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New reinsurance-related and arbitration developments from Carlton Fields

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ARBITRATION TERMINATING RETROCESSIONAL INSURANCE RULED INADMISSIBLE IN RELATED SUIT AGAINST REINSURANCE BROKER

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On April 21, 2009, we reported on a case in which reinsurance broker Aon Re prevailed at trial against reinsurer Reliastar Life. Reliastar claimed Aon failed to disclose the potential termination of the reinsurance pool’s retrocessional insurance by its retrocessionaires. An appellate court has now affirmed the judgment for Aon. The appellate court rejected Reliastar’s arguments for reversal, including the argument that the trial court erred by excluding the arbitration decision that ultimately terminated the pool’s retrocessional insurance. The arbitration decision was irrelevant and inadmissible hearsay because Aon was not a party to the arbitration. The court further reasoned that only the timing of when the retrocessionaires considered their agreement ineffective, and not the fact that an arbitration eventually terminated the agreement, was relevant to Reliastar’s claim. The arbitration decision could have mislead the jury by imputing “guilt by association” to Aon for the retrocessional insurance’s termination. Reliastar Life Insurance Co. v. Roger Smith & Aon Re, Inc., Case No. A-4484-08T2 (N.J. App. Div. Mar. 1, 2011).

This post written by Michael Wolgin.

FLORIDA APPROVES TWO MORE BERMUDA-BASED REINSURERS FOR REDUCED COLLATERAL PROGRAM

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The Florida Office of Insurance Regulation has approved two more Bermuda-based reinsurers for its collateral reduction program. Consent Orders have been entered approving Allied World Assurance Company, Ltd. and Tokio Millennium Re Ltd. The OIR also issued press releases announcing the agreements with Allied World and Tokio Millennium. Nine reinsurers have now been approved for this program.

This post written by Rollie Goss.

JAPAN CATASTROPHE REINSURANCE IMPLICATIONS

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While the human toll of the still unfolding catastrophe in Japan rightfully is on the minds of many, there undoubtedly also will be an insurance toll as a result of this disaster. Those who have a professional interest in these events may find the Bermuda-based ARTEMIS alternative risk transfer/cat bond blog to be of interest. ARTEMIS has been posting daily updates on the potential insurance impact of this disaster.

This post written by Rollie Goss.

INSURER GRANTED SUMMARY JUDGMENT BASED ON FAILURE TO COMPLY WITH CONTRACTUAL NOTICE PROVISION

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A federal district court granted summary judgment to insurer Lexington Insurance Company because insured Untied Health Care Group failed to comply with the notice provision in United’s insurance contract, prejudicing Lexington. The contract stated that United would give notice as soon as practicable of any claim where United reserved at or above 50% of its SIR of $3 million. United litigated a lawsuit filed in May 2001 for seven years, incurring nearly $20 million in legal fees and settling in May 2008 for $8.5 million. Untied did not notify Lexington of the claim in a distinct communication until April 2008, but argued that quarterly loss run reports in which the claim appeared as one line item was sufficient notice. The court agreed that such reports could constitute notice, but the reports United submitted inaccurately indicated that the claim had been settled within the SIR in 2006. Lexington was prejudiced because it was denied its contractual right to associate in the investigation, defense, or control of the claim. The court, in its order, mistakenly described Lexington as United’s reinsurer. United has moved for reconsideration, arguing that the court’s mistake in this regard materially affects the propriety of the court’s grant of summary judgment to Lexington because an insured should be afforded more protection against forfeiture of benefits than a reinsured. Lexington Insurance Co. v. United Health Group, Inc., Case No. 09-10504 (U.S.D.C. Feb. 15, 2011)

This post written by Ben Seessel.

STATE SURPLUS LINES LEGISLATIVE DEVELOPMENTS

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There are two competing proposals to implement the Dodd-Frank Act’s provisions relating to nonadmitted insurance, which are found in the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) (Title V, Subtitle B Part I of the Dodd-Frank Act).  One proposal, called the “Surplus Lines Insurance Multistate Compliance Compact” or SLIMPACT, was created by the National Conference of Insurance Legislators, and has been endorsed by the Council of State Governments (“CSG”) and the National Conference of State Legislatures (“NCSL”).  The other proposal, called the “Nonadmitted Insurance Multi-State Agreement” or NIMA, was created by the National Association of Insurance Commissioners (“NAIC”).  While the NAIC’s NIMA is basically limited to the allocation of nonadmitted insurance premium taxes, NCLOI’s SLIMPACT covers other issues relating to nonadmitted insurance as well as the allocation of premium taxes.

Since our posting of February 10, 2011, there are at least 21 States that have proposed surplus lines insurance legislation to conform to the NRRA.

Among the States that have introduced SLIMPACT or legislation authorizing the commissioner to enter into SLIMPACT:

Among the States that have introduced NIMA or reference NIMA:

Among the States that have introduced both SLIMPACT and NIMA legislation:

Among the States that have introduced surplus lines legislation authorizing the commissioner to enter into a compact or multistate agreement without specifying either SLIMPACT or NIMA:

  • Arizona — HB 2112 (passed by House on 2/17/2011)
  • California – AB 315
  • Hawaii — HB 1052 / SB 1279 (HB 1052 passed by House 3/8/2011; SB 1279 passed by Senate on 3/8/2011)
  • New Hampshire — HB 424
  • Oklahoma — HB 2073 / SB 959 (SB 959 passed by Senate on 3/7/2011)
  • South Dakota — HB 1030 (adopted and signed by the Governor on 2/17/2011
  • Utah — HB 316 (adopted on 3/11/2011)
  • Wyoming — HB 242 (adopted and signed by the Governor on 3/2/2011)

Among the States that have introduced surplus lines legislation, but do not address multistate tax compacts or agreements:

Meanwhile, CSG, NCSL and NCOIL sent a letter to Congress requesting a one year extension of the effective date of the NRAA, to allow states more time to adopt legislation to conform to the NRRA and prevent state loss of critical insurance premium tax dollars.

This post written by Karen Benson.