Archive for the 'PA – Reinsurance' Category


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The insured filed suit for bad faith and breach of contract against its insurer, and later filed an amended complaint alleging bad faith and breach of contract against the reinsurer, among other claims. The reinsurer moved to dismiss both claims.

The reinsurer argued that it is not an “insurer” for purposes of Pennsylvania’s bad faith statute. The Court stated, “Pennsylvania law requires the Court to consider two factors when determining whether a party is an ‘insurer’ for the purposes of the bad faith statute: “(1) the extent to which the company was identified as the insurer on the policy documents; and (2) the extent to which the company acted as insurer.’” Regarding the first factor, the Court found that the reinsurer is not listed anywhere on the policy documents, and therefore the reinsurer is not a party to the policy between the insured and the insurer.

In evaluating the second factor, the Court stated that, “a party acts as an insurer when it ‘issues policies, collects premiums and in exchange assumes certain risks and contractual obligations.’” The Court held that the reinsurer was not the insured’s “insurer” for purposes of the bad faith statute because it did not issue the policy to the insured, it did not collect premiums from the insured, it did not make payments to the insured, and it assumed no risks or contractual obligations to the insured.

As such, the Court granted the reinsurer’s motion to dismiss the bad faith claim because it was not an “insurer” for purposes of the bad faith statute. The Court further dismissed the breach of contract claim against the reinsurer because no contractual privity existed between the reinsurer and the insured.

Date of Decision: February 8, 2018

Three Rivers Hydroponics, LLC v. Florists’ Mut. Ins. Co., No. 15-809, 2018 U.S. Dist. LEXIS 20699 (W.D. Pa. Feb. 8, 2018) (Hornak, J.)



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The insured was involved in a deadly motor vehicle accident. The insurer could have settled the case within the $11,000,000 policy limit, but declined to do so. The case was mediated before two different mediators and the judge held a settlement conference. The case went to trial and the jury awarded $32,000,000. The insured sued for breach of contract and bad faith.

During the bad faith litigation, the insured sought discovery concerning the mediations and reinsurance. The insurer asserted the mediation privilege and that the reinsurance documents were not relevant.

The insured argued that the purpose of Pennsylvania’s mediation privilege is to enable the parties to be frank and honest with the mediator and/or opposing parties without fear of reprisal in a subsequent bad faith lawsuit for doing so.” The insurer had the burden in asserting this privilege.


As a practice point, the court observed the insurer “did not specify on its privilege log whether its decision to redact or withhold a document was because a portion of a document was ‘a mediation communication’ or a ‘mediation document’ as those terms are defined. Instead, [the insurer] merely opted to cite the statute and then let this Court attempt to discern what [it] meant by the following entry on its privilege log: ‘Mediation and/or settlement conference privilege pursuant to 42 Pa.C.S. §5949, F.R.E. 408, and/or applicable law.’”

The court then stated that the insurer had reciting the statutory definitions of mediation communication and mediation document and then argued that “‘[a]ll of the documents withheld and/or redacted … and submitted to the Court in camera qualify as mediation documents or mediation communications.’” The court went on to describe this as a lack of pointed argument.

Pertaining to documents redacted or withheld, the court found that “none of the redacted or withheld documents qualify as ‘a mediation document’ under the plain meaning of Pennsylvania’s mediation privilege statute except for” a single document. As to that document, it should only have been “redacted where the mediator … wrote an email ….”

Under 42 Pa.C.S. 5949, “mediation document” is defined as: “Written material, including copies, prepared for the purpose of, in the course of or pursuant to mediation. The term includes, but is not limited to, memoranda, notes, files, records and work product of a mediator, mediation program or party.”

The court then went on to address mediation communications within the documents, which the statute defines as: “A communication, verbal or nonverbal, oral or written, made by, between or among a party, mediator, mediation program or any other person present to further the mediation process when the communication occurs during a mediation session or outside a session when made to or by the mediator or mediation program.”

The court refused to apply the mediation privilege to statements made outside the mediation that did not in some way include the mediator.

The court did protect communication from the insured’s expert consultant relaying something the mediator said. However, it did not protect “redacted statements a mediator or a party may have said during the course of a mediation” in other circumstances.

