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District Court Reaffirms Unauthorized Reinsurer to Post Pre-Pleading Security


Arrowood Surplus Lines Insurance (“Arrowood”) requested the district court to issue an order requiring Gettysburg National Indemnity (“Gettysburg”) to post over six hundred thousand dollars in pre-pleading security regarding a reinsurance dispute. Arrowood relied on Connecticut General Statute Section 38a-27(a), which requires “unauthorized insurers” to post pre-pleading security.

This dispute arises out of a series of reinsurance agreements between Arrowood and Gettysburg which stated that each agreement reinsured approximately ten percent of the hundred percent quota share of the first million dollars of the cedent’s net liability up to an aggregate attachment point of ninety percent of the gross written premiums. Arrowood claimed Gettysburg is responsible for over a million dollars in obligations including its gap collateral obligations together with loss adjustments. Gettysburg argued that it should not be responsible for submitting security in an amount exceeding their gap coverage obligations which are approximately four hundred thousand dollars. The district court disagreed claiming the security should consist of all of the obligations under the reinsurance agreements. The court concluded that if the reinsurer is “undercapitalized … Gettysburg has the recourse against the shareholders under the terms of the agreement.”

On May 10, 2010, the District Court confirmed the Magistrate’s decision requiring the security over Gettysburg’ s objections on the grounds that it should not be required to pay any amount in excess of the funds remaining in the various accounts in question.

IMPACT (REINSURANCE): The issue of a reinsurer being undercapitized or insolvent is a persistent problem and the subject of several important court decisions. Practitioners should be cognizant of the state and federal laws which allow for pre-pleading security to ensure that certain funds are set aside to potentially satisfy (or partially satisfy) a judgment. In this issue Connecticut, like several other states, requires unauthorized insurers to post pre-pleading security to satisfy any financial obligation stemming from litigation over policies. Given the recent motion practice, we fully expect that Gettysburg will appeal this decision.

All content © 2020 Goldberg Segalla LLP


About this Author

Thomas F. Segalla, Insurance Attorney, Goldberg Segalla Law Firm

Thomas F. Segalla, is the co-author of the renowned insurance law treatise Couch on Insurance 3d and is one of the founding partners of the firm.  Mr. Segalla is a nationally recognized reinsurance and insurance expert who has been retained by numerous insurance carriers and policyholders.  His active practice focuses on the defense and insurance coverage aspects of matters involving bad faith; construction site personal injury accidents (Labor Law §§ 200, 240(1) and 241(6)); and toxic tort and environmental issues. As a member of the Defense Research Institute (DRI),...

Jeffrey L. Kingsley, Goldberg Segalla, Insurance attorney

Jeffrey Kingsley maintains an international practice that focuses on matters involving insurance and reinsurance coverage, commercial and regulatory issues, and extra-contractual liability arbitration and litigation. As a leader in Goldberg Segalla’s reinsurance practice he has extensive experience handling and consulting clients on complex reinsurance allocation issues, regulatory issues, arbitrations, transactional issues, and disputes involving the follow-the-fortunes doctrine.

Jeff provides comprehensive legal representation for Fortune 500 companies, insurers, reinsurers, and other businesses to help them manage risk at every stage of business and protect their interests when disputes may arise. He works with clients during the developmental phase of business relationships to analyze agreements and potential strategies in order to reduce liability exposure and identify issues that may impede growth, including threats to a company’s reputation or intellectual property rights.

Jeff currently serves as national litigation and regulatory counsel for one of the largest companies that provides vehicle service contracts and extended insurance warranties for both commercial and personal vehicles. In that role he handles the resolution of coverage claims and disputes with dealers, producers, and competitors, including representing the company in litigation and arbitration; drafts reinsurance agreements to create captive reinsurance companies; assists with the drafting of vehicle service contracts and warranties; and counsels on a range of regulatory matters, including advertising regulations. Jeff’s recent experience also includes consulting with one of the world’s top auto manufacturers in the development of a national program.