Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Carlton Fields

Carlton Fields

Court Finds Reinsurance Brokerage Contract Ambiguous

by

Homeowners Choice, Inc. entered into a brokerage relationship with Aon Benfield, whereby Aon agreed to place reinsurance for Homeowners, as the broker of record, and that Aon would receive a commission from premium written. The parties later amended the agreement to include a revenue sharing provision, whereby Aon agreed to perform claim services for an annual fee. Homeowners then notified Aon that it was changing its broker of record, effective approximately one year from the notice. At the end of the notice period, Homeowners then demanded from Aon approximately $660,000 in revenue sharing fees it claimed were owed under the service agreement aspect of the contract. Aon disputed the claim, and Homeowner’s brought suit. The parties filed cross-motions for summary judgment, both making claims as to the correct interpretation of the contract. The court denied both motions, finding relevant provisions of the contract to be ambiguous, and that issues of fact remained pertaining to resolution of the ambiguities. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 10 C 7700 (N.D. Ill. Sept. 10, 2012).

This post written by John Pitblado.

See our disclaimer.

Court Enforces Arbitration Agreement Despite “Service-of-Suit” Provision

by

Pacific West Securities Inc. made a claim for coverage with its insurers, relating to underlying securities claims alleged against it in a FINRA proceeding brought by investors. The insurers contested coverage and initiated arbitration under the contracts. Pacific West brought suit in Washington state court, seeking to stay arbitration and have the matter heard in court based on the service-of-suit provision in the parties’ contracts. The insurers removed the case to federal court and moved to dismiss the petition to stay the arbitration. Citing the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, the court granted the motion, finding that the service-of-suit clause and the arbitration clause were compatible and could be read in a reasonable way to further the strong federal policy embodied in the FAA of enforcing arbitration agreements. Pacific West Securities Inc. v. Illinois Union Insurance Co., No. C12-539RSM (USDC W. D. Wash. Aug. 29, 2012).

This post written by John Pitblado.

See our disclaimer.

CREDIT FOR REINSURANCE UPDATE

by

About a year ago we reported on the NAIC’s adoption of amendments to the Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786). Eleven states now have implemented changes to their credit for reinsurance requirements to allow for a ratings-based methodology to allow for reduced collateral requirements for certified, non-U.S. reinsurers. These states include: Florida, New York, New Jersey, Pennsylvania, California, Connecticut, Delaware, Georgia, Indiana, Louisiana, and Virginia. Certain of these states, most notably Florida and New York, already had moved in this direction before the NAIC adopted its revised Models. A number of states, however, enacted legislation during their recently completed legislative sessions.

Some of the state legislation has included variation from the NAIC Models. For example, California’s law, signed by Governor Brown in early September, authorizes the insurance commissioner to disallow credit for reinsurance under certain circumstances notwithstanding technical compliance with the new requirements. California’s law goes into effect January 1, 2013, but will be deemed automatically repealed on January 1, 2016, unless separate legislation provides otherwise. Thus, it appears that California may be taking the NAIC’s revised Model on a three-year test drive.

At the NAIC, the Reinsurance (E) Task Force continues its work on credit for reinsurance matters. Most notably, its Qualified Jurisdiction Drafting Group, led by Missouri’s Director Huff, is focusing on developing the list of qualified jurisdictions. Under the Models, this list will identify the non-U.S. jurisdictions that will qualify as acceptable domiciliary jurisdictions for non-U.S. reinsurers to be eligible for consideration for certification and, potentially, reduced collateral obligations under the Model framework.

This post written by Anthony Cicchetti.

See our disclaimer.

COURT DENIES DISMISSAL OF PUTATIVE CLASS ACTION ALLEGING KICKBACKS ACCEPTED BY LENDER VIA ITS CAPTIVE REINSURER

by

A breach of contract claim survived dismissal in a potential class action lawsuit by homeowners against a mortgage lender for alleged kickbacks obtained when the lender required the homeowners to pay for force-placed insurance (FPI) on mortgaged properties. The homeowners contended that the lender breached its contractual duty of good faith and fair dealing by funneling back to itself a portion of the premiums paid by the homeowners for the FPI by, among other things, providing reinsurance through its own captive insurance company. While the court held that the contract claim could proceed against the lender, the court dismissed other claims for unfair and deceptive trade practices, and for unjust enrichment. Montanez v. HSBC Mortgage Corp. (USA), Case No. 11-4074 (USDC E.D. Pa. July 18, 2012).

This post written by Michael Wolgin.

See our disclaimer.

FEE-SHIFTING PROVISION IN ARBITRATION CLAUSE UNENFORCEABLE WHEN CERTAIN FEDERAL STATUTORY RIGHTS ARE AT ISSUE

by

In an employment dispute, a Magistrate Judge issued a Report and Recommendation which broadly interpreted the arbitration provision in an employment agreement in favor of arbitration. The judge interpreted the term providing that either party “may submit the matter to arbitration” (emphasis added) to mean that once one party elects to arbitrate, the arbitration becomes mandatory with respect to the other party. The judge also interpreted the term which explains that the arbitration clause applies to “any disputes . . . in connection with [Plaintiff’s] rights and obligations under this agreement” (emphasis added) to cover plaintiff’s sex and pay discrimination claims. The district court adopted the Report and Recommendation, except that it granted an objection to a fee-shifting provision of the arbitration clause, requiring that it be severed, finding it to be unenforceable and not essential to the arbitration clause. The fee-shifting provision required the losing party to pay attorneys’ fees. The court found the provision to be unenforceable because the claimant would not have to pay attorneys’ fees to vindicate her federal statutory rights under Title VII and the Equal Pay Act in court, and requiring the claimant to be exposed to that risk to vindicate her rights in an arbitral formum was not consistent with the statute. The district court specifically declined to follow cases from other circuits, which have held that fee-shifting provisions are generally too speculative to prevent a plaintiff from vindicating his or her federal statutory rights in an arbitral forum. Smith v. AHS Oklahoma Heart, LLC, Case No. 11-00691 (USDC N.D. Okla. Aug. 3, 2012).

This post written by Abigail Kortz.

See our disclaimer.