US insurers plan to appeal following federal judge’s ruling

Two US insurers in run-off plan to appeal a federal judge's ruling that they must press their fraud claims against former run-off manager Cavell USA Inc. in an English court, according to the insurers' attorney.

The insurers, Seaton Insurance and Stonewall Insurance, both of Providence Rhode Island, want to press their fraud claims in a US court. But Cavell is trying to move the case to the UK, where parent company Randall & Quilter Investment Holdings Plc is based.

The case is part of more extensive litigation over control of Seaton and Stonewall 10 years after the solvent companies went into run-off because of their heavy exposure to asbestos and pollution losses in underwriting insurance and reinsurance.

Cavell originally managed the run-off in partnership with hedge fund Greenwich Street Capital Partners II L.P., backed by $590 million of loss portfolio reinsurance from Berkshire Hathaway Inc.'s National Indemnity Co. (BI, May 12).

The two insurers claim that Cavell damaged their value by abdicating its claims-servicing duties to National Indemnity. Cavell denied the allegations.

According to court documents, a paragraph in the term sheet of the contract between the insurers and Cavell releases Ken Randall, chairman and chief executive officer of London-based Randall & Quilter, from various types of claims. But then the paragraph lists exceptions to that release. Among those exceptions are fraud claims.

Another page in the contract states that any disputes arising under the term sheet must be heard in a U.K. court. The insurers argue that the fraud claim exception in the term sheet's claim release section means they are not bound to the contract's U.K. court provision.

In his May 14 decision dismissing the insurers' claims against Cavell, US District Court Judge Richard M. Berman in New York ruled that the contracts between the insurers and Cavell required that all disputes must be resolved in England.

Judge Berman ruled the insurers' tort claims stem from a contractual relationship between them and Cavell. Those claims "ultimately hinge on rights and duties" established in the provision outlining where contract disputes will be resolved, Judge Berman ruled.

The ruling "definitely will be appealed," said Shawn Kelly, an attorney for the insurers. "The fraud happened in the US," said Mr. Kelly, a partner with Riker Danzig Scherer Hyland & Perretti L.L.C. in Morristown, N.J.