Article

Note: To cover Assurecare Corporation's (Applicant/Reinsurer) reinsurance obligation for USD 250,000 of "net liability" and a percentage of expenses to the investigation, settlement, or litigation if it failed to pay within 30 days of a claim under the reinsurance policies, Applicant/Reinsurer provided a standby LC to Arrowood Indemnity Company (Beneficiary/Insurer).

Applicant/Reinsurer paid to deceased patient's estate the quota claim (USD 250,000 plus a percentage of expenses) on a USD 1,750,000 settlement (wrongful death suit) under a policy insured by Beneficiary/Insurer. Subsequently, Greenwood Terrace (Nursing Home) claimed that Beneficiary/Insurer should have paid a greater portion of the wrongful death settlement. In a settlement between Nursing Home and Beneficiary/Insurer, Beneficiary/Insurer agreed to pay a further USD 325,000, billing Applicant/Reinsurer for this settlement. Applicant/ Reinsurer contested this claim and refused to pay. Beneficiary/Insurer then drew on the standby LC for USD 361,518 in partial satisfaction of the Nursing Home settlement and sued Applicant/Reinsurer for the balance of USD 230,527.76, moving for summary judgment. Applicant/Reinsurer counterclaimed against Beneficiary/Insurer for wrongfully drawing on the standby. The U.S. District Court for the Northern District of Illinois, Gettleman, J., granted Beneficiary/Insurer's motion for summary judgment.

Applicant/Reinsurer claimed that Beneficiary/Insurer's drawing on the standby constituted conversion because the amount drawn was not due. Beneficiary responded that that the settlement fell within the scope of the reinsurance treaty and that it was entitled to draw upon it.

Ordering payment of USD 230,527.75 as the balance due, the Judge also ordered Applicant/ Reinsurer "to deliver to [Beneficiary/Insurer] cash or an amendment to the Letter of Credit and to immediately fund the collateral shortfall as set forth by the treaty." The Judge ruled that payment from the Greenwood settlement was due under that reinsurance treaty and that drawing on the Letter of Credit was not conversion.

[JEB/rdp]

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