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Costa Rican brokerage dispute set for Miami trial

An autumn trial is likely in Miami for a $1mn+ legal dispute between Costa Rican insurer the Instituto Nacional de Seguros (INS) and brokers Hemispheric Reinsurance Group (HRG) and Howden Insurance Brokers.

The case concerns the 2009-10 reinsurance of the state-owned Costa Rican electricity and telecoms company the Instituto Costarricense de Electricidad (ICE).

Depositions and preliminary proceedings have come to an end in the dispute over the London-led international placement of the property policy, which is a reinsurance of INS - a state-owned former monopoly insurer.

It is the largest property account in Costa Rica, which at the time of the placement in 2009 covered power generation facilities with total values of $5bn and paid a total gross premium of some $13mn.

The controversy emerged in 2009, when allegations of overpricing were reported in local Costa Rican media. The INS formally filed a suit against its reinsurance broker HRG and HRG's sub-broker Howden in Miami-Dade County, Florida, in September 2010.

Between March 2007 and March 2009 HRG placed the annually renewing account via its then subsidiary in a joint venture with US broker Hilb Rogal & Hobbs (HRH) known as the HRG-HRH Partnership.

Subsequently, HRG placed the account itself for the renewal period from April 2009 until July 2009.

HRG retained Howden as the London sub-broker for the placements.

The original complaint alleged that the brokerage fee was an "agreed upon, fixed amount set forth in a contract among INS, HRG and Howden", but that HRG and Howden breached this contract by "retaining more than the fixed amount of brokerage".

The INS said that following its tender for the 2009-10 period won by HRG the parties agreed on a fixed brokerage fee of $187,530.

The insurer stated in its complaint that after placement occurred HRG failed to provide the reinsurance placing slips and was subsequently notified on 23 June 2009 that it had been terminated as INS' reinsurance broker for the account and replaced by Willis.

The INS said that it subsequently received copies of some of the reinsurance slips from reinsurers and that "these documents showed that the premium for the reinsurance was higher than it should have been".

The INS said that the slips showed total deductions of $1.44mn, suggesting that it had been overcharged by $1.25mn. The plaintiff is alleging breach of contract, implied contract, negligence and breach of fiduciary duty against the brokers - charges that they strongly deny.

In the most recent legal skirmishes, Howden moved unsuccessfully for a ruling that English law and practice should apply to the INS's tort claims. However, in Miami Judge Beth Bloom ruled on 10 April that under "the most significant relationship test" the factors weighed in favour of applying Florida law.

The latest INS actions follow the notorious PWS case, which related to the placement of the same ICE account. It led to a January 2007 raid by the UK Serious Fraud Office on the London offices of broker PWS International, relating to placements dating back to 2000.

Back then, allegations circulated of PWS maintaining additional client funds, and of payments by PWS and a Mexican subsidiary of co-broker Guy Carpenter to a Panama firm connected to former Costa Rican president Miguel Angel Rodriguez.

In October 2010 PWS executive Julian Messent was sentenced by Southwark Crown Court in London to 21 months in jail after admitting channelling £1.2mn worth of corrupt payments to government officials in Costa Rica between February 1999 and June 2002.

The Insurance Insider understands that HRG was awarded the ICE account by the INS in 2007 after the original broker, Wind Pro, invited HRG-HRH Partnership to work with it after its planned partner, JLT, withdrew.

Similarly, it emerged that Willis originally won a broker tender held by the INS for the ICE account in January 2009, but was subsequently removed after the original client requested a formal pricing tender with three brokers.

The tender was subsequently won by HRG, only for the broker to be removed and replaced once again by Willis as detailed above.

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