Court Orders Pre-Pleading Security Posted In Reinsurance Disputes

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Excalibur Reinsurance provided reinsurance to Travelers Indemnity.  Disputes arose and Travelers filed two lawsuits against Excalibur in United States District Court in Connecticut.  Travelers moved to require Excalibur to post pre-pleading security pursuant to Conn. Gen. Stat. section 38a-27(a).  The statute requires that unauthorized insurers post security.  Excalibur contended that the statute did not apply for three separate reasons: (1) it was authorized in Connecticut when the reinsurance agreements were entered into, although it later cancelled that authorization; (2) the reinsurance agreement was not issued and delivered in Connecticut; and (3) the reinsurance agreements contain a New York choice of law provision.  The courts disagreed, and granted the motions for security.  The statute provides a remedy with respect to insurers which are not authorized at the time that they make a filing in Connecticut courts, rather than when the insurance agreement was entered into.  The courts found that while the statutes provided an exemption for non-Connecticut direct insurance, the statutory exemption did not apply to reinsurance.  Finally, the courts found that the pre-pleading security statute was procedural, not substantive, under the Erie doctrine, resulting in the choice-of-law clause not applying.  Excalibur therefore was required to post security in one case in the amount of $824,591 and in an amount yet to be determined in the other case.  Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 11-1209 and 12-1793 (USDC D. Conn. Mar.11 and 17, 2014).

Topics:  Indemnification, Indemnity Agreements, Reinsurance

Published In: Civil Procedure Updates, General Business Updates, Insurance Updates

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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