INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Insurer’s late notice breaches treaty
As part of its operations, Unified Life Insurance Company (Unified) decided to sell short-term medical insurance policies. It also chose to enter into a reinsurance agreement for that business. A quota share reinsurance treaty was established by Unified with United States Fire Insurance Company (U.S. Fire).
Note: Quota reinsurance is where more than one policy, insurer, or reinsurer is obligated to respond to a property loss for a risk according to a percentage or its proportionate share of the total limits applicable. Premiums are usually shared in the same proportion as the limits.
Besides agreeing to pay 25% of claims (including litigation expense) experienced by Unified, U.S. Fire also required that it receive prompt notice of claims and related developments that might trigger the treaty. Further, U.S. Fire also held a right to participate in defending a claim or in a settlement discussion. However, such activity would be at the reinsurer’s expense.
While the treaty was in force, Charles Butler bought a short-term medical policy. Later he was diagnosed and treated for cancer. Per Unified’s policy, Butler was required to pay the difference between what health providers actually charged and the “reasonable and customary” amount that the insurer calculated for provider reimbursement.
Butler sued Unified in 2017, alleging that its reimbursements were too heavily discounted. Later, the argument was amended to allege that Unified’s use of “Data iSight,” a repricing software, constituted systemic discounting of medical service charges. Acting on this, Butler’s attorney sought a certification to pursue a class action. Eventually, a district court granted certification in 2019. At that point, Unified advised U.S. Fire of the litigation. The latter company, after mentioning the lateness of the notification, provided some suggestions including use of expert witnesses to explain Data iSight’s methodology. That expert testimony was struck from the record as the court deemed it having been offered in an untimely manner.
Eventually, after a district court created an $8 million class fund (with $2 million assigned for attorney fees), Unified settled in 2021. When it shared the settlement news with U.S. Fire, the reinsurer stated that the late notification prejudiced their rights and refused any reimbursement. U.S. Fire filed suit, seeking a declaratory ruling that, due to a prejudicially late notice, it was not obligated to make any payments under its reinsurance treaty. When a court ruled that U.S. Fire’s obligation remained and had to make payment, the company appealed.
A higher court examined both Unified’s and U.S. Fire’s arguments as well as the timeline and actions that occurred during the Butler litigation. It reasoned that an objective standard should be applied regarding contractual notification requirements, particularly whether a party has done so in a prompt manner.
After examining key moments in the underlying litigation, the court observed that several of them represented points where Unified should have recognized the possibility of triggering reinsurance. Yet, by the time notification was given, a trial court ruled that expert testimony suggested by U.S. Fire was provided too late to be considered.
The appeals court determined that Unified’s decision in making notifications resulted in prejudicing U.S. Fire’s ability to assist in handling the litigation in time to possibly secure a better outcome. The lower court’s ruling in favor of Unified was reversed, as the insurer materially breached the reinsurance treaty.
United States Fire Insurance Co. v. Unified Life Insurance Co.—US Court of Appeals, Fifth Circuit—No. 24-10392—August 14, 2025.
