reinsurance underwriting and reinsurance disputes
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TRANSCRIPT
Reinsurance Roundtable
September 15, 2014
Reinsurance Underwriting and
Disputes
The Speakers
Myra LobelGuy Carpenter & Company
Jeff KaylEverest Global Services
Steven MestmanOctober Mountain Consulting, LLC
Joseph ScullyDay Pitney, LLP
Reinsurance Underwriting│Disputes
What role does underwriting have in the litigation and resolution of reinsurance disputes?
How have reinsurance disputes impacted the underwriting process?
Underwriting In Reinsurance Case Law Underwriting clearly has had an impact in many
disputes. Underwriting intent is relevant but does not
supersede contract language, or even implied contract terms.
As with any contract, courts have resorted to underwriting evidence to fill gaps in contract wording and help explain ambiguous terms.
Importance of Underwriting Documentation Absent underwriting documentation, courts will look
elsewhere. Cont'l Cas. Co. v. Yosemite Ins. Co., 2001 U.S. Dist. LEXIS
25913 (N.D. Ill. Mar. 5, 2001):◦ “[T]hough it would no doubt help to know what occurred during
negotiations, where neither side has this information, the court will consider other evidence to show what may have occurred.” Id. at *21.
◦ While cedent had evidence demonstrating its intent with respect to the retention, there was no evidence demonstrating that the cedent communicated that intent to reinsurer.
◦ Relied on testimony of reinsurer’s claims personnel.
Importance of Underwriting Documentation Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33 (1st
Cir. 2000):◦ “Because the policy was several decades old, evidence of the parties'
actual intent was unavailable, but each side proffered an expert who worked in the insurance business and could testify to what the terms in the policy must have meant in light of industry practice.” Id. at 38-39.
◦ “In other words, after recognizing the ambiguous language of the facultative reinsurance certificate, and after considering two plausible explanations of what that language meant, the court chose one explanation over another based on its assessment of the credibility of the witnesses.” Id. at 39.
◦ Trial court simply picked the expert it liked best.
Existence and Terms of Contracts OneBeacon Am. Ins. Co. v. Commercial Union Assur. Co., 684
F.3d 237 (1st Cir. 2012):◦ Dispute concerning existence of reinsurance after 1980◦ Assuming an ambiguity, court concluded that underwriting
documentation supported finding no reinsurance: Parties had facultative certificate for 1980, but not thereafter. Flow of premium payments supported view that reinsurance was
terminated after first year. Coding on cedent’s ledger indicated reinsurance in 1980, but not
thereafter.
Interpretation of Substantive Terms Hartford Accident & Indem. Co. v. Ace Am. Reins. Co., 284
Conn. 744, 762 (Conn. 2007):◦ Cedent accumulated asbestos losses as arising out of a
“common cause.”◦ Both cedent and reinsurers pointed to same underwriting
documents to support their interpretation of the provision – broker documents concerning aggregate extension proposal.
◦ Court remanded case for fact finder to consider underwriting evidence and determine meaning of the common cause provision.
Underwriting Evidence in Arbitrations Largely anecdotal Many of the same issues:
◦ Contract existence and terms◦ Interpretation of provisions such as occurrence,
ultimate net loss, expenses, etc. Difficult to discern importance of
underwriting evidence
Disputes Impact On Reinsurance Underwriting
Process Documentation Wording Costs
Underwriting Process and Documentation
How have disputes changed the underwriting process?
How has it changed documentation of contract negotiations?
Is more paper better?
Reinsurance Wording
How has contract wording changed as a result of disputes?
Is change good?
Contract Wordings Evolution Gradual progression to more detailed and
complex agreements. Common contract provision issues which
have changed and the reasons for the changes.
Dispute Resolution Provisions Disputes have had obvious impact on
dispute resolution provisions: ◦ Impartiality and qualifications of arbitrators◦ Incapacity of panel member◦ ex parte communications/confidentiality◦ Arbitration timing◦ Consolidation/Alternatives to 3-person panel
Business Covered 1999 Professional Lines XOL
2000 Casualty QS & XOL
Business Covered 2000 Multiple Line QS
2005 Excess Casualty QS
2014 Professional Lines QS
General Conditions 1999 Professional Lines XOL
General Conditions 2000 Casualty QS & XOL
General Conditions 2005 Excess Casualty QS
General Conditions 2014 Professional Lines QS
General Conditions 2014 Professional Lines QS
Limits/Retention 1999 Professional Lines XOL
Limits/Retention 2000 Employers’ Liability XOL
2005 Excess Casualty QS
Limits/Retention 2000 Multiple Line QS
Limits/Retention 2000 Multiple Line QS - continued
Reporting 2000 Multi Line QS
Reporting 2005 Excess Casualty QS
Exclusions 1999 Professional Lines XOL
Exclusions 1999 Professional Lines XOL
Millennium Exclusions 1999 Professional Lines XOL
Exclusions 2000 Employers’ Liability XOL
2014 Professional Lines QS
Exclusions 1999 Professional Lines XOL
2000 Employers’ Liability XOL
2000 Professional Liability QS and XOL
2014 Professional Lines QS
Period/Term 2005 EXCESS CASUALTY QSTERM: Section A: As respects business ceded under excess liability following form insurance policies:
Losses occurring on policies attaching and on policies having deemed or actual anniversary dates during the 12 month term beginning January 1, 2005, per the Company’s policy form. Run-off to policy expiration or renewal date, whichever comes first, for all policies in force at the date of cancellation or Agreement expiration.
Cut-off at Company’s option, in which event Reinsurers will immediately return their pro-rata share of unearned premium. Regardless of expiration method, Reinsurers’ liability will continue in the event Company is bound by statute or regulation to continue coverage.
Section B: As respects business ceded under occurrence first reported policies:
Occurrences reported on policies attaching and on policies having deemed or actual anniversary dates during the 12 month term beginning January 1, 2005, per the Company’s policy form.
Run-off to policy expiration or renewal date, whichever comes first, for all policies in force at the date of cancellation or Agreement expiration.
In the event any extended discovery or reporting options are exercised in accordance with policies, Reinsurers will be liable for the additional period. In the event the Company should become bound by statute, regulation, or judicial decision for a period longer than the initial policy period, Reinsurers will be liable for the additional period.
Cut-off at the Company's sole option, in which case Reinsurers will immediately return their pro rata share of the unearned premium.
Premium 1999 Professional Lines XOL
Premium 2000 Employers’ Liability XOL
Cost of Reinsurance Premiums Kicking the tires more – greater pre-contract
scrutiny Reinsurers more actively monitoring underwriting
and claims Avoidance of unique risksAviva Abramovsky, Reinsurance: the Silent Regulator, 15 CONN. INS. L.J. 345 (2009)
Questions
Joseph Scully Day Pitney LLP 860-275-0135; [email protected]
Steven A. Mestman October Mountain Consulting LLC 973-738-4064; [email protected]
Jeff Kayl Everest Reinsurance Company 908-604-3000; [email protected]
Myra Lobel Guy Carpenter & Company LLC 917-937-3157; [email protected]
Speaker Contact Info