Ceding Reinsurer’s Disclosure Deficiencies Insufficient To Support Retrocessionaire’s Rescission Claim

A federal district court recently made findings of fact and conclusions of law following a nine-day bench trial upholding a ceding reinsurer’s right to receive certain payments from a retrocessionaire under two retrocession agreements, and rejecting the retrocessionaire’s counterclaim for rescission. The plaintiff, Munich Reinsurance America, Inc., was the ceding reinsurer who contended that its own reinsurer, the retrocessionaire defendant American National Insurance Company, failed to pay certain claims submitted. ANICO countered that the retrocession agreements should be rescinded due to material disclosure deficiencies during the underwriting process and improper claims-handling procedures. The parties also disagreed regarding the payment of certain claims based on the agreement’s wording.

With respect to the counterclaim for rescission, the court agreed with ANICO that Munich had failed to fully disclose information relating to Munich’s own evaluation of the primary insurer’s program (such as Munich’s internal calculations of its estimated loss ratios), but nevertheless concluded that the counterclaim failed because the deficiencies in reporting were not material. There was a lack of evidence that ANICO’s underwriters would have acted differently if the information about the primary insurer’s program had been disclosed. ANICO’s underwriter testified that she considered Munich’s internal calculations to be material to her underwriting process, but the court did not find the testimony to be credible, noting that the underwriting procedures and forms could be completed without such information. Moreover, ANICO had failed to show that it was objectively reasonable for Munich to have believed that its own loss ratios were material to the retrocessionaire’s underwriting. The court also rejected ANICO’s claim for rescission based on Munich’s alleged improper claims-handling practices, finding no willful violation of Munich’s obligations under the agreements and concluding that ANICO waived such a claim by failing to timely raise it. Finally, applying New York law, the court concluded that late notice of the claim did not relieve ANICO of its obligations to pay under the agreements. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (FLW) (USDC D.N.J. Feb. 27, 2014).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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