Carlton Fields

DISTRICT COURT DISCHARGES PHOENIX FIRE AND MARINE INSURANCE COMPANY CONSERVATOR

December 7, 2017 by Carlton Fields

After 14 years, the Commissioner of Insurance of the Virgin Islands has been discharged as conservator of Phoenix Fire and Marine Insurance Company (“Phoenix”). The Commissioner reported that: $15,936,228.13 had been paid to claims under Phoenix policies; $298,452.38 in unearned premiums disbursed to policy holders; $1,819,449.76 held in trust; and there is a balance of $3,819,449.76 in outstanding claims and unearned premiums.

In addition to discharging the Commissioner, the Court awarded $400,000 in administrative fees and deposited $1,396,169.10 in unclaimed funds with the Commission of Finance to be designated as the Phoenix Fire Trust Fund, into which any unclaimed funds shall be deposited. Potter v Phoenix Fire and Marine Ins. Co. Ltd., et al., Civil No. 1991-271 (USDC D.V.I. Nov. 3, 2017).

This post written by Nora A. Valenza-Frost.
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WISCONSIN ADOPTS NEW CREDIT FOR REINSURANCE RULE BASED ON CERTIFIED REINSURERS

December 6, 2017 by Carlton Fields

On November 7, 2017, the Commissioner of Insurance for the State of Wisconsin issued an order approving a new rule to be added to Section Ins. Ch. 52, Wis. Adm. Code. The rule is intended to modernize Wisconsin’s credit for reinsurance provisions by aligning them with the Nonadmitted and Reinsurance Reform Act of 2010 and amendments to the NAIC Credit for Reinsurance Model Law.

As currently written, reinsurers are required to post collateral equal to their total liability for ceding insurers in order for the insurers to take full credits for reinsurance. The new rule allows for the use of certified reinsurers. Certifications will be made at different levels based on financial strength ratings and will allow certified reinsurers to post less than 100 percent collateral on the risk they assume. Reinsurers with the three highest financial ratings will have lower collateral requirements of 0-10-20 percent, respectively. Reinsurers with the three lowest financial ratings will have collateral requirements of 50-75-100 percent, respectively. By making these revisions, Wisconsin’s reinsurance provisions will be consistent with changes made in other states. The new rule becomes effective on January 1, 2018.

This post written by Alex Silverman.
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NORTHERN DISTRICT OF GEORGIA ORDERS CEDENT TO PRODUCE INFORMATION ON ITS PAYMENT OF CLAIMS

December 5, 2017 by Carlton Fields

Defendant Golden Isles Reinsurance Company, Limited (“Golden Isles”) sought detailed information regarding individual claims Canal Insurance Company (“Canal”) submitted for reimbursement under the parties’ reinsurance agreement, as outlined in the court’s hearing notes. The Court ordered production of the following:

Check register information (purportedly to enable Golden Isles to verify the amount Canal paid on the claim, in lieu of settlement agreements which would be more burdensome to produce);
Documents showing the date Canal first had notice of each individual claim for which Canal has the claim date within 6 months of either the start or end of the parties’ agreement; and
A 30(b)(6) witness who can address questions Golden Isles has concerning claims data and how certain numbers were entered and calculated, as the Court found “Golden Isles is entitled to answers to these questions,” but also found that “producing large quantities of documents is not the most efficient manner in which to address this.”

The Court will address the parties’ additional discovery disputes by a separate order. This is not the first discovery issue addressed by the court in this case. Further background is available in the amended initial disclosures of Canal Insurance. Canal Ins. Co. v. Golden Isles Reinsurance Co., Ltd., Case No. 1:15-cv-03331 (USDC N.D. Ga. Oct 6, 2017).

