Carlton Fields

REINSURANCE BROKER AND CEDENT SETTLE COMPENSATION DISPUTE

September 5, 2014 by Carlton Fields

On March 26, 2014, we reported on a dispute surrounding whether a cedent was responsible to compensate a reinsurance broker under a particular broker authorization agreement. The court had denied summary judgment, finding that the agreement was ambiguous in that one provision required the reinsurer to pay the broker, while a separate provision implied that it was the cedent’s responsibility to do so. On June 27, 2014, the court entered an order dismissing the case based on an unopposed motion informing the court of the parties’ settlement. Global Risk Intermediary, LLC v. Aetna Global Benefits Ltd., Case No. 4:13-CV-0133 (USDC W.D. Ark. June 27, 2014).

This post written by Michael Wolgin.

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MISSOURI COURT DENIES RECONSIDERATION OF ORDER QUASHING SUBPOENA OF UN-ISSUED ARBITRATION AWARD

September 4, 2014 by Carlton Fields

Lincoln Memorial Insurance Company and Hannover Life Reinsurance Company of America became engaged in a long-running reinsurance dispute, arising from an allegedly fraudulent scheme by Lincoln and others in the sale of pre-need funeral service contracts. Hannover reinsured some of those contracts. The matter was arbitrated, and Lincoln claim that Hannover wrongfully accused Lincoln of fraud and intentional misconduct during the court of that arbitration.

Ultimately, Lincoln became insolvent and entered into receivership in Texas. Lincoln asserted that Hannover’s conduct in the arbitration was a factor in driving it to insolvency. The Texas Department of Insurance appointed a receiver and issued a permanent injunction, which, among other things, enjoined further arbitration against Lincoln, before the arbitrator ever issued an award.

The Special Deputy Receiver, Jo Ann Howard & Associates, thereafter brought claims in federal court against several entities alleging, among other things, RICO, breach of fiduciary duty, and gross negligence, which purportedly caused or contributed to Lincoln’s insolvency.

As we previously reported, one of the defendants in the action brought by the receiver, National City Bank, subpoenaed the arbitrator in the Hannover Re arbitration, seeking his un-issued award. National City also asserted several special defenses to the receiver’s suit, including failure to mitigate damages. The receiver moved to quash the subpoena and to strike National City’s failure to mitigate affirmative defense. The court granted both motions.

National City thereafter moved for reconsideration and clarification of the Court’s order. Construing the motion as a Rule 60(b) motion to amend, the Court held that National City was not entitled to the “extraordinary relief” available under that rule, as it had not met the high burden of demonstrating “exceptional circumstances” warranting the correction of any error, even if a substantial error had been made, which, the Court duly noted, was not the case. Jo Ann Howard & Associates, P.C. v. Cassity (USDC E.D. Mo. July 15, 2014).

This post written by John Pitblado.

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ENGLISH APPELLATE COURT DISMISSES APPEAL OF JUDGMENT DECLARING NO LIABILITY UNDER A CARGO LIABILITY REINSURANCE POLICY

September 3, 2014 by Carlton Fields

A judgment found that certain Lloyd’s reinsurers were not liable to cover the destruction of cargo on board a vessel that capsized in the Philippines during a Typhoon. The trial court relied on a typhoon warranty clause contained in both the reinsurance policy and the underlying insurance policy, which deemed the policy void if a vessel sailed out of port (1) “when there is a typhoon or storm warning at that port”; or (2) when the destination or intended route “may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.” The trial court had found that there was a typhoon or storm warning at the port of sailing, and that the vessel’s route was within the possible path of the typhoon or storm announced at the port.

On appeal, the cedent argued that the first condition of the typhoon warranty clause was not breached under a four-step analysis: (1) the reinsurance policy contained a follow the settlements clause, (2) which required the reinsurance coverage to be interpreted like the underlying insurance policy, (3) the insurance policy should be construed in accordance with what an experienced insured would have understood the storm notice to mean, and (4) in this case, the storm notice would not be understood by an experienced insured as a sufficient warning against embarking. The court rejected this argument, holding that the clause must be understood according to only its plain meaning, both with respect to the clause in the insurance policy and the parallel clause in the reinsurance policy, and here it was undisputed that a storm warning had been issued. The court also rejected the cedent’s contention that the intended path of the vessel would not have crossed the possible path of the typhoon, finding that it was proper for the trial court to determine that the intended route was within the typhoon’s path. Amlin Corporate Member Ltd. v. Oriental Assurance Corp., [2014] EWCA Civ 1135 (Royal Courts of Justice, July 8, 2014).

This post written by Michael Wolgin.

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NAIC EXECUTIVE COMMITTEE ADOPTS FRAMEWORK FOR CHANGES TO CAPTIVE RESERVE REQUIREMENTS

September 2, 2014 by Carlton Fields

NAIC’s Executive Committee met at NAIC’s annual meeting in Louisville, Kentucky on August 16 and 17, 2014. The Executive Committee furthered its action on reserve requirements for captive reinsurers (as reported here last year) and adopted the “XXX/AXXX Reinsurance Framework” which will guide development of proposed regulatory changes to the types of assets and securities required to meet statutory reserve requirements.

Arising from worries about potentially abusive use of captives creating a “shadow insurance industry (as reported here in 2012), the framework would, among other things, require ceding companies to disclose the assets backing their risk-based-capital (RBC) computations.

As noted in the Principle-Based Reserving (PBR) Implementation (EX) Task Force’s report to the Executive (EX) Committee, the framework:

addresses concerns regarding reserve financing transactions without encouraging such transactions to move off-shore. The changes would be prospective and apply to XXX term life insurance business and AXXX universal life with secondary guarantees.
requires the ceding company to collateralize a portion of the total statutory reserves with hard assets such as cash and securities, collateralize the remainder with other assets and forms of security identified as acceptable by regulators, disclose the assets and securities used; and hold an RBC cushion as required for other business.
will be codified through the Credit for Reinsurance Model Law, with the creation of a new model regulation.

The PBR subcommittee’s report is based on the June 4 Rector & Associates, Inc. report’s recommendations (a copy of which is available on the PBR taskforce’s website: http://www.naic.org/committees_ex_pbr_implementation_tf.htm).

This post written by John Pitblado.

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COURT GRANTS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS IN RESPA CLASS ACTION REGARDING PRIVATE MORTGAGE INSURANCE

August 28, 2014 by Carlton Fields

We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. Defendants in that case filed a motion for partial judgment on the pleadings asserting that plaintiff-intervenor, and all others similarly situated, failed to plead sufficient facts to state a claim for application of equitable tolling and/or equitable estoppel to the one-year statute of limitations for alleged violations of the Act. The court granted defendants’ motion for equitable tolling and equitable estoppel/fraudulent concealment pleadings. The loan document disclosures adequately placed plaintiff on notice of her claim and that she failed to allege extraordinary circumstances that prevented her from timely filing. In particular, the disclosures explained the requirement of mortgage insurance, the purpose of the mortgage insurance, the borrower’s rights and responsibilities under mortgage insurance, and the potential occurrence of captive insurance. The court also found that plaintiff failed to plead an act of concealment separate and apart from an underlying RESPA claim. The court, however, is allowing plaintiff one opportunity to file and serve an amended complaint to cure deficiencies within 20 days from date of the court’s order. Munoz v. PHH Corp., No. 1:08-CV-0759 (USDC E.D. Cal. Aug. 11, 2014).

This post written by Kelly A. Cruz-Brown.

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