, Wendy’s all-to-quick temper flares and she vows to seek sanctions against Karen, who, in Wendy’s view, obviously knows nothing about the law, let alone the facts.

Is Reinsurer R’s Motion to Dismiss Well-founded?

Wendy quite correctly concluded that C’s suit is for breach of contract and that New York’s breach-of -contract statute of limitations is six years, which is ordinarily calculated from the date of breach.[1] But her analysis was off the mark because she did not ascertain and analyze all the potentially relevant facts and law.

Although as a general rule the contract statute of limitations begins to run at the time of the breach, there is an exception that is particularly pertinent in the reinsurance context, and which is somewhat counterintuitive. Recall that C billed R for the claims nearly six years ago. Wendy’s client did not mention, and Wendy did not ask about, the dates on which the claims were settled and the corresponding dates by which C could reasonably have been expected to present each claim to R. Wendy apparently did not consider this information relevant to the statute of limitations issue, but it can be outcome determinative of it. Continue Reading »

HARRISMARTIN REINSURANCE SUMMIT: FRESH PERSPECTIVES ON THE REINSURANCE FRONT

August 22nd, 2011 Arbitration Practice and Procedure, Events, Reinsurance Arbitration, Reinsurance Claims, Reinsurance Mediation Comments Off on HARRISMARTIN REINSURANCE SUMMIT: FRESH PERSPECTIVES ON THE REINSURANCE FRONT

The frequency of reinsurance disputes, like most things in the insurance industry, is cyclical in nature, and over the last three or four years or so, the number of new disputes each year has declined fairly significantly compared to 1990 through 2005 levels.  I don’t have statistics to back that statement up, but it is informed by personal experience and numerous discussions with industry participants and their service providers.

Reduced dispute frequency is good news for the industry, but it doesn’t mean that industry executives should assume that reinsurance disputes are a thing of the past, ignore important developments that bear on their resolution, or become less proactive in their efforts to prevent them.  Keeping apprised of recent, pertinent reinsurance- and dispute-resolution-related legal, regulatory and economic developments is particularly important today, because there have been – and will likely continue to be – many that may bear on the nature and frequency of future reinsurance disputes.

To that end, a number of experienced industry executives and  in-house counsel, and a small group of outside counsel, have joined forces with HarrisMartin Publishing to put together a two-day conference designed to survey important, recent developments concerning reinsurance and reinsurance dispute resolution.  The conference — entitled “Reinsurance Summit:  Fresh Perspectives on the Reinsurance Front” — is scheduled to take place at the Lowes Philadelphia Hotel on September 22-23, 2011. Continue Reading »

LinkedIn’s Reinsurance Claims Group is 100 Members Strong!

August 24th, 2010 Reinsurance Claims, Reinsurance Claims Group, Reinsurance Social Media Comments Off on LinkedIn’s Reinsurance Claims Group is 100 Members Strong!

 On July 30, 2010 we announced the formation of LinkedIn’s Reinsurance Claims group. (Post here)  On August 14, 2010 we introduced the co-managers of the group:  Nigel Shepherd, Robert Bear, Marc Lanzkowsky, Theresa Hajost, Bill Hook and me.  (Post here)  Today we are happy to report that we admitted our 100th member after having been in existence for less than one month!

The group actively discusses issues concerning U.S. and international ceded and assumed reinsurance claims.  It enables members to share information; discuss and debate issues; access a number of excellent reinsurance- and insurance-related blogs; and network with others in the domestic and international reinsurance community.  

The group welcomes new members, and encourages (but does not require) active participation.  The only requirement for membership is a bona fide interest in reinsurance claims.  The group is not a forum for, and does not permit, advertising or blatant self-promotion, so our members need not be concerned about being subject to sales pitches and the like. 

If you are already a member of LinkedIn, please click here to apply for membership in the group.  If you are not a LinkedIn member, please click here and you will be guided through the process of creating a profile (which does not need to be completed in one step).  Once your profile is started, and you have a user name and password, you can click here to apply for membership in the group.  Joining LinkedIn is free, as is joining the group.

We look forward to meeting you online!

[Editor’s Note:  If you are also interested in reinsurance and other types of arbitration and mediation, then we invite you to join LinkedIn’s Commercial and Industry Arbitration and Mediation Group, which is now over 900 members strong.  (Post here, which contains information on how to join.)]

