UK: Unicover - Recent Ruling By A New Jersey Appellate Court

Reliastar Life Insurance Company v Roger Smith and Aon Re Inc

There has been a recent ruling in the US concerning this all too well known workers' compensation reinsurance dispute. On 1 March 2011, the New Jersey Superior Court Appellate Division affirmed a jury verdict and held that Aon Re, Inc. ("Aon") and Roger Smith ("Smith") had not breached their fiduciary duties to a reinsurer, Reliastar Life Insurance Company ("Reliastar").

Background

In the mid 1990's, Unicover Managers Inc. ("Unicover") brought together a group of insurance companies (the "Pool") for the purpose of selling workers' compensation reinsurance. In its role as manager of the Pool, Unicover appointed Aon to act as its broker. Aon was also responsible for organising retrocessional coverage to protect the Pool's underwritten obligations. Smith was Aon's representative who dealt with Unicover. On 1 March 1998, Reliastar joined the Pool as a 5% member following an approach from Smith. Over the next two years, the Pool experienced dramatic growth and placed reinsurance far in excess of the amounts it was estimated that the retrocessionaires would originally cover. As a result of this, a number of the retrocessionaires alleged misrepresentation and non-disclosures and initiated arbitration proceedings. The arbitral panel held that any reinsurance sold by the Pool after 31 August 1998, was not covered by the retrocessional insurance agreement.

Reliastar action against Aon

In May 2003, Reliastar commenced proceedings against Aon and Smith, claiming damages of $40 million for (1) breach of fiduciary duty (by selling too much reinsurance and thereby jeopardising the Pool's retrocessional protection); and (2) aiding and abetting Unicover's breach of fiduciary duty. A jury returned a verdict that Aon and Smith had neither breached their fiduciary duty owed to Reliastar nor aided and abetted Unicover.

Appellate Court decision

Reliastar appealed the decision on the basis that the trial judge had misinstructed the jury and wrongly excluded three pieces of evidence, including the original arbitration ruling. The New Jersey Superior Court Appellate Division ruled that the trial judge had not misinstructed the jury and that his decision to exclude the evidence fell within his discretion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.