In recent years, more than two dozen insurance companies, including Liberty Mutual, AIG, and CNA, have entered into reinsurance arrangements with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc. (“Berkshire Hathaway”), involving long-tail tort claims. As a result of these deals, which Reed Smith has carefully tracked, many policyholders find themselves forced into relationships with NICO and/or Resolute Management, Inc. (“Resolute”), NICO’s “affiliated claims adjuster.”
Unfortunately, policyholders may find that if they disagree with NICO’s and/or Resolute’s approach to adjusting, defending, or resolving their claims, they have no direct recourse against either of them. At least that is the pronouncement that a New York intermediate appellate court recently handed down in OneBeacon American Insurance Co. v. Colgate-Palmolive Co., 2014 NY Slip Op 07315 (N.Y. App. Div. 1st Dept., Oct. 28, 2014).
“During an extended period ending in 1983,” Colgate-Palmolive Company (“Colgate”) purchased more than 50 primary and excess liability insurance policies from OneBeacon American Insurance Co. or from two of its predecessors (collectively, “One Beacon”). Nearly 20 years later, in 2001, OneBeacon entered into a reinsurance agreement and a related services agreement with NICO. Pursuant to those agreements, OneBeacon appointed NICO to “‘perform all administrative services’ connected with the [p]olicies, including the settlement or payment of the reinsured claims.” In a subsequent deal, NICO entered into an agreement with Resolute, pursuant to which Resolute agreed to act as NICO’s agent to adjust the claims NICO is reinsuring under the OneBeacon policies.
In 2008, Colgate was served with the first of more than 20 personal injury lawsuits alleging bodily injury resulting from exposure to Colgate’s talc products that plaintiffs alleged contained asbestos. When Colgate notified OneBeacon of that case, the response instead came from Resolute, indicating that Resolute would be handling the claims on OneBeacon’s behalf. The relationship broke down over disputes regarding the insurer’s reservations of rights and the handling of Colgate’s defense. Eventually, Colgate engaged its own independent counsel without the consent of OneBeacon.
OneBeacon then sued Colgate. Colgate, in turn, joined NICO and Resolute to the action and asked the court to declare that Colgate is “entitled to independent counsel and that Resolute is prohibited from obstructing its defense of the Talc Cases.” Colgate also stated a claim for tortious interference with contract against Resolute. Against NICO, Colgate pleaded claims for breach of contract and breach of the implied covenant of good faith and fair dealing. NICO and Resolute moved to dismiss the claims. After losing before the trial court, they appealed and succeeded in reversing the lower court’s decision.
To start, the appellate court found that “the absence of privity” between Colgate and NICO or Resolute precluded Colgate from pursuing breach-of-contract claims against NICO or Resolute. The court rejected the argument that NICO had been assigned rights and obligations, or had assumed obligations, under the policies.
“If Resolute, while acting for NICO on behalf of One Beacon,” the court reasoned, “breached the [p]olicies while acting within the scope of its authority, only OneBeacon would be liable to Colgate for breach of contract. OneBeacon remains fully and solely responsible for the performance of its obligations under the [p]olicies even if NICO and Resolute are performing those obligations on its behalf.”
The court added, “Given the absence of a contract between NICO and Colgate,” Colgate’s claim against NICO for breach of the covenant of good faith and fair dealing “also fails.”
The court then quickly disposed of Colgate’s claim for tortious interference against Resolute, noting that Resolute had acted as NICO’s “designated agent” and that no such action “can lie against an agent acting within the scope of his duties on behalf of the principal.” Similarly, the court dismissed Colgate’s claim against Resolute for declaratory relief, finding that the specific claim was premised on Colgate’s assertion that it was a third-party beneficiary to the contract between Resolute and NICO, which the court found that contract specifically disclaimed.
OneBeacon warns that – under New York law at least – NICO and Resolute may be able to avoid liability for how they handle, or adjust, claims. The decision further cautions that, despite the fact that many policyholders now find themselves unexpectedly tied to NICO and Resolute for the duration of their long-tail claims, only one entity may be held accountable for how those claims are handled – the insurance company which issued the policy.
All hope is not lost, however. In addition to aggressively tagging the legacy insurers with the misdeeds of Resolute and NICO in New York, policyholders should look to other jurisdictions, which may have more favorable law. Members of Reed Smith’s global Insurance Recovery Group have represented several policyholders in disputes arising out of the delegation of claims-handling responsibilities to third-parties (including Resolute) and can assist policyholders in pursuing claims against those parties, to the extent feasible and advisable. Those attorneys also continue to carefully follow new developments involving Berkshire Hathaway, NICO, and Resolute.
Please contact the authors of this Alert; the Reed Smith Insurance Recovery Group’s Global Practice Group Leader, Douglas E. Cameron; or any Reed Smith coverage attorney with whom you routinely work for assistance or with questions.
For the second year in a row, U.S. News-Best Lawyers “Best Law Firms” named Reed Smith its “National Law Firm of the Year” in Insurance Law (2014-2015). In addition, the group is named among the best policyholder coverage practices by Chambers USA, Chambers UK, Legal 500 US and Legal 500 UK. American Lawyer Media’s Legal Intelligencer named Reed Smith’s Insurance Recovery Group one of Pennsylvania’s “Litigation Departments of the Year” for 2014 - the only policyholder-focused firm recognized in the Pennsylvania-based publication - and The National Law Journal named the Chicago Insurance Recovery team the 2014 “Chicago Litigation Department of the Year: Insurance.”
Client Alert 2014-301