Cat Bond Litigation: Unambiguous Bond Documents Cause Court To Dismiss With Prejudice Complaint Seeking to Claw Back Payments Made From a Cat Bond Reinsurance Trust

The United States District Court for the Southern District of New York has dismissed, with prejudice, claims relating to the triggering of the Mariah Re severe weather event cat bond. Mariah Re Ltd. v. American Family Mutual Insurance Co., 2014 WL 4928976 (S.D.N.Y. Sept. 30, 2014). Mariah Re, the special purpose vehicle reinsurer, sued American Family Mutual Insurance Company (“American Family”), the ceding insurer, ISO Services, Inc. (d/b/a/ Property Claim Service (“PCS”)) and AIR Worldwide Corp. (“AIR”). The cat bond provided coverage for certain severe weather risks. The coverage trigger was based upon the provision of a catastrophe bulletin by PCS and an event report by AIR. The activities of PCS were governed by a document called the PCS License Agreement, while the activities of AIR were governed by a document called the Calculation Agent Agreement. The reinsurance obligations of Mariah Re were collateralized by a reinsurance trust that was funded at $100 million.

After a severe weather event occurred, American Family sought and received a payment from the reinsurance trust in the amount of $100 million, resulting in the complete loss of the bond’s principal to the bond investors. The cat bond’s investors disputed American Family’s entitlement to the payment of $100 million, and Mariah Re sued to recover the payment, to obtain damages and to obtain declaratory relief.

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