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University of New Hampshire Law Review

Abstract

[Excerpt] "The onslaught of environmental and asbestos claims coupled with the aftermath of the terrorist attacks of September 11, 2001, and their deleterious effects on the commercial property reinsurance industry, has left insurers and reinsurers reeling.1 This article submits that the iron fist in the velvet glove has replaced the once gentlemanly handshake that cemented contractual relations between cedent and reinsurer. The case law reveals that both cedent and reinsurer share the blame for this markedly adversarial shift. As the cases in this article demonstrate, cedents bear responsibility for shortcomings in their underwriting and claims handling, and reinsurers have often earnestly sought to avoid settlements even when clearly at fault. The laws that govern the relationship between reinsurers and the cedants who they reinsure must keep pace with the evolutionary changes that take place between these parties. For example, have the courts’ analyses of doctrines such as “attorney-client privilege,” “work-product,” “common interest,” and “follow the fortunes” and its progeny, kept pace with the increased adversarial tenor between these two mutually dependent parties? This begs the question whether a reinsurer genuinely shares a common goal with its cedent. Perhaps it is more accurate to say, first and foremost, a reinsurer strives to avoid a settlement with its cedent rather than to cooperate with the cedent in denying the underlying claim. In some contexts, past payment methodologies by reinsurers have fallen by the wayside. For example, Scott Moser, a recently appointed executive at Equitas, the specialty fund vehicle that Lloyd’s established to administer and reinsure pre-1993 London syndicate liabilities, has changed its approach towards resolving asbestos claims. At one press report, Moser stated: [T]here previously was a belief that if asbestos claims were settled with ‘swift small payment’ the problem would disappear and costly court battles could be avoided. But because of the significant increase in the number of claims in the past few years, that theory has been abandoned.2 Thus, the frequency and costs associated with reinsurance claims have forced cedents, reinsurers and the judiciary to reexamine centuries-old doctrines that often proved ill equipped to deal with this new battleground. Excess and umbrella carriers have invoked contract provisions such as the right to associate in the area of direct insurance to ensure that the parties were obligated to pay the underlying claim. Today, reinsurers have made use of this contract provision to gain access to information to support their arguments for avoiding reinsurance settlements. This article examines how reinsurers use different contract provisions and doctrines either 1) to align themselves with their cedents to defeat or minimize the costs of underlying claims, or 2) as a shield and sword against the cedent to prevent indemnifying the cedent for its losses."

Repository Citation

Louis Torch, An Examination of Reinsurers’ Associations in Underlying Claims: The Iron Fist in the Velvet Glove?, 3 PIERCE L. REV. 331 (2005). Available at http://scholars.unh.edu/unh_lr/vol3/iss2/7

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