We previously posted on July 24, 2007 about a case brought by Jurupa Valley Spectrum, LLC (“Jurupa”) against its insurer’s reinsurer, National Indemnity Company (“NICO”). NICO reinsured Frontier Insurance Company, which was declared insolvent, and against whom Jurupa had an outstanding claim under a surety bond which Frontier issued to Jurupa. The case was dismissed by a New York federal court.
On February 4, 2009, the Second Circuit Court of Appeals affirmed the decision, agreeing with the trial court that (1) the contract between Frontier and NICO did not contemplate direct action by Frontier’s insureds against NICO; (2) the contract could not fairly be read to contain a “cut through” provision, as the contract made clear that all rights against the reinsurer inhered only with the insurer; and (3) the contract did not violate of a New York statute, which requires reinsurance contracts to contain “cut through” provisions when an insurer issues a surety bond in an amount exceeding ten percent of its surplus, because at the time of issuance of the surety bond, Frontier’s surplus exceeded ten percent of the value of Jurupa’s bond. Jurupa Valley Spectrum, LLC v. National Indemnity Co., No. 07-3211 (2d Cir. Feb. 4, 2009).