Nine-Figure Insurance Settlement In Residual Value Coverage Dispute
We represented an automobile distributor seeking insurance coverage for residual value losses on a large portfolio of leased vehicles in a case that resulted in a nine-figure settlement for our client after five weeks of trial. (Residual value loss occurs when the actual value of a vehicle at the end of the lease term is lower than the value that was estimated at the inception of the lease, resulting in a loss to the lessor.) The insurance had been issued by a captive insurer owned by the client, but the actual coverage was provided by the reinsurers of the captive insurer, which controlled the handling of the client’s claim for coverage. The insurance policy with the captive contained a mandatory arbitration clause that required the arbitrators to be current or former officials of insurance or reinsurance companies – a panel that would favor the reinsurers.
We secured rulings that (1) because the reinsurers dealt with our client directly in handling its claim for coverage, our client could seek coverage directly from the reinsurers as if they were direct insurers bypassing the captive; and (2) the reinsurers could not rely on the arbitration clause in the insurance policy issued by the captive, and our client was free to pursue its claim for coverage in court rather than in an insurer-slanted arbitration proceeding.