Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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REINSURANCE “FOLLOW THE SETTLEMENTS” DISPUTE REFERRED TO MANDATORY MEDIATION

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Utica Mutual’s reinsurance lawsuit with Clearwater Insurance has been ordered to mediation. The reinsured (Utica) asserted claims for breach of contract and declaratory relief, alleging that the reinsurer (Clearwater) breached and is expected to continue breaching certain facultative reinsurance contracts covering a share of losses incurred by the reinsured under umbrella liability insurance policies. The reinsured contended that the reinsurer refused to pay a portion of asbestos claims arising out of a settlement the reinsured entered into with the underlying insured. The case was referred to mandatory confidential mediation on January 8, 2014, and is required to be completed within four months. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Sept. 20, 2013 & Jan. 8, 2014) (Complaint & Order).

This post written by Michael Wolgin.

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CANADA ISSUES NEW RULES ON REINSURANCE WITH A RELATED PARTY

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The Office of the Superintendent of Financial Institutions of Canada promulgated new reinsurance rules under Canada’s Insurance Companies Act, governing reinsurance transactions with a “related” reinsurer. The rules require detailed disclosures by the applicant (primary insurer) of required due diligence, objectives, risks, premiums, coverage, choice of law and other issues involved in the transaction. The rules also require detailed submissions from the proposed related reinsurer, regarding its financials, jurisdictions in which it operates, organization charts and past history of administrative or criminal sanctions, among other things. OSFI Index DA No. 21 (Dec. 2013).

This post written by John Pitblado.

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GAO REPORTS ON THE EFFECTS OF THE NONADMITTED AND REINSURANCE REFORM ACT ON THE SURPLUS LINES MARKET

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The United States Government Accountability Office has issued a Report to Congressional Committees entitled “Property and Casualty Insurance – Effects of the Nonadmitted and Reinsurance Reform Act of 2010.” The Report describes the size and condition of the surplus lines insurance market and examines actions states have taken to implement the Act’s provisions and the effects of the Act, if any, on the price and availability of coverage. The GAO analyzed end-of-year financial data for 2008 through 2012 for insurers who sold surplus lines insurance in 2012 and interviewed insurance regulators from states with a large number of surplus lines insurers, industry associations representing interests in the surplus lines market, and large insurers and brokers. Among the GAO’s finding are: (1) surplus lines insurers’ premiums have increased modestly from $24.8 billion to $25.2 billion; (2) the companies have generally remained profitable; (3) the Act has caused little noticeable shifting in coverage between the admitted and surplus lines markets; (4) nearly all states have modified their laws to implement at least portions of the Act; (5) the changes in states’ laws have simplified compliance for multistate risks, according to market participants; and (6) a few states are also participating in a premium tax-sharing agreement, as permitted by the Act.

This post written by Michael Wolgin.

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FOURTH AND FINAL SETTLEMENT IN THE AIG SECURITIES LITIGATION IS APPROVED

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On September 11, 2013, the Southern District of New York approved the final settlement in the protracted class litigation regarding allegedly artificially inflated prices for AIG securities. This final settlement resolves all claims against defendant Gen Re with a settlement fund of $72 million for a class of persons and entities who purchased AIG securities from October 28, 1999 through April 1, 2005. Lead counsel was awarded $6.5 million in attorneys’ fees (9.09% of the settlement fund) and $525k in expenses. Any funds not claimed by class members will be distributed to a 501(c)(3) not-for-profit rather than returned to the defendant. The three previous settlements resolved claims against PwC, AIG, and Starr International Company. In re American International Group, Inc. Securities Litigation, 04 Civ. 8141 (DAB) (S.D.N.Y. Sept. 11, 2013).

This post written by Abigail Kortz.

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MOTION TO COMPEL ARBITRATION DENIED AS TO NON-SIGNATORIES TO AGREEMENT

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In a recent case involving an unsuccessful aquatic ecosystem restoration project in Clearwater, Florida, the Middle District of Florida applied the Federal Arbitration Act to resolve an arbitrability dispute, which involved a marine and dredging construction company, its performance bond sureties, and a dredging contractor. First granting a motion to compel arbitration with respect to the construction company and the contractor, both of which had signed the arbitration agreement, the court then reviewed common law contract and agency principles to determine whether the non-signatory sureties could also be bound by the agreement on some other theory, ultimately holding that they could not be because there existed no (1) incorporation by reference of another contract to which the sureties were signatories, (2) assumption by the sureties, (3) agency relationship, (4) veil-piercing/alter-ego, or (5) estoppel. Additionally, the court found that the arbitration agreement unambiguously limited its reach only to claims or disputes between the signatories because it listed those parties – and only those parties – regardless of the fact that it did not expressly exclude application to others. The court next determined that those claims found to be proper for arbitration – breach of contract and indemnity – did not predominate the nonarbitrable claims. Rather, the nonarbitrable claims – fraud in the inducement, negligent misrepresentation, rescission, personal liability, civil theft, and conversion – could be resolved in independent litigation without resulting in either duplicative proceedings or preclusive effect on the arbitrable claims. The court also denied the individual defendant’s motion to dismiss. U.S. Surety Company v. Edgar, Case No. 8:13-cv-1207-T-33TGW (M.D. Fla. Dec. 5, 2013).

This post written by Kyle Whitehead.

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