Reinsurance Newsletter - September 2013: New York Federal Court Denies Reinsurer And Guarantor Motions To Dismiss Breach Of Contract Claims

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Greenlight Reinsurance, Ltd. v. Appalachian Underwriters, Inc., No. 12 Civ. 8544 (JPO), 2013 U.S. Dist. LEXIS 104605, 2013 WL 3835341 (S.D.N.Y. Jul. 25, 2013).

A New York federal court has denied several motions to dismiss claims filed by a cedent against reinsurers and the reinsurers’ guarantors.  The dispute was over the interoperation of several key provisions contained in reinsurance contracts, retrocession contracts, and two guarantees of the retrocession contracts.  While the reinsurance and retrocession contracts contained arbitration provisions, the guarantees did not.

The cedent brought a declaratory judgment action under the guarantees for breach of contract associated with various covenants in the guarantees, and breach of contract, and right for accounting.  The reinsurers and their guarantors moved to dismiss on the grounds of ripeness and under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.

The reinsurers and their guarantors argued that cedent’s claims were not ripe for litigation because the amounts due under the reinsurance and retrocession agreements—which were claims subject to arbitration—had yet to be determined and that the cedent was essentially asking the court to rule on a purely hypothetical dispute that may never arise.  They also argued that the cedent’s claims were properly subject to arbitration.  The court, however, disagreed and construed the guarantees as a guaranty of payment (collectable immediately upon default) rather than a guaranty of collection (collectible only after exercising due diligence in attempting to collect the debt). Because the guaranty was a guaranty of payment, the court determined that the cedent’s claims were ripe for consideration. Furthermore, because the guarantee agreements lacked a governing arbitration provision, the court ruled that the cedent’s claims as against the guarantors were not subject to arbitration even though the guarantee, reinsurance, and retrocession agreements were related agreements.

In denying the motion to dismiss, the court found that the cedent pled sufficient facts to state most of its claims, except for its claim for an accounting. The court dismissed the cedent’s accounting claim with permission for cedent to replead.

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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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