Specifically, it did not protect these communications where the documents including those statements “are nothing more than reports and/or claims notes. These redacted documents contain statements which were made by a person who may have been present at the mediation session to someone (not the mediator) outside the mediation session.

Thus, they do not meet the plain meaning of the definition of ‘mediation communication’ and therefore, are not protected by Pennsylvania’s mediation privilege.” (Emphasis in original)


On the reinsurance documents, the court observed that there “is no absolute exclusion of reinsurance information, as discovery of such information has been readily permitted,” citing at least one case on the issue of reserves being discoverable in bad faith litigation to support this position.

The court also quoted case law that “the purpose of permitting discovery of the existence of and content of any insurance agreement is to equalize the knowledge of both parties and give the plaintiff ‘assurance that there can be recovery in the event of a favorable verdict to justify the time, effort and expense of preparing for trial.’ … Although the discovered information may not be admissible at trial, it would allow parties to fairly evaluate settlement offers and foster a just, speedy and inexpensive determination.”

Relying on these cases, the court concluded that: “Given the nature of this case, and the allegations brought by Golon, this Court finds that all of [insurer’s] documents which were either withheld or redacted because the document either referenced or discussed reinsurance should be produced in their entirety.

However, this does not guarantee that these documents will be admissible at the time of trial. The Court is ordering them produced so that [the insured] can evaluate what [the insurer] did or did not do, and when [the insurer] took action with its own reinsurer, in relation to the underlying claim.”

The Court subsequently denied two emergency motions for reconsideration.

Date of Decision: December 7, 2017/December 14, 2017

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 201792 (W.D. Pa. Dec. 7, 2017) (Schwab, J.)

Golon v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 213966 (W.D. Pa. Dec. 14, 2017) (Schwab, J.)



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This factually complicated case involved reverse bad faith and 18 Pa.C.S. § 4117 insurance fraud claims by an insurer and reinsurer, and bad faith claims by the insured against its insurer.

The court first ruled that a reinsurer could not void an insurance policy to which it was not a party, since it had no contractual privity with the insured. It then concluded that the reinsurer could not be considered an insurer for purposes of section 4117(g) fraud claims. Finally, after discussing the state of the law on “reverse bad faith”, the court again found this to be a contractually based claim, and the reinsurer simply did not have a contract with the insured. Summary judgment was granted against the reinsurer on all of these issues.

The insured claimed that the insurer breached the insurance contract by allowing the reinsurer to adjust the claim and to take the lead in decision making on claims handling. The court ruled this was an issue for the jury to decide and would not grant summary judgment. However, the court also left it to the jury whether the insured could recover if the insured’s conduct also breached the insurance agreement.

As to the insurer’s summary judgment motion on the insured’s counterclaims, the court found that in electing to affirm the contract and pursue money damages, rather than to seek rescission, the insured cannot argue that a breach of its own obligations under the policy can somehow be ignored in addressing the insurer’s defense.

As to the alleged fraud claim against the insured, the insured took the position that the alleged fraud was carried out by a third party. The insurer argued apparent authority, and the court concluded that the issue of apparent authority in making out a fraud claim against the insured was a jury issue. There was also extensive and detailed discussion of the particulars of the alleged fraud, which will not be addressed here.

The insured also brought claims for common law and statutory bad faith against its insurer. [In looking at the statutory bad faith case law, the court cited authority reiterating the questionable theory that the bad faith statute was intended to address conduct beyond the denial of a benefit.] The court found that the both claims survived summary judgment.

The insured’s basic theory was that the insurer “essentially abandoned its insured during the claims adjustment process by turning [the insured’s] fate over to an unrelated third party that, as a practical matter, was not subject to [the insurer’s] control, had no contractual accountability to [the insured], and had a financial incentive to minimize the amount of payments that would be made to [the insured] under the Policy.” The third party is the reinsurer, and evidence was presented to the court that the reinsurer “was given the final say on various issues that were important, if not critical, to the adjustment of [the] loss and the continuation of [the insured’s] business, including the valuation of [the insured’s] daily revenue value (which were important for purposes of calculating its business income losses), the determination that business income payments would cease upon [the insured’s] relocation to the new … facility, and the ultimate decision to cancel the Policy. [The insured] has also produced evidence from which a factfinder could infer that [the reinsurer], in exercising its discretion, placed its own financial interests ahead of [the direct carrier’s] insured.

