Opinion ID: 835369
Heading Depth: 2
Heading Rank: 1

Heading: SNIC's Liability as a Reinsurer of CCCC: Definition of Reinsurer

Text: On review, OIGA argues that SNIC's deposit is available to pay CCCC's liabilities because SNIC was a reinsurer of CCCC. [10] As discussed previously, ORS 731.628 provides that workers' compensation insurers must make statutory deposits, and an insurer may take a credit against the required deposit to the extent that it reinsures part of its liability and its reinsurer makes an offsetting deposit. ORS 731.608(3) provides that the Schedule P deposits of both an insurer and its reinsurers can be used to pay losses and loss expenses if the insurer becomes insolvent: Deposits made by insurers and reinsurers in this state under ORS 731.628 shall be held for the payment of compensation benefits to workers employed by insured employers    to whom the insurer has issued a guaranty contract under ORS chapter 656. OIGA first argues that the deposit at issue here is available to it under ORS 731.648(1)(b), which provides that a required deposit by a reinsurer shall be held as long as there is outstanding any liability of the reinsurer with respect to which the deposit was made. OIGA also asserts that, under the pooling agreement, CalComp reinsured all of CCCC's liability and SNIC, in turn, reinsured a portion of those liabilities. Therefore, OIGA argues, SNIC is a reinsurer of CCCC for purposes of ORS 731.608(3) and ORS 731.628  albeit a second-level or indirect reinsurer  and its deposits are available to pay the policies that CCCC issued. [11] For OIGA to prevail on either of those arguments, it first must be correct in asserting that a second-level reinsurer, such as SNIC, is a reinsurer for purposes of ORS 731.608(3) and ORS 731.648(1)(b). The Court of Appeals rejected OIGA's argument at that threshold level, holding that SNIC was not a reinsurer for purposes of those statutes. Neidig, 208 Or.App. at 22-23, 144 P.3d 1030. We begin with that issue. Oregon statutes do not provide a definition of reinsurer, and the Court of Appeals based its conclusion on the statutory definition of reinsurance. ORS 731.126 provides: `Reinsurance' means a contract under which an originating insurer, called the `ceding' insurer, procures insurance for itself in another insurer, called the `assuming' insurer or the `reinsurer,' with respect to part or all of an insurance risk of the originating insurer. The Court of Appeals viewed that definition as limiting a reinsurer to the assuming insurer in a contractual relationship between that insurer and an originating or ceding insurer. Neidig, 208 Or.App. at 22, 144 P.3d 1030. The court concluded, That definition does not address indirect obligations between ceding insurers and retrocessionaires, and we are not authorized to expand it to do so. Id. at 22-23, 144 P.3d 1030. OIGA argues that the Court of Appeals erred in interpreting reinsurer to exclude second-level reinsurers, or retrocessionaires. For the reasons that follow, we agree with OIGA. ORS 731.126, set out above, itself uses three different terms to refer to an entity that provides reinsurance: reinsurer, another insurer, and assuming insurer. That statute states that the act of reinsurance is a transaction in which an insurer cedes some or all of its insurance obligations and risk to another insurer. Contrary to the Court of Appeals' conclusion, the text of ORS 731.126 does not exclude from the definition of reinsurer an insurer that provides second-level reinsurance. A reinsurer is simply an insurer that engages in a certain kind of insurance  insuring another insurer. Nothing in logic or in ORS 731.126 suggests that the term reinsurer should be limited to an insurer that insures another insurer and must exclude an insurer that insures a reinsurer. Indeed, as the Court of Appeals noted earlier in its opinion, The reinsurer of a reinsurer is referred to as a retrocessionaire. Neidig, 208 Or.App. at 5 n. 3, 144 P.3d 1030 (emphasis added). Retrocession  second-level reinsurance  has a long history in the insurance industry, and although the term retrocessionaire sometimes is applied to distinguish second-level reinsurance from a first-level reinsurance, the term reinsurance typically refers to both. See, e.g., Second Russian Ins. Co. v. Miller, 268 U.S. 552, 554, 45 S.Ct. 593, 69 L.Ed. 1088 (1925) (retrocession    is, contracts reinsuring reinsurers); Security Ins. Co. of Hartford v. TIG Ins. Co., 360 F.3d 322, 324 (2d Cir.2004) (retrocession agreement is reinsurance); ReliaStar Life Ins. Co. v. IOA Re, Inc., 303 F.3d 874, 876, 878-79 (8th Cir.2002) (examining retrocessional coverage as a reinsurance contract[ ]); Transcontinental Underwriters Agency, S.R.L. v. American Agency Underwriters, 680 F.2d 298, 299 nn. 1-2 (3d Cir. 1982) (using retrocession and reinsurance interchangeably). For the same reasons, the term reinsurer ordinarily includes both first-level reinsurers and second-level reinsurers or retrocessionaires. An example from one treatise illustrates the use of the term reinsurer in a discussion of rights among multiple insurers: Reinsurers are free to enter into `retrocessional agreements' whereby the reinsurer assigns all or a portion of the risk to another reinsurer. In other words, such an agreement is reinsurance of reinsurance. Where this occurs, the potential liabilities of the respective reinsurers can become more difficult to assess. Steven Plitt, Daniel Maldonado, and Joshua D. Rogers, 1A Couch on Insurance 3d § 9:18, 9-59 (2003) (footnotes omitted) (emphases added). For those reasons, we conclude that OIGA's claim against the SNIC deposit is not barred simply because SNIC is a second-level reinsurer of CCCC, rather than a direct, or first-level, reinsurer. That conclusion, however, does not necessarily mean that OIGA may recover the SNIC deposit, and we turn to the other statutes and contractual arrangements upon which OIGA's claim is based.