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New reinsurance-related and arbitration developments from Carlton Fields

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FEDERAL POLICY FAVORING ARBITRATION TRUMPS CHOICE-OF-LAW CLAUSE

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When an arrangement to jointly design health insurance products went sour, the product company (“PBG”) brought breach of contract and tort claims against its insurance agents. Acknowledging an existing arbitration agreement, PBG admitted that the contract claims should be arbitrated, but tried to keep the tort claims alive in the judicial system based on an Iowa choice-of law provision. PBG argued that the provision evinced the parties’ intent that an Iowa statute carving out tort claims from valid arbitration clauses should apply. Finding no ambiguity in the arbitration agreement that would allow for consideration of extrinsic evidence like the Iowa statute, and relying on the strong federal policy favoring arbitration, the court disagreed and ordered all claims, contract and tort, to arbitration. Pinnacle Benefits Group, LLC v. American Republic Insurance Company, Case No. 1:13CV186 (M.D.N.C. Dec. 13, 2013).

This post written by Abigail Kortz.

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VERMONT ISSUES GUIDANCE ON SPECIAL PURPOSE FINANCIAL INSURERS

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The Vermont Department of Financial Regulation’s Captive Insurance Division has released a bulletin entitled “Guidance for Special Purpose Financial Insurers” to provide guidance regarding licensing standards and regulatory requirements for Special Purpose Financial Insurance Companies, formerly known in Vermont as “Special Purpose Financial Captives” until legislation mid-last year. With a pronounced goal of “support[ing] the use of appropriate uniform standards for regulation of insurer-owned captives and Special Purpose Financial Insurance Companies and to establish best practices and high standards for their continued use,” the bulletin has an NAIC-esque tone. Among other standards, the bulletin provides a sampling of qualified transactions and then discusses transaction review, reporting, and disclosure procedures that appear to engender significant collaboration between and among interested and/or cedents’ regulators. Vermont’s bulletin comes on the heels of a string of regulator releases addressing the captive insurance market, including releases from the New York Department of Financial Services and NAIC in June and July 2013, respectively, and, most recently, the FIO in December 2013. Vt. Ins. Bulletin No. C-2014-01 (Jan. 27, 2014).

This post written by Kyle Whitehead.

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SILENCE IS GOLDEN: REINSURER ORDERED TO PAY PREJUDGMENT INTEREST TO INSURANCE COMPANY’S LIQUIDATOR ON AGREEMENT SILENT AS TO INTEREST

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A New Hampshire insurance company, Home Insurance Company (“Home”), was placed in liquidation in 2003. When its reinsurer Century Indemnity Company (“CIC”) tried to claim an $8 million setoff from amounts owed to Home, the liquidator balked and demanded the $8 million. A New Hampshire statute allows for the payment of prejudgment interest on an “action on a debt or account stated.” Finding no “meaningful distinction” between an “action on a debt” and the dispute at hand, the New Hampshire Supreme Court held that the statute applied and that the liquidator was entitled to prejudgment interest from the date CIC was informed the setoff would not be allowed. The court’s holding was also based on the fact that key agreements between CIC and Home were silent as to interest. Interpreting that contractual silence as to interest, the court declined to write into the contract a provision which made the interest statute inapplicable. In re Rehabilitation of The Home Insurance Company, No. 2012-623 (N.H. Feb. 13, 2014).

This post written by Abigail Kortz.

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COURT STANDS BY DECISION DENYING DISMISSAL OF CASE INVOLVING REINSURANCE OF PERFORMANCE BOND

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A New York federal district court denied reconsideration of its refusal to dismiss a case for forum non conveniens or lack of personal jurisdiction, in a dispute involving reinsurance of a performance bond insuring the payment of fees for the right to administer Argentina’s postal services. The court was unpersuaded by the fact that the insured’s principal place of business and operations were located in Argentina, given that the reinsurer conducted relevant reinsurance business through its New York office. St. Paul Fire & Marine Insurance Co. v. Aseguradora de Creditos y Granatias, Case No. 1:12-cv-04627 (USDC S.D.N.Y. February 6, 2014).

This post written by Michael Wolgin.

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UTICA AND CENTURY ORDERED TO MANDATORY MEDIATION IN REINSURANCE DISPUTE

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Utica Mutual Insurance Company brought an action in 2013 against Century Indemnity Company (itself and against certain of its named predecessors) for breach of contract and breach of the duty of utmost good faith, as well as a declaratory claim, regarding alleged amounts due to Utica from Century predecessor Insurance Company of North America under certain reinsurance agreements. The court invited the parties to submit their positions regarding mandatory mediation, but received no response. The Court therefore ordered the parties to participate in the mandatory mediation program, further requiring that they complete it by March 31, 2014. Utica Mutual Insurance Co. v. Century Indemnity Co., Case No. 6:14-CV-995 (USDC N.D.N.Y. Jan. 9, 2014).

This post written by John Pitblado.

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