Reinsurance Underwriting and Reinsurance Disputes

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; jkscully@daypitney.com

Steven A. Mestman October Mountain Consulting LLC 973-738-4064; steve.mestman@roadrunner.com

Jeff Kayl Everest Reinsurance Company 908-604-3000; jeff.kayl@everestre.com

Myra Lobel Guy Carpenter & Company LLC 917-937-3157; myra.e.lobel@guycarp.com

Speaker Contact Info