Meet the Reinsurance Claims Group Co-Managers

August 14th, 2010 ADR Social Media, Reinsurance Claims Comments Off on Meet the Reinsurance Claims Group Co-Managers

On July 30, 2010 we announced the formation of LinkedIn’s Reinsurance Claims group, which is a forum for the discussion of issues concerning U.S. and international ceded and assumed reinsurance claims.  (Post here)  We would like to introduce the co-managers of the group:  Nigel Shepherd, Robert Bear, Marc Lanzkowsky, Theresa Hajost, Bill Hook and me.  It is an honor to work with such a talented and professionally diverse group of people, and their commitment to the group bodes well for its success.    

But there is more.  Every one of these people is a great human being that is a pleasure to know and with whom it is a privilege to collaborate.  All are readily approachable and willing to share freely their impressive knowledge, skills and experience.  And that is what makes for a great Web 2.0 discussion and networking group.     Continue Reading »

Reinsurance Nuts & Bolts: What is an Aggregate Extraction Clause?

August 10th, 2010 Accumulation of Loss, Aggregate Cover, Nuts & Bolts, Nuts & Bolts: Reinsurance, Reinsurance Allocation, Reinsurance Claims Comments Off on Reinsurance Nuts & Bolts: What is an Aggregate Extraction Clause?

A.   Introduction

Over a year ago we ran a Reinsurance Nuts & Bolts feature entitled “Aggregate Extension Clauses”  (here).  To our considerable surprise, that article was, and remains, one of our more popular ones. 

At the close of the article we said (tongue in cheek):  “If you, the reader, have gotten this far, then perhaps you would like to delve into a discussion of ‘Aggregate Extraction Clauses.’  But these clauses – which conjure up some of the more frightening scenes from Marathon Man (1976) – are better left for another day.  .  .  . ”  Brace yourselves, for we fear that day has arrived.  .  .  .       Continue Reading »

Announcing a New LinkedIn Group: Reinsurance Claims

July 30th, 2010 ADR Social Media, Reinsurance Claims, Reinsurance Social Media Comments Off on Announcing a New LinkedIn Group: Reinsurance Claims

Readers know that I own and co-manage with other ADR professionals LinkedIn’s Commercial and Industry Arbitration and Mediation Group.  (See most recent post here.)   For some time, however, I have been planning to start a LinkedIn group that focused on reinsurance-related matters, and on July 28, 2010, my good friends Nigel Shepherd and Robert Bear and I took the plunge and formed Reinsurance Claims. 

After being in existence for only two days, the group has grown to 38 members, and our good friends Marc Lanzkowsky, Theresa Hajost and George Simpson, IV have  graciously agreed to join Nigel, Robert and me on the co-management team.  We intend to publish a shortly an article discussing the backgrounds and credentials of our very talented and diverse team. 

The group is a forum for the open discussion of issues and sharing of information concerning ceded and assumed reinsurance claims in the U.S. and overseas markets.  Topics of discussion may include, but are not limited to the presentation, adjustment, processing, settlement and payment of ceded and assumed reinsurance claims; claims dispute resolution, including litigation, arbitration, mediation and other forms of ADR; commutation; handling claims for a company in run-off; handling claims for an active writer; collections, including collections from companies in run off; comparative claims practices and procedures (e.g., London versus U.S. market); claims issues pertinent to insurance insolvencies; and coordination between the claims department and other departments of the company.  The group welcomes members from both the U.S. and international community.

Persons who should consider joining the group include in-house claims professionals; in-house and outside counsel; claims consultants and experts; actuaries; reinsurance arbitrators and mediators; brokers with claims responsibilities; and anyone genuinely interested in learning more about the subject.  The purpose of the group is information sharing and professional networking.  

The group welcomes new members, and encourages (but does not require) active participation.  The only requirement for membership is a bona fide interest in reinsurance claims.  The group is not a forum for, and does not permit, advertising or blatant self-promotion, so our members need not be concerned about being subject to sales pitches and the like. 

