Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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LEGISLATIVE AND REGULATORY UPDATE

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FEDERAL LEGISLATIVE UPDATE

Congress has recently introduced two bills relevant to reinsurance or catastrophe funds. These bills are as follows:

  • On November 4, 2009, the Guaranteed Access to Health Insurance Act of 2009 (H.R. 4020) was introduced in the U.S. House of Representatives. The bill proposes to enable states to establish reinsurance programs or high risk pools to ensure that high risk individuals are able to access health insurance. The bill was referred to the House Committee on Energy and Commerce on the same day.
  • The same day, the Catastrophe Obligation Guarantee Act of 2009 (H.R. 4014) was introduced in the U.S. House of Representatives. The bill proposes to establish a program to provide guarantees for debt issued by state catastrophe insurance programs to assist in the financial recovery from natural catastrophes. The bill was referred to the House Committee on Financial Services on the same day.

STATE REGULATORY UPDATE

State regulatory developments relevant to reinsurance include the following:

  • The Office of the General Counsel of the New York Insurance Department issued an opinion dated September 30, 2009, No. 09-09-06, which addressed whether the requirements in New York Insurance Law Section 1401(b) apply to investments of insurance companies deposited under a reinsurance trust pursuant to New York Regulation 114 (11 NYCRR § 126). The OGC responded in the affirmative stating that Section 1401(b) requires any financial requirement (such as the rating of a given security) to be measured as of the date of the acquisition of the security, absent any express legal or regulatory authorization to the contrary. Because nothing in Regulation 114 or elsewhere in New York Insurance Law specifies otherwise, the OGC concluded that any assets contributed to a Regulation 114 trust must meet any applicable statutory rating requirement as of the asset’s acquisition date.
  • On October 5, 2009, the Washington Office of Insurance Commissioner proposed rulemaking aimed at clarifying when licensed reinsurance intermediaries must report changes to the information contained in their original application for licensing and what changes must be reported. If adopted, proposed rule, WAC 284-13-715, would require a licensed reinsurance intermediary to notify the Commissioner within 15 business days after occurrence of material changes to the information that was included in the application for licensing (such as changes to the reinsurance intermediary’s legal name, registered address, formation documents if it is a business entity, etc.). Also, proposed rules, WAC 284-13-750 and 284-13-760, would require a licensed reinsurance intermediary, or a pending applicant, to notify the Commissioner within 15 business days of disciplinary action taken by another governmental jurisdiction and conviction of certain felonies, respectively. The comment period for the proposed rulemaking expired on November 9, 2009, and a hearing was held on November 10, 2009.

This post written by Karen Benson.

EN BANC DECISION HOLDS THAT MCCARRAN-FERGUSON ACT DOES NOT REVERSE-PREEMPT THE CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

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The Fifth Circuit has affirmed en banc a panel decision holding that while the McCarran-Ferguson Act reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. We reported on the panel decision in an October 14, 2008 post. The district court denied a motion to compel arbitration of a contractual dispute among three insurers, finding that a Louisiana statute barring mandatory arbitration provisions in insurance contracts superseded the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On an interlocutory appeal, the Fifth Circuit panel reversed. Rehearing en banc was granted, vacating the panel opinion. Sitting en banc, the Fifth Circuit concluded that because McCarran-Ferguson does not apply to the Convention or its implementing law (the Convention Act), the district court’s order should be vacated and the case should be remanded for further proceedings. The Court indicated that it “was persuaded that state law does not reverse-preempt federal law in the present case for two related but distinct reasons: (1) Congress did not intend to include a treaty within the scope of an ‘Act of Congress’ when it used those words in the McCarran-Ferguson Act, and (2) in this case, it is when we construe a treaty – specifically, the Convention, rather than the Convention Act – to determine the parties’ respective rights and obligations, that the state law at issue is superseded.” Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, No. 06-30262 (5th Cir. Nov. 9, 2009).

This post written by Brian Perryman.

