Reliance Insurance v. Certain Member Companies
Plaintiffs Reliance Insurance Company and New York Marine & General Insurance Company commenced this action seeking a declaratory judgment to void a reinsurance binder ab initio. Defendants, Certain Member Companies of the Institute of London Underwriters, issued this binder covering plywood cargo. A cargo fire on the vessel SAMICK NORDIC destroyed the plywood, leading to a dispute over a $2,043,740.24 reinsurance coverage. Plaintiffs argued they were misled by brokers into believing the reassured was retaining a portion of the risk, a customary practice, whereas the London Underwriters had ceded 100% of the FPA risk. The court found that plaintiffs reasonably believed in retention and were indeed misled by the brokers' actions and omissions, constituting a violation of the duty of uberrimae fidei, or utmost good faith. Consequently, the court entered judgment in favor of the plaintiffs, declaring the reinsurance binder void ab initio and dismissing the defendants' counterclaim.