Reinsurance.

• Author: Neumeier, Richard L.

MORE reinsurance disputes seem to be finding their way into the federal courts.

Statute of limitations

In Continental Casualty Co. v. Strong Hold Insurance Co.(3) Continental issued many liability policies to hospitals and ceded some of the risk to several reinsurers. In the 1980s, Continental paid out substantial sums to settle a spate of medical malpractice suits against the hospitals and several years later turned to its reinsurers for reimbursement.

After the reinsurers refused to pay, Continental sued, and the reinsurers asserted a statute of limitations defense, arguing that Continental's cause of action accrued the day it made payment on its underlying policies because at that moment it became entitled to indemnity. On the other side, Continental argued that a cause of action could not accrue until the reinsurers "breached" by refusing to indemnify it.

Applying New York law, the Second Circuit held that the statute of limitations began to run only after Continental reported losses to the reinsurers and they denied coverage. The court cited the impressive article by Ronald C. King, "Limitation of Actions Considerations in Respect of U.K. Insurers," published in the April 1994 issue of Defense Counsel Journal (page 226) in the course of observing that the tradition in the reinsurance industry, which eschewed reliance on technical defenses such as the statute of limitations, has changed:

Because custom and usage have established a

gentility and unity of interest between the

reinsured and its reinsurer, ct Sumitomo Marine

& Fire Ins. Co. v. Coloizne Reins. Co., 75 N.Y. 2d

295, 298, 552 N.Y.S.2d 891, 892, 552 N.E.2d

139, 140 (1990) (reinsurance is "a field in which

differences have often been settled by handshakes

and umpires"), a generation ago, we doubt that the

defendants would have even considered asserting

a statute of limitations defense. See Ronald C.

King, Limitation of Actions Considerations in

Respect of U.K Insurers, 61 Def. Couns. J. 226,

226 (1994) ("Defences based on available periods

of limitation usually have not been taken by

insurers in the London market, and some participants

in the market feel that it is a custom not to assert

them."). With a collapse of prominent British

reinsurers, and the financial distress of Lloyd's of

London, times may have changed. Id. at 226,

231.(4)

Arbitration and waiver

In Menorah Insurance Co. v. INX Reinsurance Corp.(5) Menorah, an Israeli company, and INX, a Puerto Rican corporation...