ENGLISH COURT HAS JURISDICTION OVER REINSURANCE CLAIM BY A BERMUDA INSURER AGAINST A SWISS REINSURER

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The underlying dispute involves claims made by Gard Marine & Energy, Ltd. (“Gard”), a Bermudan company, against its reinsurers in an English court. One reinsurer, Glacier Reinsurance AG (“Glacier”), domiciled in Switzerland, objected to the court’s jurisdiction. Glacier had originally paid Gard the sum Glacier considered due, but later sued Gard in a Swiss court seeking repayment of the sum paid. The present action was stayed until the Swiss Federal Court declined jurisdiction. The English court then addressed the issues of governing law and jurisdiction.

The English court first addressed whether Swiss or English law applied. Following the principles of the Rome Convention, the court found that Gard established a good, arguable case that English law applied for four reasons, which were: (1) the circumstances of the placement; (2) the use of a Lloyd’s slip and policy; (3) a number of London market wordings incorporated in the slip; and (4) the wording included provisions relevant to English law. The court next addressed jurisdiction. Applying the Lugano Convention (the “Convention”), the court found that it had jurisdiction. The Convention permits Gard to sue Glacier in Glacier’s country of domicile; however, certain provisions in the Convention allow for an exception. Pursuant to Article 6(1) of the Convention, since the English court had jurisdiction over the other defendants, the court had jurisdiction over Glacier because litigation in English and Swiss courts would result in irreconcilable judgments. Gard Marine & Energy Ltd. v. Tuncliffe, [2009] EWHC 2388 (Comm. Oct. 9, 2009).

This post written by Dan Crisp.

THIRD CIRCUIT AFFIRMS DENIAL OF COVERAGE AND REINSURANCE CLAIMS FOR UNDERLYING SUITS UNDER D&O POLICIES

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G-I Holdings, Inc. purchased directors & officers liability coverage from Reliance Insurance Company, covering claims made from 1999 – 2002. Due to Reliance’s putatively impending insolvency at that time, it reached an agreement with Hartford Fire Insurance Company, whereby Hartford agree to take over some of Reliance’s claims administration, and agreed to reinsure obligations under Reliance policies for claims made after July 15, 2000. Reliance remained responsible for covering claims made under its policies prior to July 15, 2000. Thereafter, Reliance became insolvent and went into liquidation. G-I Holdings asserted a claim for coverage for three fraudulent conveyance suits against its CEO and Chairman. The first suit was brought during the Reliance coverage period, and the other two were brought during the period covered by Hartford. However, Hartford declined coverage, and the parties litigated, based on the question of whether the two later suits related back to the Reliance coverage period. The district court agreed with Hartford, finding that all three suits were Reliance’s responsibility. The Third Circuit affirmed. G-I Holdings, Inc. v. Reliance Ins. Co., No. 07-2510 (3d Cir. Oct. 26, 2009)

This post written by John Pitblado.

THIRD CIRCUIT RULES THAT HOMEBUYER PLAINTIFFS HAVE STANDING TO CHALLENGE A PRIVATE MORTGAGE REINSURANCE ARRANGEMENT

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On December 26, 2008, we reported on a putative class action brought by homebuyers alleging that their private mortgage insurance premiums were subject to an unlawful captive reinsurance arrangement in violation of the Real Estate Settlement Procedures Act (“RESPA”). The district court had granted the defendants’ motion to dismiss, construing RESPA as requiring the plaintiffs to allege an overcharge in order to sue for damages. The Third Circuit reversed the order of the district court, finding that RESPA’s plan, unambiguous language did not require the plaintiffs to allege an overcharge and that the plaintiffs had suffered an injury-in-fact sufficient to support Article III standing, with or without an overcharge. The circuit court further found the filed rate doctrine inapplicable as the plaintiffs challenged allegedly unlawful conduct, not the reasonableness of the rate triggering the conduct. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Dan Crisp.