Assurecare Must Fund Arrowood’s Settlement with Insured, Judge Rules

CHICAGO — The “follow the settlements” clause in a quota share reinsurance treaty requires Assurecare Corp. to pay $230,527, plus prejudgment interest, toward Arrowood Surplus Lines Insurance Co.’s settlement of an underlying coverage dispute because the decision to settle was within Arrowood’s discretion, an Illinois federal judge has ruled.

The treaty is clear that “all loss settlements made by Arrowood by way of compromise” confers liability on the reinsurer, and Arrowood’s decision to settle may not be second guessed by Assurecare absent a showing of bad faith, fraud or collusion, Judge Robert W. Gettleman of the U.S. District Court for …