Porch.com, through its subsidiary Homeowners of America Insurance Co., entered into a Reinsurance-Intermediary-Authorization Agreement (RIAA) with Gallagher Re, a reinsurance broker. In 2021, Gallagher brokered a reinsurance deal involving a reinsurance-finance company called Vesttoo and a bank, China Construction Bank (CCB). The agreement relied on a letter of credit from CCB to secure the reinsurance, but Gallagher provided a collateral letter from a different entity, Yu Po Finance, while assuring Porch it was a valid letter of credit. Gallagher also authorized the withdrawal of $25 million from the reinsurance account based on this assurance. When Vesttoo later filed for bankruptcy and CCB confirmed it never issued a letter of credit, Porch suffered significant financial losses and had to inject capital to stabilize its subsidiary. Porch sued Gallagher for breach of contract, alleging violations of Sections 5, 11, and 13 of the RIAA. The district court granted summary judgment to Gallagher, dismissing all claims with prejudice, but the Fifth Circuit has now reversed that decision in part.
The Fifth Circuit applied a de novo standard of review, accepting all well-pleaded facts as true and construing the complaint in the light most favorable to Porch. The court analyzed the three contractual provisions separately. First, regarding Section 5, which required Gallagher to 'retain' records from reinsurers, the court held that the plain meaning of 'retain' does not include an obligation to procure documents from entities not yet in the broker's possession. Furthermore, the court noted that CCB was a financial institution, not a 'reinsurer' under the contract, so the duty to retain documents from a reinsurer did not apply to the bank. Second, the court addressed Section 11, which required compliance with 'economic or trade sanctions laws.' The court rejected Porch's argument that this included Texas insurance laws, reasoning that the term 'economic' must be read in context with 'trade sanctions' and does not expand to general state regulatory compliance. Finally, the court turned to Section 13, which required Gallagher to provide 'Administrative Services,' including 'administering all reserve funding.' The district court had dismissed this claim, reasoning it only covered duties after placement. The appellate court disagreed, finding that Porch plausibly alleged lapses occurring after placement, such as failing to distinguish between a collateral letter and a letter of credit and incorrectly assuring the safety of fund withdrawals. The court held that whether these duties were 'customarily performed' by a reinsurance broker is a question of fact, not law, and that the contract was ambiguous on this point. As the court stated, 'When consideration of evidence as to industry custom and usage is appropriate, it is a question of fact for the jury.'
The decision allows Porch.com's breach of contract claims to proceed to trial rather than being dismissed with prejudice. Specifically, the case is remanded for further proceedings on the Section 13 claim, where a jury will need to determine the customary duties of a reinsurance broker regarding collateral verification and reserve funding administration. The ruling clarifies that while brokers are not required to procure documents from non-reinsurers or comply with general state laws under specific contract clauses, they may face liability for failing to perform standard administrative services if the contract language is ambiguous and industry custom supports the plaintiff's interpretation.
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