District Court Grants Motions to Dismiss Claims Brought by Reinsurer

The U.S. District Court for the Northern District of Texas recently dismissed certain claims brought by a reinsurer related to its efforts to audit an insurer’s broker.

Antares Reinsurance Co. reinsured United Specialty Insurance Co. United Specialty contracted with National Transportation Associates (NTA) to sell United Specialty policies on commission. Antares sought to audit NTA because it suspected it of fraud. A disagreement concerning the terms of the audit ensued, and Antares filed suit against several defendants seeking specific performance of a contractual provision allowing Antares to inspect NTA’s books, asserting various claims, including breach of contract and fraud/fraudulent misrepresentation, and requesting declaratory relief articulating Antares’ rights regarding inspecting NTA’s books.

The district court dismissed Antares’ claims. It found the specific performance claim moot because the defendants “permitted inspection of the relevant books and records” and that “additional” demands for inspection that the defendants had refused were “non-contractual.” The court held that the fraud claims were barred by the economic loss rule, which provides that “malfeasance doesn’t give rise to a fraud claim unless it resulted in damages beyond those recoverable for the contractual breach itself.” The fraud claims, the court held, “resulted in harms indistinguishable from breach of the underlying contract.” Finally, the court held that the request for declaratory relief was duplicative of the breach of contract claims. The defendants did not move to dismiss the breach of contract claim, however, and that claim therefore survived.

Antares Reinsurance Co. v. National Transportation Associates, Inc., No. 4:23-cv-00928 (N.D. Tex. Mar. 20, 2024).