Ainsworth v. General Reinsurance Corporation

751 F.2d 962 (1985)

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Ainsworth v. General Reinsurance Corporation

United States Court of Appeals for the Eighth Circuit
751 F.2d 962 (1985)

  • Written by Rose VanHofwegen, JD

Facts

General Reinsurance Corporation (General) (defendant) reinsured Medallion Insurance Company (Medallion). The reinsurance agreement included an insolvency clause that said if Medallion became insolvent, the reinsurance would remain payable to Medallion’s receiver based on the amount of Medallion’s liability to its insureds under their policies, “without diminution because of the insolvency.” The clause gave General rights to investigate claims Medallion’s insureds made and assert defenses in proceedings adjudicating those claims, but it did not give General any right to settle claims itself. When a Missouri court declared Medallion insolvent, ordered liquidation, and appointed a receiver, two companies Medallion insured had unpaid liability claims outstanding. The first company incurred a judgment against it for $485,000 and had a Medallion policy with $100,000 liability limits. The judgment holders sought payment from General as Medallion’s reinsurer. General initially said it could not settle the claim because the insolvency clause prohibited it, but General changed positions and negotiated a $25,000 settlement without involving the receiver. The second claimants agreed to a court-approved settlement of $85,000. Medallion’s ancillary receiver paid the claimants $50,000; the insured company contributed $10,000; and its excess insurer contributed $25,000. General paid Medallion’s receiver $50,000, evidently on the theory that amount represented Medallion’s insured liability to those claimants. Medallion’s receiver, C. Donald Ainsworth (plaintiff), sued General to recover policy limits less retention ($75,000) on the first claim, and $85,000 less retention on the second claim. The court awarded the receiver those amounts, finding General violated the insolvency clause by negotiating a reduced settlement of the first claim and paying only $50,000 of the second claim. General appealed.

Rule of Law

Issue

Holding and Reasoning (Fairchild, J.)

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