This post written by Nora A. Valenza-Frost.
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COURT FINDS CONFIDENTIALITY PROVISION IN ARBITRATION AGREEMENT UNCONSCIONABLE, COMPELS CONSUMER ARBITRATION

December 4, 2017 by Carlton Fields

The Eleventh Circuit has determined that a confidentiality provision in an arbitration clause was substantively unconscionable. The case involved a putative class action by David Johnson alleging that KeyBank National Association (“KeyBank”) altered the order of debit card transactions to maximize their collection of overdraft fees. Johnson opened the account at issue in 2001 by signing an agreement stating that “all accounts opened under this Plan are subject to [KeyBank’s] Deposit Account Agreement” (the “2001 Agreement”). The Deposit Account Agreement was a 1997 agreement with the arbitration clause at issue (the “1997 Agreement”).

KeyBank moved to compel arbitration of Johnson’s claims, arguing that Johnson agreed to be bound by the arbitration provision in the 1997 Agreement. The district court denied the motion, however, finding the arbitration clause to be unconscionable.

On appeal, the Eleventh Circuit first concluded that Johnson agreed to arbitrate because the 2001 Agreement expressly stated that the 2001 account was “subject to” the terms of the 1997 Agreement, including the arbitration clause. The phrase “subject to” was deemed sufficient to incorporate the 1997 Agreement into the 2001 Agreement by reference. By executing the 2001 Agreement, the court found that Johnson agreed to be bound by the arbitration provision.

The court then reversed the district court’s determination that the arbitration provision was unconscionable. First, the court held that it was not procedurally unconscionable because it was not made without “meaningful choice;” that it was a contract of adhesion did not make it unconscionable per se. Second, while it was not substantively unconscionable as a whole, the court held that a confidentiality clause in the provision was unconscionable in that it required the parties to “keep confidential any decision of an arbitrator.” The court agreed that by keeping the outcomes of prior arbitrations concealed, it put KeyBank, a repeat participant in the arbitration process, at an “obvious informational advantage” at the outset of a dispute. Moreover, prospective claimants would have little context in which to assess the value of their cases, which may discourage those individuals from pursuing valid claims. As such, the court severed the confidentiality clause and enforced the remainder of the arbitration provision with instructions on remand. Larsen v. Citibank FSB, No. 15-10779 (871 F.3d 1295) (11th Cir. Sept. 26, 2017).

This post written by Alex Silverman.
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DISCOVERY DISPUTE IN COST OF INSURANCE CASE CONSIDERS RELEVANCE, STATUTORY PRIVILEGE, AND ADEQUACY OF OBJECTIONS

November 30, 2017 by Carlton Fields

In a putative class action alleging that a life insurer engaged in an elaborate scheme to pay stockholders huge dividends by shifting its obligations to reinsurers operating in jurisdictions with weak oversight and dramatically raising the cost of insurance on its universal life insurance policies, a federal magistrate judge in the District of Maryland has found that plaintiffs’ discovery requests went too far, while plaintiffs’ responses to discovery were “miserably deficient.”

Defendant objected to the plaintiffs’ discovery requests on the basis that they sought irrelevant documents regarding varieties of policies other than the universal life insurance policies that named plaintiffs’ owned and that received the COI increases, and the magistrate agreed. Defendant also argued that certain requested documents were protected by a Maryland statutory privilege for documents filed with the state insurance Commissioner. Plaintiffs argued that this statute only prevented the state insurance department from disclosing these documents, but the magistrate disagreed. Noting that the statute provided that such documents “may not be made public by the Commissioner, the National Association of Insurance Commissioners, or any other person,” and that the defendant clearly was a person as defined by law, the magistrate found that these documents were not discoverable and that defendant must place them on their privilege log.

Defendant also moved to compel responses to its interrogatories and requests for documents. The magistrate found that plaintiffs did not meet their essential obligations in responding to discovery—“answer the questions, provide the documents or in the alternative assert any applicable privilege.” Plaintiffs’ objections to interrogatories regarding the factual basis for the alleged fraud and for damages, including that the requests were “burdensome and annoying” and “premature at this early stage of litigation,” were inadequate, as were references to documents in response to interrogatories. As plaintiffs’ responses were “miserably deficient,” the magistrate ordered plaintiffs to answer the interrogatories, provide the requested documents, and provide a privilege log for any privileged documents.

Dickman v. Banner Life Insurance Company, Civil No. RDB-16-192 (D. Md. Sept. 28, 2017)

This post written by Jason Brost.

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