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A federal Court applying Illinois law recently held that there is no statutory bad-faith claim against a reinsurer's agents under 215 Ill. Comp. Stat. (ILCS) 5/155 because that statute does not apply to reinsurance contracts or to reinsurers' agents. The federal Court followed a legion of State Court decisions. Stonegate Ins. Co. v. Fletcher Reins. Co., No. 21 CV 3523, 2021 WL 5769528, at *7-*8 (N.D. Ill. December 6, 2021). As the Court wrote: "Given this precedent, it is clear that Section 155 does not permit a bad faith claim to be brought against a reinsurer’s agents, such as the Defendants. In other words, Stonegate cannot bring a claim against Defendants under Section 155, because Section 155 pertains only to insurance contracts – not reinsurance contracts." Stonegate, 2021 WL 5769528, at *8 (emphases by the Court).
See generally1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH§ 6:11, Primary And Excess Insurers And Reinsurers: A Working Definition of Reinsurance--The Effect of Reinsuring Agreements or Treaties (3d Edition Thomson Reuters West, 2022 Supplements in process).
Reinsurers generally are not liable for extracontractual, "bad faith" damages. Four exceptions have been recognized, and the biggest exception is where the reinsurer acts like a liability carrier in the situation at hand. It is significant as well that the reinsurance contract can provide, expressly or implicitly, that the reinsurer is basically just another liability carrier for a common insured. See 1 DENNIS J. WALL, § 6:11, Primary and Excess Insurers and Reinsurers: A Working Definition of Reinsurance--The Effect of Reinsuring Agreements or Treaties, LITIGATION AND PREVENTION OF INSURER BAD FAITH (3d edition Thomson Reuters, 2022 Supplements in process).
In a recent decision in a federal court in Illinois, the Court held that 215 Ill. Comp. Stat. (ILCS) 5/155 does not apply -- and consequently there is no statutory bad-faith claim under Illinois law -- to agents of a reinsurer under these general principles applied in a host of cases decided under Illinois law. Stonegate Ins. Co. v. Fletcher Reins. Co., No. 21 CV 3523, 2021 WL 5769528, at *7-*8 (N.D. Ill. December 6, 2021). In the words of the Court: "Given this precedent, it is clear that Section 155 does not permit a bad faith claim to be brought against a reinsurer’s agents, such as the Defendants. In other words, Stonegate cannot bring a claim against Defendants under Section 155, because Section 155 pertains only to insurance contracts – not reinsurance contracts." Stonegate, 2021 WL 5769528, at *8 (emphases by the Court).
Here is yet another example of how deciding that claims are not "plausible" is actually a substitute for deciding the entire case at the pleading stage, when a lone judge replaces six to twelve jurors.
In this example, once again a judge was not convinced for whatever reason that there actually is a case. The State of Illinois's complaint was dismissed against a supposed reinsurance company that, the complaint alleged, effectively paid kickbacks through a captive reinsurance agreement the defendant had with a primary or ceding insurance company that issued Private Mortgage Insurance ("PMI").
The fault, dear Illinois, was that a lone federal judge, acting with the authority of the federal government and the Roberts Court, dismissed the People of Illinois' claim because they had not alleged kickback damages to the satisfaction of the particular judge.
Here is how the complaint offended the judge's perception of "plausibility," right or wrong, in part, as in so many cases:
As Defendant points out, Plaintiff's only allegation relating to damages is that “[a]s a result of the breach of [the Reinsurance Agreement], Plaintiff has suffered, and will suffer damages of a pecuniary nature.” (Id. (quoting R. 37, First Am. Compl. ¶ 46).) Defendant argues that this allegation is inadequate because it is too conclusory, and that in any event it is not plausible that Triad was injured in any way by Defendant's alleged failure to disclose the reinsurance arrangement to borrowers. (Id.) Plaintiff responds that her one-sentence allegation is sufficient and that “[w]hether [she] can prove the damages is not for the court [to] consider at this time.” (R. 50, Resp. at 6-7 (emphasis added).)
This was not enough for the judge in this case. Not at all. "The Court concludes that Plaintiff has not adequately alleged damages. To state a claim, Plaintiff must plausibly allege damages resulting from Defendant's alleged breach." People of Illinois ex rel. Hammer, Acting Director of Insurance v. Twin Rivers Ins. Co., No. 16 C 7371, 2017 WL 2880899, at *5 (N.D. Ill. July 5, 2017).