The court also cited to conflicts in claims handling mandates of the reinsurance treaty, and evidence suggesting that the insurer disagreed with the reinsurer’s “course of action in important respects, yet failed to take any corrective action for the benefit of its insured.” The court stated that the direct insurer “may be held liable … for the acts committed by [the reinsurer] in connection with the investigation and adjustment of its claim.” Thus, the court concluded that the evidentiary record construed in the non-movant insured’s favor “could support a finding of bad faith on the part of [the insurer] as it relates to the investigation and adjustment of [the insured’s] loss.” Summary judgment was thus denied to the insurer on the bad faith claims.

Date of Decision: September 29, 2016

Hartford Steam Boiler Inspection & Insurance Company v. International Glass Products, LLC, No. 2:08cv1564, 2016 U.S. Dist. LEXIS 135045 (W.D. Pa. Sept. 29, 2016) (Cercone, J.)



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In United National Insurance Company v. Indian Harbor Insurance Company, the insured was itself an insurance company, which had been sued for bad faith (Insurer-1).  The insurer-defendant in this action had issued a professional liability policy (Professional Liability Insurer). Two of Insurer 1’s insureds had been sued, and both of those matters ultimately resulted in bad faith claims against Insurer 1, which were settled.

Professional Liability Insurer contributed to the settlement of one of the claims, but Insurer 1 claimed it was required to pay more. Professional Liability Insurer did not pay anything toward settlement of the second claim on the basis that the professional liability policy’s self-insured retention had not been reached on covered claims.  Insurer 1 sought some, but not all, of the settlement it paid from Professional Liability Insurer.

There was no dispute that the “bad faith” claims against Insurer 1 were covered as “Wrongful Acts”; however, breach of contract damages in settlement of the first action were not covered. As to the second settlement, again “bad faith” claims were covered, but punitive damages were not.  The parties disputed the applicability of the allocation of sums to the settlement based on covered and uncovered claims against Insurer 1.

The court ruled in favor of Professional Liability Insurer with regard to the amounts contributed towards the settlements, and found that it had the right to allocate the settlements between covered and non-covered amounts pursuant to an unambiguous allocation provision in the policy.

The court noted that under Pennsylvania law, the insured has the burden to prove what portion of each settlement is covered under the policy, and the insured here failed to meet that burden. Thus, summary judgment was granted to Professional Liability Insurer on the coverage issues.

Insurer 1 had also brought a claim for “breach of duties”.  While not specifically pleading a legal theory, Insurer 1 alleged that Professional Liability Insurer was liable for “engag[ing] in a pattern or practice of improperly investigating claims, refusing to pay defense costs and demanding improper allocation of loss in violation of its common law and statutory obligations.” It also made allegations against Professional Liability Insurer for “misrepresenting policy provisions, demanding reinsurance information, relying on provisions of the … policy that do not apply, and wrongfully denying payments….”

The court found this adequate to plead both statutory and common law bad faith claims.

As to the second lawsuit against Insurer 1, however, Professional Liability Insurer successfully argued that this claim was barred by the statute of limitations being two years for statutory bad faith and four years for common law contractual bad faith. “[W]here an insurer clearly and unequivocally puts an insured on notice that he or she will not be covered under a particular policy for a particular occurrence, the statute of limitations begins to run and the insured cannot avoid the limitations period by asserting that a continuing refusal to cover was a separate act of bad faith. …  Repeated or continuing denials of coverage do not constitute separate acts of bad faith giving rise to a new statutory period.”

The present suit was not instituted until four years after notice had been given that no payment would be made toward the second settlement.

As to settlement of the first action, where Professional Liability Insurer had allocated some payment to Insurer 1, the court found that there was nothing in the record showing bad faith conduct, and summary judgment was granted as to all claims for bad faith. Date of Decision:  February 8, 2016

United Nat’l Ins. Co. v. Indian Harbor Ins. Co., No. 14-6425, 2016 U.S. Dist. LEXIS 14791 (E.D. Pa. February 8, 2016) (Bartle, J.)


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In Mirarchi v. Seneca Specialty Insurance Company, the Third Circuit affirmed the District Court’s judgment in the carrier’s favor on a fire loss claim.

