In recent years, Berkshire Hathaway Inc. has entered into numerous “retroactive reinsurance” transactions with insurers (the “ceding insurers”), in which a Berkshire subsidiary, National Indemnity Company (NICO), reinsures long-tail coverage liabilities of the ceding insurers, up to a specified monetary limit, in exchange for the ceding insurers’ payment to NICO of its cash reserves that they had maintained for payment of such coverage liabilities to policyholders, and the ceding insurers’ transfer of claims handling authority to NICO and its sister company, Resolute Management Inc. The result of these retroactive reinsurance transactions is that NICO and Resolute take control of claims payment decisions for the ceding insurers on the books of insurance business that have been retroactively reinsured.
These retroactive reinsurance transactions have caused harm to policyholders across the country because NICO and Resolute often use their newly acquired claims handling control to effectuate reductions in coverage payments by the ceding insurers to their policyholders (as well as reductions in payments to underlying claimants and defense counsel). NICO and Resolute assert that they make payment-reduction decisions “on behalf of” and “as agent for” the ceding insurers. Hence, NICO and Resolute contend that, if a policyholder has a problem with these coverage-payment reductions by a ceding insurer, the policyholder’s sole recourse is to assert claims against that ceding insurer and that no claims may be asserted against NICO and Resolute themselves.
A number of policyholders that have been subjected to the coverage-payment reductions and delays effectuated by NICO and Resolute have responded by filing lawsuits directly against NICO and Resolute, as party defendants, alleging, inter alia, tortious interference with the policyholders’ contractual relations with their insurers. Essentially, these lawsuits allege that NICO and Resolute have wrongfully induced the ceding insurers to breach their contractual coverage obligations to the policyholders so as to advance the financial interests of NICO and Resolute and their parent company, Berkshire. These lawsuits make claims against NICO and Resolute rather than (or in addition to) claims for damages against the ceding insurers.
Before considering the “agency” defense typically raised by NICO and Resolute, it is useful to review the elements of a cause of action for tortious interference with contract. Many states follow the Restatement (Second) of Torts section 766[1] in defining the legal requirements of a claim of intentional interference with the performance of a contract by a third person: