Bermuda-based PartnerRe has been ordered to pay $19.4 million to Diamond State Insurance Company in a dispute over reinsurance coverage for weather derivative contracts.

A release from Diamond State?s parent company United National said: ?In the arbitration, Diamond State sought recovery under a reinsurance agreement with Partner Re relative to loss and expenses incurred by Diamond State in litigation brought by Bank of America N.A. and Platinum Indemnity Limited, which was resolved by Diamond State in January 2004.?

The Press release said: ?The award directs Partner Re to pay to Diamond State approximately $19.4 million, of which approximately $2.8 million represents legal fees and expenses.

?Upon payment in full of the arbitration award by Partner Re, Diamond State will make a payment to Partner Re in the amount of approximately $1 million that has been held by Diamond State as an offset against the amount claimed to be owed to Diamond State by Partner Re.?

The newsletter Offshore Alert reports that the action was among several disputes involving Partner Re, other Bermuda-based companies Platinum Indemnity and Palladium Insurance, as well as Bank of America, Diamond State Insurance Company, General Star Indemnity Company, Terra Nova Insurance Company, World-wide Weather Trading Company and Harold Mollin.

The newsletter said: ?All of the lawsuits concerned weather derivatives contracts entered into by Palladium in 1999-2000 with Koch Energy Trading Inc. American Re Capital markets Inc. Enron North America Corp., Vitol S.A. Inc., Southern Company energy Marketing L.P., Commercial Risk Reinsurance Company Ltd. and Aquila Risk Management Corp.?

The newsletter reports that Bank of America provided letters of credit in connection with the transactions in an agreement that required Palladium to obtain adequate protection.

Palladium sometimes reinsured with TerraNova and sometimes took out Weather Risk Mitigation Insurance Policies with Platinum, which then bought reinsurance with GenStar or Diamond State, which retroceded 100 percent of it to PartnerRe.

Offshore Alert reports that the reinsurers refuse to pay claims on the grounds that Customised Worldwide Weather Insurance Agency Inc in its capacity as an MGA for GenStar, Diamond State and TerraNova allegedly exceeded the terms of its authority in placing the business and on the basis that some premiums were not even passed onto them.

United National Group, Ltd. said in its Press release that it also recently received $1.8 million in satisfaction of a reinsurance claim relating to Gulf Underwriters Insurance Company. Once Partner Re pays this arbitration award United National Group, Ltd. will have resolved all outstanding reinsurance disputes in accordance with the amounts at which such matters were reflected in its financial and statutory statements.