A 3-judge panel at the 8th U.S. Circuit Court of Appeals has backed a district court in a case involving Employers Reinsurance Company and Massachusetts Mutual Life Insurance Company.

A U.S. District Court judge in Kansas City, Mo., ruled that the companies’ reinsurance treaty included a “follow the settlements” provision, and that Employers Re, Kansas City, Mo., had no contractual right to stop making reimbursement payments because of concerns about how MassMutual, Springfield, Mo., was handling disability insurance claims.

The 3-judge 8th Circuit panel affirmed the district court ruling.

The 8th Circuit panel agrees that the reinsurance treaty includes a follow-the-settlements provision, and an offset provision in the treaty does not appear to permit “ERC to cease all reimbursements on the basis of its own unilateral conclusion that MassMutual had improperly submitted claims in the past,” Judge Joan Ericksen writes in an opinion for the panel.

MassMutual is pleased with the decision, a company representative said.

Representatives for Employers Re, which is now a unit of Swiss Re Ltd., Zurich, were not immediately available to comment on the ruling.

MassMutual assumed an excess disability income reinsurance agreement with Employers Re from another insurer in 1996.

Employers Re later expressed concerns about MassMutual’s claim adjudications.

MassMutual let Employers Re send representatives to make non-binding recommendations about claims through one arrangement in 2002, and then through another arrangement in 2003, Ericksen says.

Employers Re said the 2003 review showed that MassMutual had been mishandling claims, and, in 2005, Employers Re presented 12 claims that it questioned for reimbursement, Ericksen says.

MassMutual rejected the request for reimbursement in late January 2006, and Employers Re sued in March 2006. Employers Re then stopped reimbursing MassMutual for all claims under the treaty, Ericksen says.

MassMutual filed counterclaims, including counterclaims related to Employer Re’s decision to stop providing reimbursements.

Employers Re argued in its appeal to the 8th Circuit that the district court had relied on extrinsic evidence, rather than the text of the Employers Re-MassMutual reinsurance treaty, when it found that the treaty included a follow-the-settlements provision, and also that the district court had erred when it had concluded that the Connecticut statute of limitations would have barred it from challenging 6 of the 8 claims it was questioning.

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