We are now living out the jurisprudence of a movie called Cool Hand Luke. What we have here is failure to communicate.
The lawsuit filed by First Horizon National Corp. against Houston Casualty Co. in the Western District of Tennessee is a case that just keeps on giving. Rulings, that is, by the Chief United States Magistrate Judge.
She was faced with numerous discovery disputes recently. Two of the disputes centered around reinsurance: (1) Are reinsurance agreements discoverable and (2) are communications with reinsurance companies about the case discoverable?
First, following precedent, the Court ruled that in a case against an insurance company which includes a claim for money damages, reinsurance agreements are "insurance agreements" which should be produced in the required initial discovery disclosures. First Horizon Nat'l Corp. v. Houston Cas. Co., No. 2:15-cv-2235-SHL-dkv, 2016 WL 58969580, at *12 (W. D. Tenn. October 5, 2016) (Vescovo, Chief U.S.M.J.).
Next, the Court held that in this case the defendant insurance companies' communications with reinsurance companies are not discoverable, for three stated reasons. The first reason is that in this case, the carriers submitted affidavits that "any responsive documents reflect exclusively 'proprietary or business decisions.'" First Horizon Nat'l Corp. v. Houston Cas. Co., No. 2:15-cv-2235-SHL-dkv, 2016 WL 58969580, at *13 (W. D. Tenn. October 5, 2016) (emphasis by the Court). Although the Court did not say so, this is the language a Court uses when it grants a protective order against discovery.
The second stated reason is very broad: "Reinsurance-related communications are also not relevant to a claim of bad faith."
The final stated reason is much more particular. And therefore potentially much more useful in resolving other discovery disputes.
In this case, the carriers argued "that the reinsurance is treaty insurance, under which the reinsurer agrees to accept an entire block of business from the insured." (Emphasis added.) In the eyes of the Court, this made the carriers' communications related to reinsurance "even less relevant" than usual.
More could be said than this, and undoubtedly more will be said in future disputes. The idea here is that since the reinsurance company agrees to accept a block of business which includes the underlying case, then communications about the underlying case are irrelevant because the purpose of making those communications is at most to update the reinsurer with the status of the business block it has assumed. The purpose of communications under treaty reinsurance is arguably unrelated to the merits of the underlying case, thus the holding in this dispute that the "reinsurance-related communications [were] even less relevant to the claims asserted by the Plaintiffs." First Horizon Nat'l Corp. v. Houston Cas. Co., No. 2:15-cv-2235-SHL-dkv, 2016 WL 58969580, at *13 (W. D. Tenn. October 5, 2016).
The Appellate Division, First Department, of the Supreme Court of the State of New York has been dealing with the most common controversy between primary or ceding insurers and their reinsurers. Certainly it is the most worrisome issue to them both: Whether and how much the primary carriers paid to settle bad faith claims against themselves -- which are not covered by their reinsurance policies -- in the process of settling underlying claims against their own insureds.
In the case of United States Fidelity & Guaranty Co. v. American Reinsurance Co., 2015 WL 6510898, *1 2015 N.Y. Slip Op. 07924 (N.Y. App. Div., 1st Dep't October 29, 2015), the appellate panel unanimously affirmed the trial court's denial of the primary carrier's "motion for a ruling that the reasonableness of [its] allocation of all settlement dollars to asbestos-insurance claims is properly the subject of evidence at trial".
I found it shocking when I first read this holding. Bad faith is always a question of fact. Questions of fact are resolved with evidence and never more so than when the fact issues arise from questions of bad faith. That's practically Insurance Bad Faith 101 everywhere including in New York. So why, I wondered, did the trial court and the appellate court together unanimously deny a motion to admit evidence on fact questions of bad faith?
However, as I read on in this brief opinion, I learned that this is at least the second appellate appearance of this case. In an earlier appellate appearance, which was ultimately decided in New York's highest court, the Court of Appeals, the high court held that there were indeed issues of fact in the case whether …
"USF & G, in allocating the settlement amount, reasonably attributed nothing to the so called ‘bad faith’ claims made against it,” and whether “certain claims were given unreasonable values for settlement purposes”.
United States Fidelity & Guaranty Co. v. American Reinsurance Co., 2015 WL 6510898, *1 2015 N.Y. Slip Op. 07924 (N.Y. App. Div., 1st Dep't October 29, 2015), quoting the earlier ruling of the New York Court of Appeals.
Bad faith claims are not ordinarily covered by reinsurance, and so it is in this case. The New York Appellate Division panel recognized that the Court of Appeals has already determined that the primary carrier could have inflated the value of certain claims "to include value that should have been attributed to bad faith claims," i.e., that should have been attributed to claims which are not covered by reinsurance.
In this case, those certain claims included claims of lung cancer and asbestosis, the settlement value of which -- with and without bad faith values included -- it will be up to a jury to decide. United States Fidelity & Guaranty Co. v. American Reinsurance Co., 2015 WL 6510898, *1 2015 N.Y. Slip Op. 07924 (N.Y. App. Div., 1st Dep't October 29, 2015).
And in this case, New York's highest court has already spoken, in effect, on what evidence would be allowed on the issue of the reasonableness of the primary carrier's underlying settlement allocations. New York's high court has already limited that evidence to two issues, both set out in the above quote: whether the primary carrier, in allocating the settlement amount, reasonably attributed nothing at all -- as it said -- to the so called "bad faith" claims pending against it, and whether the above-enumerated claims were nonetheless given unreasonable values to include bad faith values for settlement purposes.
Accordingly, motion denied by the trial court, and order of denial affirmed by the appellate court.
Parenthetically, the Appellate Division panel was most definitely not ducking any issues here. This was a rare case of an appellate court entertaining an interlocutory appeal or what is called in some other jurisdictions an appeal from a non-final order, because here "the trial court did not merely determine the admissibility of evidence but also limited the issues to be tried". United States Fidelity & Guaranty Co. v. American Reinsurance Co., 2015 WL 6510898, *1 2015 N.Y. Slip Op. 07924 (N.Y. App. Div., 1st Dep't October 29, 2015). The Appellate Division did not have to take this appeal.
But they did.
And in so doing they reiterated the bad faith issues of fact which a jury will determine in this case.
It is a generally accepted ‘best practice’ for a court considering a class action settlement to take the amount of the settlement into account when approving it. In the usual case, the size of the settlement is the only thing that the parties ask the court to conceal. Reams of paper have been spent recording the opinions of judges and other lawyers about the benefits of open settlements openly arrived at, or at least with the amount openly stated. See Goesel v. Boley Int’l (H.K.) Ltd., 738 F.3d 831, 834 (7th Cir. 2013)(Posner, J., motions judge for the Seventh Circuit in this consolidated case, citing numerous authorities including the Federal Justice Center’s publication, Sealed Settlement Agreements in Federal District Court).
In the case of Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156 (E.D. Pa. September 18, 2014), the Federal District Court was presented with Plaintiffs’ Unopposed Motion for Final Approval of Class Action Settlement, Certification of Settlement Class, Approval of Plan of Allocation, Appointment of Class Representatives, and Appointment of Lead Class and Class Counsel. The Federal District Court approved a rather large class to be bound by the class action settlement, as requested by the parties in their settlement agreement:
The Parties have proposed the following Settlement Class:
All persons who obtained residential mortgage loans originated and/or acquired by GMAC Mortgage, GMAC Bank (now known as Ally Bank), and/or their affiliates on or after January 1, 2004, with private mortgage insurance which was reinsured by Cap Re.
Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, *1 (E.D. Pa. September 18, 2014).
However, the Federal District Court entered its Order approving the class action settlement without once mentioning the amount of the settlement.
Perhaps the amounts of money actually involved in the case contain reasons why none of these amounts were mentioned when the Federal District Court approved the class action settlement in GMAC Mortgage. The settlement agreement is attached to the Plaintiffs’ Unopposed Motion for (etc.) as an exhibit. The settlement agreement reveals that the amount of the class action settlement in this case was $6,250,000.00 before deductions for awards to the named plaintiffs and for attorney’s fees and costs, among other things. Dkt. No. 272-3, ¶ 3.1, at p. 9. Download Moore v. GMAC Mort Dkt 272-3 is Settlement Agreement, Ex 1 to Dkt 272 Motion Approve S.A. (ED Pa. No. 07-4296).
The Federal District Court awarded $15,000.00 to three named plaintiffs, Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, ¶ 8 at *7 (E.D. Pa. September 18, 2014). The Federal District Court entered a separate Order in which it mentioned the settlement amount and in which the Court awarded $1,875,000.00 in attorney’s fees and $454,097.14 in costs, for a total award of fees and costs in the amount of $2,344,027.14. Dkt. No. 296, at p. 1. Download Moore v GMAC Mort Dkt 296 09.19.14 Order Attys Fees (ED Pa. No. 07-4296).
Deducting just these two amounts from the settlement amount before distribution to the class in that case– the amounts awarded to the named plaintiffs, and the amounts of attorney’s fees and costs which were awarded -- resulted in some $3,906,000 to distribute to the participating class members in accordance with a formula suggested to the Court by the parties in their settlement agreement. The formula was essentially based on the extent to which the given plaintiff’s primary mortgage was reinsured under a reinsurance policy issued by one of the main defendant’s subsidiaries which was winding up its business in dissolution. The Federal District Court approved the formula suggested by the parties. See Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, ¶ 10, at *7 (E.D. Pa. September 18, 2014).
It is unclear and perhaps unknowable how much money each plaintiff in the class might have been entitled to receive under the settlement formula used in this case. The size of the class is known, however, at least insofar as the Federal District Court recognized that the proposed class actually increased to “122,963 Members at Final Approval.” Moore v. GMAC Mortgage, No. 07-4296, 2014 WL 7690156, *2 (E.D. Pa. September 18, 2014). [Emphasis added.]
For talking purposes, so to speak, if each participating class member were entitled to an equal share of the remaining settlement amount, then each participating class member would receive:
$31.77 apiece, rounding up.
The author is at work on a book on “Lender Force-Placed Insurance” which includes analysis of reinsurance schemes and class action settlements. The American Bar Association has scheduled it for publication this Spring.
Global International Reinsurance Company agreed to reinsure TIG Insurance Company for certain Losses. Global and TIG set out their arrangement in a Loss Reserve Reinsurance Agreement. Global defended in an Arbitration of the parties' disagreement over allocated Losses, on several asserted grounds which included fraud, and Global's contention "that TIG had allocated the disputed claims in bad faith". Download In re TIG Insurance Co. v. Global International Reinsurance Co., Ltd (S.D. NY Opinion filed 08.11.09, Opinion Signed 08.07.09)(Rakoff, J.), attached Official Slipsheet Opinion at 1-2.
Swiss Re has released "sigma" results for 2005 and, tentatively, for 2006 to date. "Sigma" is the Greek codeword used by Swiss Re to identify its computer-based reports. A link to both reports, released separately by Swiss Re, is here. The information is revealing. Here is some of it.
2005
Total Insurance Policy Premiums in 2005 were $3,426,000,000.00 or 7.7 % of the World's "Gross Domestic Product". About 56 percent of Insurance Premiums are for Life Insurance. There is a definite link to commerce here. Swiss Re notes further that "the growing loan market generated more mortgage-related life insurance policies." The rest of the Premiums went to pay for what Swiss Re categorizes as "non-life" Insurance Policies.
2006
So far in 2006, Swiss Re's computer results reveal the third-lowest "insured losses" in the last 2 decades. The "loss events" studied by Swiss Re's computers show that this year, typhoons and earthquakes predominated among the Catastrophe list and they "hit mainly newly industrialising countries where insured losses are relatively low." The irreplaceable loss of Life to Catastrophes appears to be proportionately higher than Property Losses to date. The role of Insurance available to relieve worldwide Catastrophes in 2006 is not necessarily great, it appears.
Economic losses worldwide in 2006, Swiss Re says, total $40,000,000.00 and so far $15,000,000.00 or 37.5% "were actually covered by insurance." There is no word on how if at all, the remaining 62.5% or $25,000,000.00 of economic losses is and are addressed in the countries where this year's Catastrophes have struck.
Remembering to give thanks for our blessings, and remembering to remember those who may not be as fortunate, Happy Holidays to All!
REMINDER: THE CONTENTS OF
THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT
THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY
FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION,
WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.