A federal appeals court on Wednesday upheld a lower court decision in favor of a unit in Munich Re in a coverage dispute with a risk management program for public entities in Florida that claimed the reinsurer was prohibited from examining its decision to pay a claim.
Munich Re reinsured Fort Myers-based public risk management in Florida for civil servant misconduct and omissions between April 1, 2008 and April 1, 2009, according to the judgment of the 11th U.S. Circuit Court of Appeals in Atlanta in Public Risk Management of Florida v. Munich Reinsurance America, Inc.
PRM members included the city of St. Pete Beach, which was sued by a couple over the question of whether they must give the public access to their beach package.
The trial led to a jury award that included $ 725,000 for violating the couple̵7;s rights to the Fourth Amendment. PRM agreed to reimburse the city for the claim and then demanded that amount plus more than $ 200,000 in defense costs from Munich Re America, which denied the claim.
The PRM brought an action against Munich Re America before the US District Court in Tampa, which ruled in favor of the reinsurer.
The PRM argued in the appeal that the reinsurance contract included a “follow the riches” clause under which the reinsurer was prohibited from second guessing an insurer’s “decision in good faith” to pay a claim.
A panel of three judges in the Court of Appeal upheld the lower court’s decision, saying “it would be incompatible with the simple, unambiguous terms of the reinsurance contract to conclude that Munich would be bound by the PRM’s coverage decision.”
The complaint’s allegations “clearly show that PRM had no obligation to defend the city under the 2008/2009 coverage document, and the facts developed in the trial in the underlying case clearly show that PRM had no obligation to indemnify the city under the 2008/2009 Coverage Document”, it is stated in the judgment.
Lawyers in the case did not respond to a request for comment.
Earlier this month, the 11th Circuit upheld a lower court decision in favor of a Munich Re unit in litigation over its coverage denying a marine vessel’s engine failure.