When a policyholder faces litigation from its insurance company over a claim submitted by the policyholder, the policyholder often will defend by alleging that the insurance company has breached the insurance contract and has wrongfully failed to pay the claim.  Sometimes, however, a policyholder will try to blame the insurance company’s refusal to pay a claim on others.  In a recent case, a policyholder sought to bring a third-party complaint against several reinsurers, blaming them for the insurance company’s actions.

In Integrand Assurance Co. v. Puma Energy Caribe, LLC, No. 19-1195 (FAB), 2019 U.S. Dist. LEXIS 221766 (D. P.R. Dec. 27, 2019), an insurance company brought an action against its insured alleging fraud and misrepresentation in an insurance claim submitted by the policyholder to the insurance company.  The policyholder counterclaimed for breach of contract and several other wrongs, but also purported to bring a third-party complaint against a group of reinsurers.  The third-party complaint alleged that the reinsurers collusively breached their reinsurance contracts by failing to pay the cedent on the claim and that because of litigation between the cedent and the reinsurers, the cedent “has concocted a scheme to delay payments” by falsely alleging fraud.  The third-party complaint also alleged third-party beneficiary status.

The reinsurers moved to dismiss the third-party complaint and the court granted the motion (without prejudice).  As the court stated, the reinsurers raised “powerful points in favor of dismissal.”  These included that there was no privity of contract between the policyholder and the reinsurers, that the policyholder did not have standing to assert third-party beneficiary rights or the rights of the policyholder, and that any disputes under the reinsurance agreements must be arbitrated.  The court accepted these arguments and also found that the policyholder erroneously sought to implead the reinsurers under Federal Rule of Civil Procedure 14(a).

As the court noted, the policyholder was not seeking indemnity from the reinsurers for any claim asserted by the cedent against the policyholder.  Rule 14(a) does not allow a party to assert its own claims.  Moreover, held the court, other bases for impleading a third party also were not available to the policyholder.  Thus, Rules 13(h), 19 and 20 provided no procedural vehicle by which the policyholder could join the reinsurers to assert claims against them.  Thus, the purported third-party complaint was dismissed against the reinsurers.

Although the court stated that the purported third-party complaint came “close to obstinance or frivolity,” the court denied the reinsurers’ motion for attorney fees finding that the policyholder’s actions did not rise to the level of being unreasonably adamant or stubbornly litigious, beyond the acceptable demands of the litigation.