(Article from Insurance Law Alert, March 2025)
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Holding
Finding both parties’ interpretations reasonable, a New York federal district court denied cross-motions for summary judgment in a reinsurance dispute involving a fronting arrangement. TIG Ins. Co. v. Swiss Reinsurance Am. Corp., 2025 U.S. Dist. LEXIS 40519 (S.D.N.Y. Mar. 3, 2025).
Background
Ranger Insurance Company issued policies to Duke Power Company and Carolina Power & Light Company (together, “Duke”). The policies were part of a fronting arrangement between Ranger Insurance and Associated Electric and Gas Insurance Services Limited (“AEGIS”). The fronting arrangement was necessary because AEGIS was not licensed to conduct insurance business in North Carolina but Ranger Insurance was licensed. During the effective period of the Ranger Insurance policies (1982-1985), AEGIS handled and paid all covered claims. TIG Insurance Company, the plaintiff in the present action, is the successor to Ranger Insurance. Neither Ranger Insurance nor successor TIG paid any claims under the Ranger Insurance policies.
Six of the Ranger Insurance policies were reinsured under facultative certificates issued by Swiss Reinsurance. Each certificate stated that Swiss Reinsurance “does hereby reinsure [TIG] (herein called the Company) with respect to the Company’s policy hereinafter described, in consideration of the payment of the premium.” The policy referenced in each certificate was the applicable underlying policy issued by Ranger Insurance to Duke.
Decades after the issuance of the policies, in March 2017, Duke sued AEGIS, TIG and other insurers in North Carolina, seeking coverage for underlying coal-ash-related claims. In connection with that suit, TIG and AEGIS agreed that AEGIS was responsible for all past and future loss, as well as defense costs payable under the Ranger Insurance policies. AEGIS ultimately settled the suit, and then sent Swiss Reinsurance a bill seeking indemnification for 57% of the settlement amount pursuant to the facultative certificates. TIG argued that the percentage constituted the portion for which TIG was responsible, and by extension, the portion that Swiss Reinsurance was obligated to pay under the reinsurance certificates. When Swiss Reinsurance refused to pay, TIG filed suit, alleging breach of contract.
Decision
The central issue in dispute was whether Swiss Reinsurance breached the terms of the facultative certificates by refusing to pay a portion of the settlement payment AEGIS made to Duke. TIG argued that the certificates “plainly anticipated” Swiss Reinsurance being responsible for such payments based on language stating that “[a]ll claims involving this reinsurance, when settled by the Company, shall be binding on the Reinsurers, which shall be bound to pay its proportion of such settlements promptly following receipt of proof of loss.” TIG claimed that such language encompassed “any liability” arising under the Ranger Insurance policies.
In contrast, Swiss Reinsurance argued that the reinsurance certificates only contemplated reinsuring TIG (as successor to Ranger Insurance), not AEGIS. Swiss Reinsurance relied on the definition of “Company,” which did not reference AEGIS. Further, Swiss Reinsurance contended that the certificates only covered claims settled by TIG, and that claims settled by AEGIS to discharge its own liability were not within the scope of the reinsurance certificates.
The court concluded that both interpretations were reasonable and therefore that a question of material fact existed as to whether Swiss Reinsurance was obligated to pay under the certificates. The court stated that “what exactly constitutes ‘liability assumed under the policy’ by Ranger and, by way of succession, TIG is not immediately apparent and is not substantively defined by the Certificates’ provisions.”
Comments
In denying the parties’ cross-motions for summary judgment, the court considered certain extrinsic evidence, including that TIG was listed as one of the settling insurers in the underlying coal-ash litigation, a fact that supported TIG’s assertion that AEGIS was settling on TIG’s behalf and therefore that Swiss Reinsurance was liable for the portion of settlement assignable to TIG.
However, at the same time, the court also noted that TIG never established reserves for the Ranger Insurance Policies (a requirement under New York insurance law) and that AEGIS posted reserves for the full amount of the underlying settlement, facts indicating that AEGIS and TIG understood that TIG would not face liability for underlying claims against Duke. If TIG was not liable for claims arising from the Ranger Insurance policies, then Swiss Reinsurance would not be in breach of the certificates for refusing to remit payment to AEGIS.