Federal Court Denies Bifurcation of Contract Claims and Uberrimae Fidei and Late Notice Defenses in Reinsurance Dispute
A Michigan federal court declined to bifurcate a case involving a contract dispute between a ceding insurer, Amerisure, and its reinsurer, Transatlantic Re, in a case arising from underlying asbestos claims dating back to the early 1980’s.
Amerisure sued TransRe alleging that it failed to reimburse Amerisure under a facultative reinsurance agreement covering losses and loss expenses arising from underlying asbestos claim liabilities insured by Amerisure. For its part, TransRe alleged that Amerisure breached the “duty of utmost good faith” by failing to apprise TransRe of all relevant information in its underwriting of the facultative agreement, thereby voiding the agreement. TransRe also claimed that Amerisure’s claim is barred due to late notice.
Amerisure filed a motion to bifurcate the proceedings to address the contract issues first. TransRe opposed the motion arguing that even if the contract issues were resolved, the breach of duty of utmost good faith and late notice issues would remain to be addressed, and thus bifurcation would not result in a more efficient proceeding.
The trial judge referred the issue to a special master, who found that bifurcation was inappropriate, as a phased proceeding would not result in convenience to the parties or judicial efficiency. The report noted that much of the discovery involved on the contract issues would overlap with the issues involved in TransRe’s defense based on breach of the duty of utmost good faith, such as the underwriting intent and meaning of the applicable policy or reinsurance language. The report concluded, therefore, that phasing the proceedings might ultimately be less efficient, rather than more efficient, and recommended denial of the motion.
The judge accepted the special master’s recommendation and denied Amerisure’s motion.