The policy at issue had a $600,000 limit, directing that valuation on claims be done according to the property’s actual cash value (ACV). The policy defined ACV as the amount it would cost to repair or replace the property at the time of loss or damage, with material of like kind and quality, subject to a deduction for deterioration, depreciation and obsolescence.

Further, per the policy, the carrier would not pay on any claim until it received a formal proof of loss from the insured. If a disagreement arose as to the value the property value or amount of loss, either party could seek an appraisal. A fire occurred, prompt notice was given, and each party retained experts.

The insurer estimated the ACV at approximately $332,000 and the insured’s expert came in at approximately $692,000. The insurer still paid the first $100,000 on the claim after the insured submitted a partial proof of loss. After receiving a proof of loss based on the $692,000 figure, the insurer paid the balance of the undisputed part of the claim, i.e., the difference between $100,000 and its experts ACV number ($332,000).

The experts continued amicable discussions thereafter on the difference until the insured told his expert that he would not accept anything less than $500,000.

The parties mutually agreed to enter the appraisal process, and each side hired an independent appraiser. The insurer’s appraiser estimated the ACV at $449,550, more than $100,000 higher than the insurer’s original estimate. The dispute was submitted to an umpire, who concluded that the ACV was $618,338.07. The insurer then paid the balance remaining on the $600,000 policy limit.

The insured brought a bad faith claim on the basis of delayed payment. As stated, the District Court granted the insurer summary judgment. The first issues on appeal were challenges to the trial court’s discovery rulings.

First, the trial court found reserves not discoverable because they were irrelevant to the claims. This was a significant issue to the insured, because the carrier had set it reserves at the policy limit, $600,000, well above the initial valuation. The trial court explained that a loss reserve is the insurer’s own estimate of the amount which the insurer could be required to pay on a given claim.

The lower court did recognize that reserve information is sometimes relevant in bad faith cases, but it concluded that the loss reserve figures in this particular case did not represent an evaluation of coverage based upon a thorough factual and legal consideration.

The Appellate Court found that the insured failed on appeal to show that the loss reserve figures were related to the carrier’s considered estimate of the ACV such that they would be relevant to his bad faith claim. Thus, the lower court did not err in its legal analysis of the relevance of loss reserve estimates generally in bad faith cases, and did not abuse its discretion in excluding the evidence in this case based on its lack of relevance to the bad faith claim.

In a footnote, the Third Circuit likewise upheld the lower court’s decision not to permit discovery of communications between the insurer and its reinsurer for the same reasons that it affirmed on the loss reserve issue, i.e., these communication were not evidence of the insurer’s considered evaluation of the value of the insured’s claim.

The Third Circuit also found no abuse of discretion in the trial court’s refusal to extend discovery, compel additional discovery responses or reconsider earlier rulings after the insured retained new counsel.

Turning to the merits, because the insurer ultimately paid the full policy limit, the bad faith claim was based on delay, which required the insured to show that (1) the delay was attributable to the insurer, (2) the insurer had no reasonable basis for causing the delay, and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.

The cornerstone of the insured’s argument was the insurer’s second appraiser came in at a significantly higher number than the first expert; and that the insurer acted in bad faith by standing by its adjuster’s initial estimate of ACV pending resolution by the umpire, failing to make an additional partial payment, and failing to make a higher settlement offer.

As to the partial payment issued, an insurer has no duty to advance partial payments, particularly where the claim is disputed. Further, the undisputed evidence showed that the insurer relied on a genuine and considered estimate of ACV by its first expert.

That subsequent estimates assigned a higher value to the claim did not constitute clear and convincing evidence that the insurer acted in bad faith either in arriving at its initial estimate or by standing by that estimate until the appraisal process concluded. The Third Circuit stated: “That is, after all, what the appraisal process is for—settling disputes about the value of a claim.”

The insured failed to show by clear and convincing evidence that the insurer acted unreasonably in the manner it paid the claim, and that no reasonable juror could conclude otherwise. The insured’s breach-of-contract claim, based on a breach of the duty of good faith, failed for the same reasons as his statutory bad faith claim.

Lastly, the court noted that the insured’s used of mathematical calculations regarding the first estimate, the property’s purchase price, and the balance of the insured’s mortgage lacked sufficient explanation to make a persuasive argument for a conspiracy between the insurer and its experts.

