1. GK's Argument That, Absent Express Reinsurance Treaty Language To The Contrary, A Insured Cannot Recover From a Reinsurer
GK contends that "Allstate's 'implied contract' theory has been flatly rejected by the courts." Id. at 19. GK asserts that, pursuant to "well established principles of reinsurance law," in the absence of specific language in the reinsurance treaty to the contrary, an insured "cannot recover against a reinsurer." Id. Accordingly, GK argues that "because the Retrocession Agreement contains no provision authorizing NESCO or its successor, Allstate, as one of [SLR's] reinsureds, to recover directly from Groupe Kleber under the Retrocession Agreement, Allstate's implied contract claim against Groupe Kleber must fail." Id. at 21. Alternatively, GK contends that, even if NESCO maintained a relationship sufficiently direct with its reinsurers to create direct liability with them, that liability would attach to the POSA Pool, of which GK claims it is not a part. (GK Reply Memo at 16.)
In opposition to GK's motion for summary judgment, Allstate argues that GK mischaracterizes relevant case law. Specifically, Allstate contends that an insured may recover from a reinsurer where "the insured has a direct relationship with the reinsurer," rather than a "typical insured/insurer/reinsurer relationship." (Pltf.'s Opp. Memo at 22.) Allstate thus argues that "Allstate (through its intermediary, Interbroker) had a direct reinsurance relationship with Groupe Kleber (through its agent, CJV)." Id. at 23. Allstate alleges that "this direct relationship consisted of CJV's servicing the NESCO reinsurance business, including the handling and reporting of claims and the accounting, receipt and remission of premiums of the business written." Id. Allstate also claims that it "only dealt with its reinsurer, [SLR], once the POSA Group had disbanded." Id. As a result, Allstate argues that it is "entitled to pursue an implied contract claim directly against Groupe Kleber." Id.
Under New York law, in a typical insured/insurer/reinsurer relationship, the reinsurer does not examine risks, receive notice of loss from the original insured, or investigate claims. Unigard Sec. Ins. Co., Inc. v. North River Ins. Co., 4 F.3d 1049, 1054 (2d Cir. 1993) (citation omitted) (applying New York law). On the contrary, "in practice, the reinsurer has no contact with the insured." Id. Where this is the case, the relationship between an insurer and a reinsurer is one of indemnification only. See id. (citation omitted); Travelers Indem. Co. v. Scor Reins. Co., 62 F.3d 74, 76 (2d Cir. 1995). Absent an express provision to the contrary, the reinsurer "has no privity with, and is generally not liable to, the original purchaser of the underlying policy." Travelers, 62 F.3d at 76 (citing Delta Holdings, Inc. v. National Distillers, 945 F.2d 1226, 1229 (2d Cir. 1991), cert. denied, 503 U.S. 985, 118 L. Ed. 2d 390, 112 S. Ct. 1671 (1992); Unigard, 4 F.3d at 1054; Reliance Ins. Co. v. Aerodyne Engineers, Inc., 612 N.Y.S.2d 87, 87-88, 204 A.D.2d 944 (N.Y. App. Div. 1994) (citation omitted); Turner Constr. Co. v. Seaboard Surety Co., 447 N.Y.S.2d 930, 932, 85 A.D.2d 325 (N.Y. App. Div. 1982). "The reinsured remains solely responsible under the original insurance contract and it alone has a claim against the reinsurer." Reliance, 612 N.Y.S.2d at 87-88, 204 A.D.2d 944 (citation omitted). As a result, an insured "ordinarily does not have a direct right of action against a reinsurer, since the reinsurance contract is one of indemnity to the original insurer," not to the insured. Klockner Stadler Hurter, Ltd. v. Insurance Co. of Pa., 785 F. Supp. 1130, 1134 (S.D.N.Y. 1990) ("Klockner I ") (construing New York law).
Where the an insured consistently deals directly with its insurer's reinsurer, however, the reinsurer may become directly liable to the insured. For example, in Klockner I, a reinsurer's management company was alleged to have, "on behalf of [the reinsurer], directly handled all matters prior to and subsequent to loss, and dealt directly with [the insured]." Id. In denying a motion, brought by defendant management company, to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6), Judge Conboy noted that "it appears that [the reinsurer's management company and the insured], on behalf or the reinsurer, had a direct relationship that bypassed . . . the insurer." Id. In a later opinion in the same case, Klockner Stadler Hurter, Ltd. v. Insurance Co. of Pa., 780 F. Supp. 148 (S.D.N.Y. 1991) (Klockner II "), Judge Conboy denied in part defendant's motion for summary judgment because the insured "presented some evidence that [the reinsurer's agent] actually paid losses . . . from its own account." Id. at 165. In his opinion, Judge Conboy stated that courts should consider two factors when determining whether a reinsurance agent is directly liable to an insured: (1) whether the reinsurance agent "was the ultimate, consistent reimburser of losses" of the insured; and (2) whether "this status was conveyed to" the insured. Id.
Situations where a reinsurer maintained so direct a relationship with an insured as to create direct liability to the insured appear to be rare. For example, in Squibb-Mathieson Int'l Corp. v. St. Paul Mercury Ins. Co., 44 Misc. 2d 835, 836, 254 N.Y.S.2d 586 (N.Y. Sup. Ct. 1964), plaintiff sued to recover on an insurance policy issued by St. Paul Mercury Insurance Company, through co-defendant American Insurance Association (the "AIA"). 44 Misc.2d at 836-37, 254 N.Y.S.2d 586. The AIA moved for dismissal of the complaint because "it [was] not an insurer and [did] not conduct insurance business in its own name," even though it negotiated and paid claims arising under its members' insurance policies, including plaintiff's. 44 Misc. 2d at 837-38, 254 N.Y.S.2d 586. Plaintiff countered that the AIA's activities established its liability directly to plaintiff. Id. The court in Squibb-Mathieson, however, found that the AIA's activities were "akin" to the activities of insurance "brokers" who are not liable on the policies they negotiate after delivering them to the insureds and collecting the premiums, and thus ruled that the AIA was not liable to plaintiff, and therefore granted the AIA's motion to dismiss. Id. The court explained that
any implied understanding of the insured with respect to liability under the policy would, in the normal course, be merged into the formal insurance contract. That contract does not contain any indication of any liability on anyone's part other than St. Paul.