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MONTE CARLO, Monaco-Ten years after Mission Insurance Co. entered liquidation, a group of 19 European reinsurers, their attorneys and auditor gathered in France recently to celebrate the end of their battle to avoid liability for claims from Mission's liquidator.
After years of costly and contentious legal wrangling with Mission's liquidator, the reinsurers last year won a California Court of Appeals order compelling a trial court judge to uphold an arbitration panel's 1995 ruling that found the reinsurers owed nothing to the Mission estate (BI, Sept. 23, 1996).
The celebration was held at Le Grand Hotel in St. Jean Cap Ferrat, France, on Sept. 10, during the annual Rendez-Vous de Septembre in nearby Monte Carlo.
"The sad case is that some reinsurers were bullied into paying 100 cents on the dollar early on," observed R. Gaylord Smith, a partner with Lewis, D'Amato, Brisbois & Bisgaard L.L.P. of San Diego. Mr. Smith and Ernest Slome, also a partner with Lewis, D'Amato, were the trial attorneys for the 19 reinsurers.
Lead counsel for the reinsurers were Luke Lynch Sr. and John Higgins, both partners with D'Amato & Lynch in New York.
The California Insurance Department in December 1986 sued 145 reinsurers of Mission and its subsidiaries for more than $1.2 billion in unpaid recoverables and punitive damages, alleging with bad faith.
The department argued that Mission's difficulty in collecting payments from reinsurers was a major factor holding up a financial bailout plan designed to prevent a liquidation of the insurer. Mission ultimately entered liquidation in March 1987.
Among those reinsurers that had balked at paying claims, the group of 19-all of which were participants in a treaty reinsurance pool managed by Pacific Reinsurance Management Corp., a unit of Mission-had denied liability on numerous grounds, including that PRMC had defrauded them, misrepresenting the types of business written by the pool, among other charges.
Their challenge was prompted by an audit conducted in 1984 by Benedicte Dollfus of Paris-based Corifrance, or Cie. de Reassurances d'Ile de France.
"Mademoiselle Dollfus' audit uncovered significant irregularities," said Mr. Slome.
Her audit prompted a liaison committee for the group to hire Norman Reitman & Co. of New York to conduct a more in-depth audit of the PRMC pool, according to Mr. Slome.
The Reitman audit found evidence of unauthorized treaties, among other things.
"Everything, underwriting information, right from the beginning, was wrong," said Norman Reitman, president of the firm.
He said the Mission case demonstrates the importance of preventive auditing by pool members, rather than waiting until a problem blows up.
"Pool members never want to do preventive auditing, because they don't like lawyers and accountants," he observed. "But if they had. . . ."
Despite the legal costs and challenges, the 19 reinsurers hung together throughout the 10-year battle.
Communication was a critical factor in keeping the group together, said Mr. Slome. The attorneys communicated with the liaison committee on a weekly basis, and almost daily with the committee chairman. In addition, the 19 met annually.
What galvanized the 19 companies' resolve to fight, according to Mr. Smith, were efforts by the liquidators and Karl L. Rubinstein, a partner with Rubinstein & Perry who represented the liquidators, to "bully them" into paying full amounts in spite of the reinsurers' charges of fraud and misrepresentation.
Through it all, however, the reinsurers' attorneys gained a grudging respect for the tenacity of their opponent, Mr. Rubinstein.
"He collected over $1 billion. It was an effective strategy" for Mission's policyholders, said Mr. Smith.
However, he added, if the reinsurers proved their allegations of fraud, "was it right that he got all that money for the policyholders from the other reinsurers?"
The reinsurers are: Alphega Insurance Ltd.; Caisse Mutuelle d'Assurances et de Prevoyance; Caja Reaseguradora de Chile S.A.; Corifrance; Copenhagen Reinsurance Co. Ltd.; Deutsche Ruckversicherung A.G.; Gjensidige Norsk Skadeforsikring; Lansforsakringsbulagens A.B., parent of Stockholm Re; Legal & General Assurance Society Ltd.; Monsure Ltd., a Bermuda captive of Monsanto Co.; Omsesidiga Sjoforsakringsbolaget Sjoassuransforeningen and Ursa Jalleenvakuutusosakeyhtio, both now part of Sampo Insurance Co. Ltd.; Pan Korea Insurance Co. Ltd.; Pohjola Insurance Co. Ltd.; La Providence Compagnie; Royale Belge S.A.; Security Insurance Co.; SAI Industrial Insurance Co. Inc.; and Svenska Veritas Insurance Co., now part of WASA International Insurance Co.