Date of Decision: April 29, 2014

Mirarchi v. Seneca Specialty Ins. Co., No. 13-2129 , UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT, 2014 U.S. App. LEXIS 8015 (3d Cir. April 29, 2014) (Ambro, J.)



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The court addressed a subpoena requesting documents relating to a bad faith case proceeding in the Middle District of Florida. The underlying bad faith action was brought by the guardian of an accident victim, who was hit by a driver during the scope of the driver’s employment. For the purposes of litigation, the insured-employer also assigned its rights to the victim’s guardian.

Following the accident, the victim filed a personal injury claim against the driver and employer. The employer’s primary insurer investigated the claim and defended the insured-employer. The primary insurer also hired an adjuster to investigate the facts and an attorney to represent the insured driver and employer.

In May, 2008, the insurers offered a combined $2 million of coverage to the accident victim. The victim rejected the offer and on March, 20, 2009, a jury returned a $65 million verdict against the negligent driver and employer. After the judgment was returned, a series of mediations took place that involved all of the parties to the litigation. As a result, the judgment was satisfied as to the driver and partially satisfied as to the employer, whose primary insurer paid more than its $1 million policy limit. Thereafter, the guardian-assignee commenced the underlying bad faith action, seeking to recover the balance of the judgment from the excess insurer.

The insured-employer’s excess insurer issued the subpoena in question out of the Middle District of Pennsylvania, serving the employer’s primary carrier — a non-party in the bad faith action. The subpoena requested twenty-one documents relating to the bad faith lawsuit, including settlement reserve authority requests, the underwriting file held by the primary insurer, and the personnel file of the insurance adjuster hired by the primary insurer. The primary insurer objected and the court issued an opinion, grouping the objections into several categories.

First, the court addressed technical objections to the subpoena. The primary insurer argued that Federal Rule of Civil Procedure 45(a)(3) required the excess carrier’s attorney to be admitted to the district court where the subpoena was to be served. The court rejected this argument because the attorney that issued the subpoena was admitted in Florida, where the bad faith litigation was pending.

The court also rejected an argument that the service of process itself was flawed because the person upon whom service was made is an agent of the primary insurer. Moreover, Rule 4(h) allows a corporation to be served in the same manner as a person.

Second, the primary insurer objected on the grounds of work-product, arguing that the excess insurer did not make a showing of “substantial need” or “undue hardship” as required by Rule 26(b)(3). The court ruled that, under Florida law, “work product material generated in the adjustment of an underlying claim . . . is discoverable in a third-party bad faith case.”

Moreover, in the previous litigation, the primary insurer owed a fiduciary duty to the insured parties and the excess insurer seeking the documents. Accordingly, the court found that the work-product doctrine was inapplicable.

Third, the primary insurer argued that the attorney-client privilege rendered documents undiscoverable because the interests of the two parties are not aligned. However, the court reasoned that, during the previous personal injury suit, their interests were aligned in defense of the insured driver and employer.

Because the parties’ interests were essentially the same in the prior dispute, the court held that “any correspondence between the insurer and the insurer’s retained counsel concerning the insured’s cases was not privileged and must be produced by the insurance company.” The parties shared a common interest in defending against the personal injury claim in the underlying litigation, rendering the privilege inapplicable.

Fourth, the primary insurer objected under Florida’s Mediation and Privilege Act, which states that “[a] mediation participant shall not disclose a mediation communication to a person other than another mediation participant or participant’s counsel.” The court reasoned that the privilege is inapplicable in this case because both insurers “were mediation participants and there has been no effort to disclose the communications to persons other than mediation participants.” The court also rejected the primary insurer’s objection to disclosing communications that occurred outside the mediation process.

Fifth, the excess insurer sought the employment file of the primary insurer’s adjuster who handled the personal injury claim. The court disagreed with the excess insurer that this request was overly broad. The court repeated its rationale that the primary insurer “was a party to, and assumed the responsibility of defending against claims made in the underlying litigation which led to the bad faith claim,” rendering the privilege inapplicable.

Sixth, the excess insurer observed that some of the documents produced by the primary insurer were redacted, seeking a privilege log from its opposition. The primary insurer defended that that no privilege log was necessary because of a prior comment by the excess insurer that it would not seek privileged information. The court again found for the excess insurer. It reasoned that Rule 45(d)(2)(A) allows a party to assess a claim of privilege through examining a general description of the sought after documents.

