Davis Polk Successfully Represents AIR Worldwide Corporation and ISO Services, Inc. on Appeal in a Breach of Contract Lawsuit

On June 30, 2015, the United States Court of Appeals for the Second Circuit affirmed the dismissal of breach of contract claims asserted against two subsidiaries of our client Verisk Analytics, Inc: AIR Worldwide Corporation (“AIR”) and ISO Services, Inc. (d/b/a Property Claim Services, or “PCS”).

The contract claim was asserted by a special purpose vehicle called Mariah Re Ltd. Mariah was created to facilitate a reinsurance product involving a sponsoring insurer (American Family Mutual), on the one hand, and buyers of “catastrophe bonds” on the other. If “covered losses” from severe thunderstorm events during a specified period exceeded a contractual threshold, some or all of the $100 million bond proceeds would be paid to American Family, and the bondholders would lose some or all of their investment. If not, the bondholders would receive a positive return on their investment. It was, essentially, a bet on the weather. As it turned out, American Family won the bet.

PCS was retained by Mariah to provide access to its “Catastrophe Bulletins,” which describe severe weather events and estimate the amount of insured losses arising from those events. AIR was retained to use the PCS-reported information to calculate the amounts, if any, owed by Mariah to American Family under the reinsurance arrangement.

In its lawsuit, Mariah claimed that PCS and AIR incorrectly reported the geographic impact of a series of severe thunderstorms that hit Kansas in April 2011, which in turn caused all of the bond proceeds to be paid to American Family. Mariah did not claim that the reporting of the storm was inaccurate, only that PCS had “improperly” added geographic information about the storm after it had already issued a “final” estimate of losses caused by the storm.

Davis Polk argued that, under the relevant contracts, PCS was afforded significant discretion in determining how to report severe weather events, and that AIR was entitled to rely on PCS’s reporting. Moreover, nothing in the contracts prevented PCS from amending a Catastrophe Bulletin after its initial publication. The district court endorsed these arguments and dismissed the complaint (for more information, please see October 2014 dismissal).

Mariah appealed. It claimed that the district court misinterpreted the contracts and failed to give Mariah the benefit of reasonable inferences that could be drawn from its factual allegations. We responded that the district court properly dismissed the case based on the plain and unambiguous language of the contracts, and that Mariah’s claim asserting breach of the covenant of good faith and fair dealing was meritless.

The Second Circuit today affirmed the district court, essentially adopting the district court’s opinion, and dismissed the case in its entirety.

The Davis Polk litigation team included partner Joel M. Cohen (who argued the appeal), associates Matthew B. Rowland and Benjamin Zhu, and former associates Richard R. Barker and Caroline Ferris White. Members of the Davis Polk team were based in the New York and Washington DC offices.

American Family was represented by Choate Hall & Stewart LLP. Plaintiff Mariah was represented by Kobre & Kim.