Employers Reinsurance Co. v. Massachusetts Mutual Life Insurance Co.

Issue Discussed: Follow the Fortunes / Settlements

Submitted by Cecilia Froelich Moss, Karen C. Baswell

Date Promulgated: September 7, 2011

Employers Reinsurance Co. v. Massachusetts Mutual Life Insurance Co., 654 F.3d 782 (8th Cir. 2011)

Court: United States District Court for the Southern District of New York

Issues Decided: Whether certain provisions in a reinsurance treaty that, among other things, required the reinsurer to promptly reimburse the insurer for amounts paid by the insurer “in settlement of claims”  amounted to a follow-the-settlements provision.

Factual Background:

The reinsurance treaty at issue covered loss sustained by the cedent (Mass Mutual) under various disability income policies.  During the life of the treaty, the parties entered several agreements allowing a third party representative of the reinsurer (Employers Reinsurance Company) to review claims and make non-binding recommendations to Mass Mutual, but each provided that Mass Mutual would be “the final decision-maker in all benefit determinations.”  654 F.3d 782, 787-88 (8th Cir. 2011).

After implementing a new claims administration system, Mass Mutual notified Employers Re that it had identified several errors in its claims handling over the span of the parties’ relationship, including misidentification of some claims (resulting in overcharges to Employers Re), and miscalculation of residual benefits under certain policies (resulting in undercharges to Employers Re).  Mass Mutual then made offsets of the relevant amounts to correct its mistakes.

Employers Re then challenged additional claims as not being covered by the treaty, and requested reimbursement from Mass Mutual.  Mass Mutual refused, arguing that Employers Re was required to follow its claims decisions under the follow the settlements doctrine.  Employers Re then brought suit, claiming the doctrine did not apply because the treaty did not contain a follow-the-settlements provision.  The parties cross-moved for partial summary judgment on this issue, among others.  The district court concluded the language of the treaty contained an express follow the settlements provision, and Employers Re appealed that finding.

Key Holdings:

Applying Connecticut law, the court found that, while the wording of follow the settlements clauses may vary, the reinsurance treaty at issue unambiguously contained a follow-the-settlements provision.  The court relied on language providing that the reinsurer “will indemnify [Mass Mutual] against the part of such loss indicated [in the relevant treaty Schedule],” and “shall reimburse [the insurer] promptly for loss against which indemnity is herein provided” read in conjunction with the  definition of “Loss” which included both amounts that Mass Mutual pays “for disability benefits afforded under the policies” and “in settlement of claims for disability benefits under the policy.”

The court reasoned that a claim for disability benefits “might be covered by the policy, or it might not[,]” but that amounts paid by Mass Mutual to settle that claim “unambiguously constitute reimbursable loss,” and concluded that the reinsurer’s ability to challenge Mass Mutual’s decision to settle was limited to the follow-the-settlement grounds of showing bad faith or that the claims “clearly fell outside the scope of the policies[.]”  Id. at 790-91 (internal citation omitted).

Key Takeaway:

Treaty language that, among other things, obligates the reinsurer to indemnify the insurer for losses due to settlement of claims under the policies can constitute a follow-the-settlements provision.*


*Note however that other courts have concluded that similar language in other reinsurance agreements does not constitute a follow-the-settlements clause.  See, e.g., North River Ins. Co. v. Employers Reinsurance Corp. 197 F.Supp.2d 972 (S.D. Ohio 2002).



Cecilia Froelich Moss is a founding partner of Chaffetz Lindsey LLP, where her practice focuses on representing major insurance companies in reinsurance disputes and in coverage litigation.  Ms. Moss also handles large scale commercial disputes in court and in international arbitration.

Karen C. Baswell is an associate of Chaffetz Lindsey LLP, focusing on insurance and reinsurance dispute resolution.  Ms. Baswell also has experience representing clients in commercial litigations and international arbitrations.