Patton Boggs Reinsurance Newsletter - December 2012: New York Federal Court Grants Reinsurer Summary Judgment on Most Claims Made by Terminated Managing Agent


Acumen Re Mgmt. Corp. v. Gen. Sec. Nat’l Ins. Co., No. 09 Civ. 796, 2012 WL 3890128  (S.D.N.Y. Sept. 7, 2012).

A New York federal court was faced with cross-motions for summary judgment on a dispute over commissions based on the profitability of reinsurance contracts written by a managing agent.  The underwriting agency agreement provided for the calculation of underwriting commissions and contingency commissions based on the reinsurer’s annual net profits.  By agreement, the parties terminated the relationship, but certain reporting requirements and contingent commission calculations were required as part of the termination agreement.

Subsequent to the termination of the underwriting agreement, the reinsurer commuted a series of underlying reinsurance contracts on programs that were not performing well.  The business written by the managing agent represented a fraction of the business commuted, but a substantial portion of the managing agent’s income-deriving business with the reinsurer.  The reinsurer did not consult with the managing agent on the commutations. 

In performing the contingency commission calculation for certain underwriting years, it turned out that there was no profits in the business and therefore no commissions were due.  The managing agent claimed that the reinsurer breached its contract by not providing certain reports, failing to properly calculate the commissions, failing to consult when establishing IBNR, and using commuted losses in the commission calculations and other defects.  The question for the court was whether any of the reinsurer’s actions result in a breach of either the termination agreement or the original underwriting agreement.

The court found that the failure to provide quarterly reports after the commutations was a breach, but that the breach was waived by the underwriting agent because it never inquired about the reports and accepted the periodic reporting it had been receiving.  The court also found no contractual requirement that the reinsurer consult with the managing agent on establishing IBNR for the contingent commission calculation.  The court also found no breach because the reinsurer included commuted losses in the calculations or in the way the calculations were performed.

Summary judgment was denied on the issue of data quality because enough of a factual issue was raised on whether the reinsurer properly maintained its records on the managing agent’s business.  The court ordered that the managing agent may proceed to trial on its data quality breach claim even though the claim may be limited to nominal damages.

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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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