A New York state appellate court recently affirmed a decision denying a cedents motion to dismiss certain affirmative defenses asserted by a reinsurer, but found it could not rule as a matter of law whether a loss portfolio transfer (“LPT”) entered into by the cedents constituted “treaty reinsurance”.
A prior discussion of this case can be found here. The cedents sued the reinsurer for breach of certain facultative certificates. One of the affirmative defenses asserted by the reinsurer was that the cedents’ entry into the LPT breached warranty retention provisions in the certificates. In opposing this defense, the cedents have argued that the LPT fell within the “treaty reinsurance” exception in the warranties. The trial court ruled that because the LPT was retroactive in nature, it did not constitute “treaty reinsurance”, relying upon dicta from prior reinsurance cases in New York for the proposition that such reinsurance can only be prospective. The Appellate Division disagreed, noting that the authority cited by the parties was inconclusive or failed to squarely address the issue, thus finding premature this prong of the trial court’s ruling. As many LPT transactions have been entered into by cedents in recent years, a final ruling by the court on the “treaty reinsurance” question will be noteworthy.Granite State Ins. Co. v. Transatlantic Reinsurance Co., No. 652506/12 (App. Div., 1st Dep’t Oct. 15, 2015).