Lastly, the court held that, under Rule 45(c)(1), the excess insurer has “a duty to take reasonable steps to avoid imposing an undue burden or expense” upon the primary insurer.

Date of Decision: February 2, 2012

Allied World Assur. Co. v. Lincoln Gen. Ins. Co., NO. 1:11-mc-00342, 280 F.R.D. 197, 2012 U.S. Dist. LEXIS 12883 (M.D. Pa. Feb. 2, 2012) (Rambo, J.)


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In Travelers Casualty and Surety Company v. Insurance Company of North America, Travelers Casualty and Surety Co. (“Travelers”) had settled a coverage dispute with Acme Corporation for $137 million, and it allocated that money among three tiers of insurance coverage.  The highest tier, entitled “excess policies”, included products and non-products claims that were in excess of Acme’s insurance coverage.  This tier of insurance was the one reinsured by Insurance Company of North America (“INA”).  INA, as a reinsurer, insured the risk of Travelers, the original insurer, by assuming a portion of Travelers’ potential financial exposure in exchange for premiums.

Under the “follow-the-fortunes doctrine,” the reinsurer has almost no ability to challenge the coverage decisions that lead to its liability to the insurer.  It insulates a reinsured’s liability determination from challenge by a reinsurer unless they are in bad faith or the payments are clearly beyond the scope of the original policy.

When Travelers settled its coverage dispute with Acme, it insisted that a term be written into the contract stating that it could allocate any or all of the settlement amount to any policy.  It decided to allocate $15 million to the “excess policies” tier.  Travelers billed INA over $13.7 million based on its allocation, and INA refused to pay.  Travelers agreed that five decisions it made during the settlement negotiations likely increased the amount of its coverage it was able to allocate to INA, but INA claimed that Travelers acted in bad faith making these decisions and made them for the express purpose of increasing its reinsurance recovery.

The District Court found that Travelers did not act in bad faith when allocating money.  The Third Circuit affirmed this ruling, holding that “the insurer’s negative duty not to make allocation decisions primarily in order to increase reinsurance recovery does not translate into a positive duty on the part of the insurer to minimize its reinsurance recovery.”

For bad faith, the reinsurer must “provide direct evidence that the insurer was motivated primarily by reinsurance considerations, or show that the after-the-fact rationales offered by the insurer are not credible,” and INA did neither in this case.  It asserted that a memo from a vice-president of Travelers that outlined the insurance implications of different coverage scenarios exhibited bad faith, but the courts disagreed, holding that the memo’s purpose was to “provide . . . a general estimate of Travelers’ potential net exposure on the breast implant claims.”

Date of Decision:  June 9, 2010

Travelers Cas. & Sur. Co. v. Ins. Co. of N. Am., Nos. 06-4100, 06-4101, 07-4690 and 08-1032, United States Court of Appeals for the Third Circuit, 2010 U.S. App. LEXIS 11689, 609 F.3d 143 (3d Cir. June 9, 2010) (Ambro, J.)


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The insured filed a breach of contract and bad faith claim against his insurer, a reinsurer, and a third party administrator after his claim for total disability was denied.  The insured had a disability insurance policy issued by the insurer.  The insurer then contracted with another carrier for a 100% indemnity reinsurance agreement for the entirety of the insurer’s losses for its disability insurance policies.

The contract did not assign or delegate to the reinsurer any of the insurer’s obligations to the insured under his disability insurance policy.  The contract also did not expressly entitle the insured to recover directly from the reinsurer.

The insurer and reinsurer then retained a third party administrator for every disability insurance policy issued by the insurer, including the policy issued to the insured.  Like the reinsurer, the third party administrator did not directly assume any of the insurer’s obligations to the insured under his disability insurance policy.

Subsequently the insured was involved in a serious motor vehicle accident and began suffering from tinnitus.  He submitted a claim of total disability under his policy in March 2006.  The insurer failed to render a decision on the insured’s claim until April 4, 2008.  The insurer advised the insured that he was entitled to only residual disability benefits, not total disability benefits under the policy.

The insured alleged breach of contract and bad faith by the insurer, reinsurer, and third party administrator for failing to provide him with total disability benefits.  The insured alleged that defendants conduct in handling his insurance claim constituted a pattern of delay and harassment that entitles him to damages.