If you are already a member of LinkedIn, please click here to apply for membership in the group.  If you are not a LinkedIn member, click here, and you will be guided through the process of creating a profile (which does not need to be completed in one step).  Once your profile is started, and you have a log-in name and password, you can click here to apply for membership in the group.  Joining LinkedIn is free, as is joining the group. 

We hope you’ll join up!

The Great Debate Over Written Claims Guidelines and Procedures

February 18th, 2010 Asbestos-Related Claims, Bad Faith, Claims Guidelines and Procedures, Claims Handling, Claims Spot, Environmental Contamination Claims, Internal Controls, Late Notice, Reinsurance Claims, Utmost Good Faith 1 Comment »

Our friend and fellow Long Islander Marc Lanzkowsky, Founder and Principal of Lanzko Consulting, Inc., recently launched the blog Claims Spot, which discusses and comments on direct, excess and reinsurance-related claims issues.  Marc has done a great job with Claims Spot and, not surprisingly, his blog is drawing some heavy traffic. 

A controversial issue that Marc has been covering is whether or not insurance companies should have in place written claims guidelines and procedures.  One school of thought is fearful of their use (or abuse) by insureds in coverage actions.  For example, a company employee might mistakenly not follow written guidelines and procedures in the course of handling a claim, and a dispute might arise as a result.  The insured will legitimately be able to argue  that the company’s handling of the claim did not comply with its own guidelines and procedures, and that, accordingly, the company mishandled the claim.  Proponents of this view will say that having claims guidelines and procedures is fine as long as they are merely aspirational and not in writing. 

Others advocate the “damned if you do, damned if you don’t” view.  If a large, professional insurer has no written guidelines and procedures, then the insured’s refrain in a coverage or bad faith action will be that the company is grossly negligent because it lacks the internal or external controls necessary to regulate a very significant portion of its business operations.   But if the company has written claims guidelines and procedures, then surely they will come back to haunt it in the event of litigation.  

Others, including Marc, believe the benefits associated with well-drafted and carefully considered claims guidelines and procedures outweigh the costs associated with formulating and implementing them, and, more importantly, whatever costs might be incurred by the insured’s potential use or abuse of the procedures in the event of a dispute.  Drawing on his experience as a lawyer and a claims executive for two major insurance companies, Marc offers assistance to companies that are interested in implementing written claims guidelines and procedures or improving existing ones. 

Marc recently brought the discussion up to the reinsurance level in his post, “Absence of Procedures to Notify Reinsurance is a Basis for Bad Faith.”   He was kind enough to mention what inspired his thoughtful post — an interesting discussion he and I had about the subject not long ago over a delicious sushi and bento box lunch at Misaki — Manhasset, New York’s best (and only) Japanese restaurant. 

As Marc points out there has been law in the Second Circuit for some time stating that a ceding company’s failure to have in place procedures for notifying reinsurers of claims can constitute bad faith, which may relieve a reinsurer of liability for a late-noticed claim without any showing of prejudice.    That is a pretty good argument for having in place written, ceded-claims handling procedures designed to ensure timely notice to reinsurers.    

In the reinsurance-late-notice context the cost-benefit analysis is probably less challenging than it might be in the direct-insurance-bad-faith context.  If the ceding company does not have in place written guidelines and procedures, and cannot establish by credible and consistent testimony the existence of unwritten guidelines and procedures, then, at least in a case pending in court (as opposed to arbitration), the reinsurer may get a “pass” on a claim based on late notice without any showing of prejudice.  (Prejudice has been defined as “tangible economic injury.”)

On the other hand, if the ceding company has written procedures in place, but they are not followed in a given case, then that, in conjunction with other evidence, may establish that notice was late.  But the reinsurer still has to show prejudice to be relieved of liability.   

So in our hypothetical, counsel for the reinsurer may be able to make some hay at a deposition concerning the cedent’s failure to follow its own guidelines and procedures.  But points scored at depositions can be (and in this case are) ephemeral:  without evidence of prejudice, failure to comply with the guidelines is, for all practical purposes, irrelevant.  

In this day and age of internal controls and corporate responsibility, it seems to us that appropriate written claims guidelines and procedures can benefit insurers, cedents and reinsurers, provided they are carefully drafted, implemented and managed.  We offer the following, very general and non-exclusive list of things companies might consider:   

1.  If written claims procedures are to be adopted and implemented they should be carefully prepared by claims experts and reviewed by experienced counsel.   Poorly drafted and ill-conceived written claims procedures are probably worse than none at all. 

