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Centaur Ins. Co. v. Safety Nat'l Cas. Corp., 1993 U.S. Dist. LEXIS 14991 (N.D. Ill.
Oct. 22, 1993). Centaur, a company in rehabilitation, sued its reinsurer,
Safety, for breach of a reinsurance agreement. Centaur was the insurer for a
supermarket chain. Safety agreed to reinsure Centaur in the amount of
$500,000 excess of $500,000 per occurrence. One of the conditions in the
reinsurance agreement was that Centaur promptly advise Safety of any
claim and subsequent developments that may involve the reinsurance. A
"slip and fall" claim arose against the supermarket chain, and Centaur
received notice of the claim, which was actually sent to Global Surplus
Insurance Services, Inc., a company that was managing claims for Centaur.
Global was also Safety's agent for some claims, and Centaur claimed Safety
had received notice of the claim because of the notice given to Global. After
the plaintiffs in the "slip and fall" case won a jury verdict in excess of
$1,000,000, Centaur sent a "first notice of loss" to Safety. Safety denied
payment based on untimely notice of the claim, stating that Centaur failed to
disclose information before the verdict that was significant to Safety's
exposure. The court held that even if Safety was to be charged with notice
through Global, the notice did not satisfy Centaur's obligation under the
agreement, as the notice did not disclose that it was likely the claim would
involve Safety's funds. The court evaluated whether the "first notice of loss"
letter satisfied Centaur's notice obligation under an objective standard of
reasonableness. The court found that Centaur was entitled to some
discretion in its notice obligation, and some facts indicated that its exercise
of that discretion was objectively reasonable, while other facts indicated it
was not. The court held that summary judgment was inappropriate on this
issue, and said that while granting unfettered discretion to the ceding
company with regard to giving notice would be unfair to the reinsurer,
always allowing the reinsurer to question that discretion would be equally
unfair to the ceding company.
Evans v. Potts, 204 Ill. App. 212 (1917). The insurance commissioner filed a
petition to intervene to protect the assets of an insolvent insurer. The
commissioner was allowed to intervene but the appointment of the receiver
by the equity court would not be reversed. Furthermore, if assets were
diverted by the receiver to the insurance commissioner as intervener, such
actions could be deemed improvident at some subsequent point in time and
the intervener, as well as the receiver, could be compelled to restore the assets
of the estate.
Foudree v. Sumner, 1989 U.S. Dist. LEXIS 15576 (N.D. Ill. Dec. 27, 1989). The
court denied defendants' motion for summary judgment, finding that there
was no evidence that the defendants maintained Lincoln as a "sham"
reinsurer, as the plaintiffs received Lincoln's annual statements, and
therefore had knowledge of Lincoln's financial state. However, there were
genuine issues of material fact as to whether fraud was committed as a
result of (1) alleged misrepresentation concerning the lag times in
processing claims; (2) the omission of IBNR from reports produced for Iowa
Travelers; and/or (3) setting premiums below reasonable levels.
O'Connor v. Insurance Company of North America, 622 F. Supp. 611 (N.D. Ill.
1985), reconsideration denied, 668 F. Supp. 1183 (1987), appeal granted (1989).
The court held that the reinsurance proceeds due the liquidator could be set
off by the other debts owed to the reinsurers by the insolvent insurer, which
were primarily unearned premiums and the insolvent insurer's share of the
reinsurance pool. The court rejected the holding of Melco System v. Receivers
of Transamerica Ins. Co., 268 Ala. 152, 105 So. 2d 43 (1958) by holding that the
concept of "mutuality" was applicable because the reinsurance proceeds are