The reinsurer and third party administrator filed motions to dismiss the claims.  They alleged that the insured cannot bring breach of contract and bad faith  claims against them because they are not in privity of contract with the insured

For the bad faith claim, the court had to determine whether the reinsurer and third party administrator were “insurers” for purposes of the bad faith statute.  A party acts as an insurer when it issues policies, collects premiums and in exchange assumes certain risks and contractual obligations.  The insured argued that the reinsurer and third party administrator qualify as insurers under the definition provided by Pennsylvania law.

However, the court found that the reinsurer and third party administrator were never the insured’s insurers under the disability insurance policy sold by primary insurer to the insured.  Neither party issued the policy to the insured, collected premiums from the insured, and the parties did not have a contractual relationship with the insured directly.  The insurer did not assign or delegate any of their contractual obligations under its insurance contract with the insured to the reinsurer or the third party administrator.

Therefore the court granted the motion to dismiss the bad faith claims against the reinsurer and the third party administrator.

Date of Decision: September 16, 2008

Brand v. AXA Equitable Life Ins. Co., United States District Court for the Eastern District of Pennsylvania No. 08-2859, 2008 U.S. Dist. LEXIS 69661 (E.D. Pa. Sept. 16, 2008)(Bartle, C.J.),



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The plaintiff-insurer issued to the defendant-insured, an insurance brokerage company, a policy obligating the plaintiff-insurer to pay for any losses for which the defendant-insured was legally liable and which was caused by a wrongful act arising out of services rendered to others.  The defendant acted as an agent for its client, an insurance company, in procuring and servicing workers’ compensation insurance.  The client alleged that the defendant improperly transferred certain premiums directly to a reinsurance company in which one or more of the defendant’s principals held financial interests.

The court was called upon to decide the defendant’s motion for partial judgment on the pleadings and plaintiff’s motion for summary judgment arising in a declaratory judgment action brought by plaintiff against defendant to determine whether plaintiff had a duty to defend or indemnify the defendant in a pending lawsuit.

In setting forth the procedural history of the case, the court noted that the defendant had filed several counterclaims against plaintiff alleging breach of contract, statutory bad faith and common law bad faith.  The court further noted that the common law bad faith counterclaim was dismissed by previous order of court because Pennsylvania does not recognize a claim of common law bad faith.

Date of decision:  May 30, 2007

Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., United States District Court for the Middle District of Pennsylvania, Civil Action No. 1:05-CV-1252, 513 F. Supp. 2d 157, 2007 U.S. Dist. LEXIS 39039 (M.D. Pa. 2007) (Conner, J.).



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The insured, a licensed psychiatrist, purchased malpractice insurance from an insurance company.  The insurance was placed with a reinsurer.  To comply with insurance regulations, the insurance was then placed with a fronting insurance carrier.  The insured was sued in state court for professional liability claims within the policy period.

The fronting insurance carrier withdrew its defense during litigation.  A judgment was later entered against insured.  Following the trial, the fronting insurance carrier was declared insolvent.  At the same time, the insureds of the fronting insurance carrier were found to be third-party beneficiaries of the agreement between the reinsurer and the fronting insurance carrier (“agreement”) and could bring actions against the reinsurer.

The insured then brought an action in state court against the reinsurer for the fronting insurance carrier’s breach of contract, breach of covenant of good faith and fair dealing, and insurance bad faith, and an insurance bad faith cause of action based upon the reinsurer’s own conduct.

The reinsurer removed the case to federal court and moved to compel arbitration based on an arbitration provision contained in the agreement. The court agreed with the reinsurer. The court noted that the insured, who brought claims directly against the reinsurer pursuant to the agreement, was bound by the terms of the agreement so long as the claims arise from the agreement.

The court found that the agreement controls any duty the reinsurer owed the insured, and consequently, any cause of action brought by the insured against the reinsurer.  As a result, the court held that the insured must submit his claims against the reinsurer to arbitration.

Date of decision:  December 13, 2007

Doeff v. Transatlantic Reinsurance Co., United States District Court for the Eastern District of Pennsylvania, Civil Action No. 07-2110, 2007 U.S. Dist. LEXIS 91879, (E.D. Pa. 2007) (Savage, J.).