Reinsurer Efforts to Avoid the 'Follow the Fortunes' Doctrine Should Be Rejected

When dealing with 'captive' reinsureds, some reinsurers seek to restrict their obligations under applicable reinsurance agreements, in an effort to obtain rights held by 'direct' insurers, but rarely extended to reinsurers. A captive reinsured is one whose '[i]nsurance provides coverage for the group or business that established it.' Black's Law Dictionary 803 (7th ed. 1999). Indeed, while reinsurers have similar 'duties' as direct insurers, such as the duty to act in good faith, their 'rights' are much more limited. Most importantly, and based upon well-established custom and practice, case law, and applicable contractual language, a reinsurer has no right to conduct its own investigation into coverage decisions made by its reinsured and in only very limited circumstances may it second-guess those decisions. In fact, unless a reinsurer can prove bad faith conduct by its reinsured in handling claims made by underlying insureds, a reinsurer generally has no choice but to reimburse its reinsured for amounts paid pursuant to underlying policies.

30 minute read September 29, 2006 at 12:16 AM

By

Linda D. Kornfeld And Julia K. Holt