In 2009, we reported on an action brought by Callon Petroleum Company (“Callon”) against National Indemnity Company (“NICO”) to recover for a judgment Callon obtained against NICO’s cedent, Frontier Insurance Company (“Frontier”). (See previous blog post here.) In that case, the Eastern District Court of New York denied Callon’s motion to amend its complaint to include a statutory claim for punitive damages and penalties under Louisiana law against NICO. The court held that New York law governed the reinsurance agreement, and that Callon could not assert a cognizable claim for punitive damages because it lacked privity with Frontier’s reinsurer. Recently, the court ruled on a new motion by Callon to reconsider the August 2009 order.

In dismissing Callon’s motion to reconsider, the New York Eastern District Court relied on the Second Circuit’s decision in Jurupa, previously blogged about here, which held that a third party claimant lacked contractual privity with a reinsurer where there was no “cut through” provision in the reinsurance agreement and the agreement was not one of assumption reinsurance. The Second Circuit noted that reinsurance agreements are contracts of indemnity and, therefore, the original insured has no independent right of action against the reinsurer unless the agreement provides as such (or the reinsurer’s conduct vis-à-vis the third party claimant creates such a relationship). Moreover, the court rejected Callon’s argument that the reinsurance agreement’s provision requiring direct payment by the reinsurer to the original insured in the event of the reinsured’s default should be interpreted as a “cut through” clause and/or created contractual privity.

Click here to review a copy of the court’s decision, captioned Callon Petroleum Co. v. National Indemnity Co., et al., No. 06-cv-0573 (E.D.N.Y. 2010).