by ~ Melissa M. DAlelio (Email) (Web Site)
New Englanders know to take heed when we see clouds on the horizon and hear a storm warning. It turns out that reinsurers seeking to assert fraud in litigation or arbitration against a cedent need to heed another type of storm warning. In the Second Circuit decision of AXA Versicherung AG v. New Hampshire Insurance Company et al (AIG), No. 08-2521-cv, 2010 U.S. App. LEXIS 17645 (2nd Cir. August 23, 2010), the Court declared that the storm warning doctrine applies to reinsurance disputes and that the emergence of storm warnings of fraud or misrepresentation by a cedent will, therefore, trigger the running of the statute of limitations. Reinsurers who fail to inquire about inconsistencies--storm warnings--when they arise may see their rights lost to the running of the statute of limitations period for fraud.
AXA Versicherung involved a claim of fraudulent inducement with respect to two reinsurance facilities. Reinsurer AXA filed suit against AIG, alleging that AIG misrepresented that it would treat the facilities as facultative obligatory, when, in fact, AIG subsequently administered the facilities as purely facultative. Reinsurer AXA alleged that this sleight of hand enabled AIG to offload unacceptable risk onto its reinsurers. AXA further claimed that it would not--in fact, could not--have entered into purely facultative reinsurance contracts. A jury agreed. At the close of trial, AXA obtained a $34 million judgment for fraud against AIG.
AIG appealed, posing two questions: First, should AXAs fraud claims have been in arbitration rather than in Court? And, if not, were AXAs claims nevertheless time barred by the statute of limitations? As a threshold matter, the Court of Appeals agreed with the District Court that AXAs allegations sounded in fraud and were properly decided in Court rather than in arbitration. Nonetheless, the Court of Appeals vacated the judgment against AIG on the ground that AXAs fraudulent inducement claims were barred by the statute of limitations. The Second Circuit overruled the District Courts previous rejection of both AIGs summary judgment motion and renewed Rule 50(b) motion on this very point.
The Second Circuit found that there were clear storm warnings as early as August 1998 and certainly no later than September 2000 that AIG intended to treat the facilities as purely facultative. The initial storm warning came in the form of a 1998 contract signed by AXA, which reflected that the facilities were facultative in nature--a fact AXA admitted at trial. The Second Circuit found that this document, and other documents AXA received through September 2000, should have put AXA on notice of AIGs intent, triggering AXAs duty to inquire. If a plaintiff shuts his eyes to the facts which call for investigation, knowledge of fraud will be imputed to him. In light of these ominous indicators, AXA could no longer reasonably rely on AIGs misrepresentations or words of comfort. AXAs failure to conduct the requisite inquiry imputed to it knowledge of the alleged fraud, rendering its later fraudulent inducement claim time barred. The Court concluded: We do not believe that a reasonable reinsurer like AXA can continue to turn a blind eye to repeated circumstances indicating that it may be a victim of fraud.
The Second Circuit borrowed the storm warnings doctrine from the world of securities law where the statute of limitations begins to run when sufficient facts suggestive of securities fraud trigger a duty on the part of prospective plaintiffs to inquire. While the Second Circuits decision in AXA Versicherung is a summary order, and thus not technically precedential, it serves as a storm advisory for those faced with fraud issues in the reinsurance context. Reinsurers, like hearty New Englanders, must stay abreast of storm warnings and take action when they see clouds brewing on the horizon. Failure to do so may result in the loss of a fraud claim in litigation or arbitration.There are many online and offline shops offer hermes bags,rolex replica,rolex replica and omega replica.
Melissa M. DAlelio may be reached at email@example.com.
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