Illinois Court Dismissed Captive Reinsurer’s 14-Count Complaint against AIG and Affiliates

Mount Mansfield Ins. Group, Inc. v. American Int’l Group, Inc. (App. Ct. Ill., Nov. 15, 2011)

Mount Mansfield, a captive insurance company, filed suit against numerous AIG entities and affiliates alleging the defendants created Mount Mansfield to reduce their insurance risk, then mismanaged it to a point of near-insolvency. The complaint alleged further that AIG retaliated against Mount Mansfield by altering its records, reporting it to the Vermont Department of Insurance, and forcing it into a protracted rehabilitation, from which the court later released Mount Mansfield finding that it was not in fact insolvent, rather the reserves in the account were inaccurate. The reinsurer alleged that it lost millions of dollars in assets due to AIG’s mismanagement. Defendants moved to dismiss the complaint; their motion was granted and affirmed on appeal.

Among the comprehensive and complex allegations, Mount Mansfield alleged that the parties entered into two written agreements – a Management Agreement and a Reinsurance Agreement – but that additional contractual obligations were agreed upon orally but not consummated in writing. Plaintiff alleged that AIG agreed to create a written “All-Inclusive Insurance Agreement” where AIG would be responsible for “every aspect of the insurance program,” protecting Mount Mansfield, and assuring that all written contracts for the insurance program were timely prepared; however, none of these “expansive” duties appeared anywhere in a writing.

Ultimately, a fourth amended complaint included 14 different counts including breach of fiduciary duty, breach of written and oral contracts, and negligent spoliation. The court summarized Mount Mansfield’s core allegations stating that in 1992 AIG’s agents made an oral agreement with plaintiff in which they agreed to become plaintiff’s fiduciaries and to manage the captive insurance program. Thereafter, AIG failed to reduce the agreement to writing, breached the oral and/or written agreements or their fiduciary duties by mismanaging the insurance program.

Among the allegations, Mount Mansfield alleged defendants breached an oral reinsurance agreement, yet it attached a written reinsurance agreement to the complaint, arguing the written agreement was merely a supplement to the more comprehensive oral agreement. The court reviewed the written agreement, finding that it comprehensively set out the rights and responsibilities of the parties. The court determined the parol evidence rule prohibits plaintiff from asserting that an oral agreement modifies the written agreement. The court also determined that the plaintiff failed to identify any specific provision of the written reinsurance agreement that defendants breached. Specifically, plaintiff alleged that AIG had improperly omitted or included unspecified terms and conditions, and the court noted that the duties AIG allegedly breached were not even included in the reinsurance agreement.

The crux of plaintiff’s arguments relied on the existence of an agency relationship between the defendant’s that allegedly entered the oral agreements with plaintiff and all the remaining defendants. The court found no factual allegations to even infer an agency agreement from stating for example that plaintiffs did not claim that the defendants called to set the meeting for AIG, that the meeting was held in AIG’s offices, or that the defendants presented AIG business cards. Because there was no evidence of an agency relationship, the defendants must have ratified the agreements to be bound. Here, the court found no evidence of any benefit defendants received from the alleged oral agreements. Additionally, the plaintiffs claimed a fiduciary duty existed because plaintiff was a new company, unsophisticated in insurance/reinsurance, and had completely entrusted its affairs to defendant. Again, the court also found no allegations to support this conclusion. Rather, it found that plaintiffs played in active role in the reinsurance program by marketing policies to its shareholders. Accordingly, the court dismissed plaintiff’s fourth amended complaint in its entirety.

A copy of the decision can be found here

Chris Bopst and Verne Pedro