Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Carlton Fields

Carlton Fields

STATE CAPTIVE INSURANCE UPDATE

by

Following are some updates on the regulation of captive insuers by New Jersey and Nevada.

New Jersey

On October 25, 2010, the New Jersey Assembly passed unanimously A2360, which creates a regulatory and licensing scheme for captive insurers in the state. This bill, as amended, is identical to SB168. It provides, among other things, that a captive insurer must meet certain requirements, including those relating to formation, capital and surplus, examination, local office presence, ability to meet policy obligations, payment of certain fees and taxes, and annual reporting.

Following passage of A2360 by the New Jersey Assembly, the bill was referred to the New Jersey Senate Commerce Committee and Senate Budget and Appropriations Committee. On December 6, 2010, the Senate Commerce Committee reported favorably on the legislation, with amendments (bill text and committee report). The amendments to the bill: (1) clarify that, in addition to an insured or affiliate of a captive insurance company, a claimant thereof shall not receive a benefit from a plan, pool, association, or guaranty or insolvency fund; and (2) eliminate the transfer of 10% of the premium tax revenues collected under the bill to the commissioner for the regulation of the captive insurance companies. A2360 was also reported favorably out of the Senate Budget and Appropriations Committee (committee report) two days after the Senate Commerce Committee’s December 6th report. The legislation remains pending in the New Jersey Senate.

Nevada

On December 15, 2010, SB46 (bill text) was prefiled in the Nevada Senate. The bill allocates a portion of revenue from the premium tax on captive insurance to the Commission on Economic Development for promotion of the captive insurance industry in Nevada. The bill was referred to the Committee on Revenue.

This post written by Karen Benson.

ARBITRATION BY BISHOPS NOT UNCONSCIONABLE

by

The Catholic Bishop of Northern Alaska (CBNA) has been directed to arbitrate an insurance dispute. The CBNA filed for chapter 11 bankruptcy relief as a result of sexual abuse lawsuits against it. In the course of its bankruptcy proceeding, it sought a declaratory judgment as against its insurer, Catholic Mutual Relief Society of America, concerning the scope of coverage for the abuse claims. Catholic Mutual asserted that CBNA’s settlement of the underlying claims was without Catholic Mutual’s consent as required by the policies, and therefore voided the policies, relieving Catholic Mutual of any coverage obligation. The policy for one year contained an arbitration provision, and Catholic Mutual moved to compel arbitration of the dispute with respect to all claims potentially covered under that particular policy. CBNA resisted arbitration, claiming the arbitration provision was unconscionable, as it required submission of any dispute to Catholic Mutual’s president, and thereafter, by appeal to the chairman of Catholic Mutual’s board, who would then select a committee from amongst board members, each of whom are archbishops or bishops. The Court held this provision was not unconscionable, since the board members were as likely to align, in terms of any potential biases, with Catholic Mutual’s policyholders, who are also bishops and archbishops, as with the insurer of which they are board members. In re Catholic Bishop of Northern Alaska, No F08-00110-DMD (USDC Bankr. Alaska Dec. 13, 2010).

This post written by John Pitblado.

HAPPY HOLIDAYS FROM THE STAFF OF REINSURANCE FOCUS

by

As 2010 comes to a close, the staff of Reinsurance Focus wishes to thank our readers for their interest in and support of our blog. Our readership has grown this year, both in numbers and in the variety of the occupation of our readers. We passed the 1,000 post mark and expanded our content, including our first webinar. This has been a good year for us, and we hope that it has been a good year for you too. We look forward to sharing more developments with you in 2011. Happy Holidays!

Rollie Goss
Brian Perryman
Karen Benson
John Black
Anthony Cicchetti
John Pitblado
Ben Seessel
Michael Wolgin

ADMINISTRATIVE SERVICES AGREEMENT PROVIDES FOR PERMISSIVE ARBITRATION; PLAINTIFF PERMITTED TO AMEND COMPLAINT

by

PCH Mutual Insurance Company (“PCH”), a risk retention group providing insurance to assisted living facilities, entered into an Administrative Services Agreement with Casualty & Surety, Inc. (“CSI”), a wholesale insurance broker and program manager. The Agreement’s arbitration provision stated that: “Any disputes . . . may be submitted to binding arbitration. The prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys fees.” After PCH filed suit (alleging breach of contract, breach of fiduciary duty, and unjust enrichment), CSI moved to compel arbitration. The court denied the motion to compel arbitration, holding the arbitration provision was ambiguous and could be read to contemplate permissive arbitration. The court focused on the use of the term “may,” which indicated that arbitration was not required, particularly when juxtaposed with the term “shall,” which signaled that payment of costs to the prevailing party was compulsory. The court also cited the lack of specifics regarding arbitration procedure in the Agreement, further indicating ambiguity to the court. For example, the Agreement did not identify an arbitrator or provide a method for choosing one.

In a separate order issued the same day, the court granted PCH’s motion to amend the complaint to add a claim that CSI had improperly issued occurrence based endorsements, in contravention of underwriting guidelines that limited PCH’s coverage to claims made policies. The court rejected CSI’s argument that PCH’s motion to amend should be denied because of CSI’s “contractual expectancy for arbitration,” finding that it was “dubious” whether a pending motion to compel arbitration could constitute grounds for rejecting a motion to amend the complaint, and, furthermore, CSI had failed to establish that the parties had agreed to mandatory arbitration. The court also held that the proposed amendment would not be futile, and was not offered in bad faith or untimely. PCH Mutual Insurance Co., v. Casualty & Surety, Inc., Case No. 08-00282 (USDC D.D.C. Nov. 11, 2010).

This post written by Ben Seessel.

NAIC ADOPTS REINSURANCE AND SURPLUS LINES PROPOSALS; NCOIL ALTERNATIVE GAINS SUPPORT

by

On December 16, 2010, the NAIC adopted the proposed Reinsurance Collateral Reduction & Accreditation Recommendations and the Nonadmitted Insurance Multistate Agreement (“NIMA”), which were profiled in our December 6, 2010 post. The broader surplus lines proposal adopted by the National Conference of Insurance Legislators, profiled in the same post, now has the support of both the Council of State Governments and the National Conference of State Legislatures. The open question is how the states will react to these non-binding proposals.

This post written by Rollie Goss.