2. Careful thought should be given to privilege issues associated with in-house or outside attorney review of draft guidelines and the involvement of counsel in other aspects of the drafting and implementation process.   The process should be carefully managed and attention should be paid to the company’s document retention policies as respects the maintenance or destruction of drafts.   Remember, in a future litigation or arbitration the insured’s attorneys will likely request prior drafts and depositions of all involved in the preparation and implementation process.  While the insured may or may not be successful in obtaining all the discovery it seeks, it will likely get at least some of it.  

3.  Written claims procedures should be drafted to confer upon claims personnel an appropriate degree of discretion where such discretion is appropriate.   Locking adjusters into particular claims positions without regard to the facts, circumstances and practical realities can cause a myriad of problems. 

4.  To the extent claims procedures provide a certain period of time within which a particular action must be taken, and to the extent that the period is not an inflexible one provided by law or contract, flexibility should be built in to account for minor delays caused by special circumstances or the press of business.   

5.  If written claims guidelines and procedures are to be adopted, the company should ensure claims personnel take them very seriously and do their best to abide by them at all times.   

6.  Written claims procedures should be subject to periodic review by in-house counsel and the claims department to ensure that they comply with current legislation and recent case law developments. 

7.  Outside counsel handling coverage or other, claims-related matters for the company should keep the company’s general counsel apprised of any problems that might be caused or exacerbated by written guidelines and procedures.  

Some Helpful Rules and Tips for Policyholders and Cedents Courtesy of Settlement Perspectives

December 15th, 2009 Commercial and Industry Arbitration and Mediation Group, Follow-the-Settlements/Follow-the Fortunes, General, Negotiation, Reinsurance Allocation, Reinsurance Claims 1 Comment »

Our friend, colleague and fellow Commercial and Industry Arbitration and Mediation Group member, John DeGroote, has written and published in his Settlement Perspectives blog an excellent article offering some very practical and sound guidance to corporate policyholders who are confronted with litigation that may fall within the scope of their liability insurance, and who desire to increase the odds of securing coverage.   John, who is President, Chief Legal Officer and Secretary of management and technology consulting firm BearingPoint, Inc. (formerly KPMG Consulting), was kind enough to seek our input on the article.  It is entitled Insurance Coverage: 4 Rules and 10 Tips for Policyholders, and features a link to a longer, more detailed article John co-wrote on the same subject for an Association of Corporate Counsel  (“ACC”) publication. 

When I read John’s draft the first thing that struck me was that the rules and tips he offers are, for all intents and purposes, applicable to cedents pursuing reinsurance recoveries.  He stresses, among other things, the importance of honesty, good faith, open communication and not colluding with the claimant in an effort to obtain coverage.  These attributes are ones to which diligent, ceded claims personnel should aspire in their dealings with their company’s reinsurers, because they tend to increase the odds of achieving a successful recovery and avoiding time-consuming and expensive reinsurance disputes (all other things being equal). 

John was also kind enough to quote my comments in his article, which are reproduced below: 

As I discussed these rules with Philip J. Loree Jr. at the Loree Reinsurance and Arbitration Law Forum the other day, I learned that they don’t only apply to policyholders –  apparently insurers must live by these same rules to collect from their reinsurers:

You would be surprised how frequently reinsurers contend that the carrier colluded with the policyholder in direct insurance coverage litigation.  If the reinsurer can establish collusion concerning the fact, amount or allocation of coverage, or if the reinsurer otherwise shows that the carrier acted in bad faith, then the reinsurer will usually be relieved of liability for the claim.  Like policyholders making direct insurance claims, carriers making reinsurance claims need to avoid even the appearance of collusion or bad faith, and following rules analogous to yours helps them do that.

Whether you happen to be a corporate or individual policyholder, or a cedent wishing to increase the odds of successfully collecting from reinsurers, John’s fine article comes highly recommended.   In fact if you are at all interested in settlement and ADR, we highly recommend that you follow Settlement Perspectives.  John writes high-quality, insightful and practical  articles on a variety of pertinent topics.  Who could ask for more?

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