Employers Reinsurance Co. v. Massachusetts Mutual Life Insurance
654 F.3d 782
8th Cir.2011Background
- ERC and Mass Mutual entered a 1996 reinsurance Treaty via Mass Mutual's merger with CML; the Treaty governs loss, retention, and indemnity allocations.
- Article IV defines loss as amounts Mass Mutual actually pays for disability benefits, settlements, or judgments, plus waived premiums; certain expenses are excluded.
- Article IX requires Mass Mutual to reimburse ERC for loss payments, and gives ERC the right to participate in investigations/defenses; quarterly summaries are provided.
- Article XII allows offset of balances owed between the parties, including past and future amounts, under this and prior/future reinsurance agreements.
- In 2004 Mass Mutual disclosed overcharges and undercharges, and ERC began challenging reimbursable claims; ERC stopped reimbursements in 2006 after suit.
- The district court held that the Treaty includes a follow-the-settlements provision, dismissed/limited several claims by limitations and tolling, and allowed Mass Mutual’s breach of contract and good-faith claims to proceed; ERC appeals on follow-the-settlements, limitations, and stopping reimbursements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Treaty contain a follow-the-settlements provision? | ERC: no express/implicit provision; depends on extrinsic evidence | Mass Mutual: Treaty unambiguously requires ERC to follow settlements | Yes, Treaty includes follow-the-settlements provision |
| Are ERC's claims barred by Connecticut's statute of limitations? | ERC: tolling or continuing-course-of-conduct theories may apply | Mass Mutual: no tolling; many claims accrued outside 6-year limits | Six claims barred; tolling not established; limitations defenses sustained |
| Did ERC breach the Treaty by stopping reimbursements in 2006? | ERC: offset provisions in Article XII allowed withholding | Mass Mutual: balances must be due/undisputed; withholding while claims contested breaches duty | No, withholding without a due/undisputed balance breached the Treaty and implied covenant |
| Did ERC's actions breach the implied covenant of good faith and fair dealing? | ERC acted under offset rights; no bad faith | ERC acted in bad faith by withholding for over two years | ERC acted in bad faith; district court’s summary judgment affirmed against ERC |
Key Cases Cited
- Hartford Accident & Indem. Co. v. Ace Am. Reinsurance Co., 284 Conn. 744 (Conn. 2007) (ambiguous terms; follow-the-fortunes interpretation in reinsurance)
- Travelers Indem. Co. v. Scor Reinsurance Co., 62 F.3d 74 (2d Cir. 1995) (explains follow-the-fortunes/settlements concepts)
- Am. Employers' Ins. Co. v. Swiss Reinsurance Am. Corp., 413 F.3d 129 (1st Cir. 2005) (follow-the-fortunes doctrine; limits on reinsurer challenges)
- N. River Ins. Co. v. Ace Am. Reinsurance Co., 361 F.3d 134 (2d Cir. 2004) (follow-the-settlements; limits when bad faith or excess)
- Tolbert v. Conn. Gen. Life Ins. Co., 257 Conn. 118 (Conn. 2001) (contract accrual rule; injury starts statute of limitations)
- City of W. Haven v. Commercial Union Ins. Co., 894 F.2d 540 (2d Cir. 1990) (continuing course of conduct tolling doctrine)
- Burke v. Klevan, 130 Conn. App. 376 (Conn. App. 2011) (illustrates accrual and damages timing in contract actions)
- Vanliner Insurance Co. v. Fay, 98 Conn. App. 125 (Conn. App. 2006) (tolling and continuing duty analysis in Connecticut)