764 F. Supp. 2d 274
D. Mass.2011Background
- Trenwick America Reinsurance and UNUM sue IRC Re, IRC, Inc., and Swasey for breach of a retrocessional contract related to the Reliance Compcare 2000 program; the dispute centers on a 19% retrocession allegedly due from IRC Re.
- Swasey founded and controlled the Swasey-era entities and was the program architect; IRC Re was the retrocessionaire in the chain linked to Trenwick/UNUM under Reliance.
- The program began under Hanover, then shifted to Reliance in 1996, with Trenwick retroceding to UNUM/SARF and a 19% share allegedly allocated to IRC Re; the parties dispute whether a formal written contract existed.
- Trenwick and UNUM maintained quarterly statements and payments to IRC Re; IRC Re’s balance disputes and Swasey’s conduct during reconciliation suggested an enforceable contract.
- In early 2006, Swasey conditioned payment on a purported written contract; the court ultimately finds that a contract existed despite the lack of a signed writing and addresses related 93A claims, jurisdiction, and other theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence of a retrocessional contract | Trenwick/UNUM argue there was a 19% retrocession contract with IRC Re. | Swasey contends there was only an 'agreement to agree' lacking a written contract. | Contract existed despite lack of writing. |
| Application of Follow the Fortunes doctrine | Doctrine applies to bar relitigation of underlying settlements. | Doctrine does not apply absent explicit contract or custom; Massachusetts law unclear. | Doctrine applies and binds reinsurers to pay their share. |
| Waiver of arbitration | Arbitration clauses should apply; but waiver may occur. | Arbitration rights have not been timely raised; waiver should apply to defense. | Waiver of arbitration rights. |
| Statute of Frauds applicability | The contract can be enforced despite no writing. | Statute of Frauds bars enforcement of a multi-year agreement lacking a writing. | Statute of Frauds does not bar the breach claim. |
| Chapter 93A liability and veil piercing | Swasey/IRC Re engaged in unfair practices; corporate veil may be pierced. | Veil piercing not warranted; fraud/93A not proven; separate entity intact. | 93A liability found against IRC Re, Swasey; veil piercing denied. |
Key Cases Cited
- N. River Ins. Co. v. CIGNA Reins. Co., 52 F.3d 1194 (3d Cir.1995) (follow-the-fortunes doctrine governs reinsurance disputes)
- N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134 (2d Cir.2004) (continuing duty of reinsurers to follow cedent decisions)
- CIGNA, 52 F.3d 1194, 52 F.3d 1194 (3d Cir.1995) (classic articulation of follow-the-fortunes doctrine)
- Seven Provinces Ins. Co., 217 F.3d 33 (1st Cir.2000) (presence of litigation conduct as 93A violation; contract context)
- Aetna Cas. & Sur. Co. v. Home Ins. Co., 882 F. Supp. 1328 (S.D.N.Y.1995) (industry custom to follow settlements; evidence requires expert testimony)