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New reinsurance-related and arbitration developments from Carlton Fields

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DISTRICT COURT FINDS COMMERCIAL ACTIVITY EXCEPTION TO FOREIGN SOVEREIGN IMMUNITIES ACT NOT APPLICABLE TO ALLEGED REINSURANCE SCHEME

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In a June 7, 2007 post, we reported on a decision of the US Court of Appeals for the Second Circuit which affirmed the dismissal of claims alleging that an Indonesia state-owned social security insurer operated a reinsurance scam. The district court dismissed the claims after finding that the alleged activity was covered by the Foreign Sovereign Immunities Act, and the “commercial activity” exception to immunity did not apply. The Court of Appeals affirmed, but remanded the case for reconsideration of whether a negligent supervision claim was covered by the “commercial activity” exception. On remand, the district court has found that the negligent supervision claim does not come within the bounds of the “commercial activity” exception to immunity, and is therefore barred by the doctrine of sovereign immunity. The district court accordingly dismissed the remaining claim. Anglo-Iberia Underwriting Management Co. v. Lodderhose, Case No. 9700084 (USDC S.D. N.Y. Jan. 22, 2008).

This post written by Rollie Goss.

UK COMMERCIAL COURT DENIES LIBYAN INSURER’S CLAIMS AGAINST LONDON BROKER

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In 2004, Aon (a London broker) placed reinsurance for risks that United Insurance Company (a Libyan insurance company) assumed in insuring assets of a Libyan state-owned oil company. Aon also obtained reinsurance for United in relation to a Libyan company in the chemicals industry. Aon placed the business in the London market. After renewing the business in 2005, United brought three claims against Aon. United sought to recover brokerage fees paid to Aon on the basis that Aon misrepresented the nature of cover, commissions, and fees. United was unsuccessful on all of its claims. The Commercial Court found that United’s evidence did not match the relevant contemporary documents and was contradicted by Aon’s evidence. United Insurance Co of Libya v. Aon Ltd., [2007] EWHC 1583 (Comm. July 5, 2007). This opinion is not on the UK Court site, but is available on WESTLAW at 2007 WL 1942745.

This post written by Lynn Hawkins.

COURT FINDS ARBITRATION CLAIMS BARRED BY PRIOR CLASS SETTLEMENT

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Plaintiffs allegedly suffered losses relating to stock options in WorldCom stock. They filed an NASD arbitration asserting claims, and were members of a class certified with respect to WorldCom stock losses. The class action settled and the proposed settlement received final approval one month before the arbitration hearing. The Claimants in the arbitration were members of the settlement class and had not excluded themselves from the class. The settlement's final approval Order included a fairly typical release of claims and an injunction against class members maintaining or participating in legal proceedings seeking to pursue claims that were released by the settlement. The arbitration proceeded, and Claimants recovered an award, at least part of which was for losses released by the class settlement. Both the District Court and the Court of Appeals found that the award should be vacated to the extent that it awarded damages for claims that had been released by the class settlement. Rich v. Spartis, No. 06-1723 (USCA 2d Cir. Feb. 8, 2008).

This post written by Rollie Goss.

IRS WITHDRAWS PROPOSED MODIFICAITON OF CAPTIVE TAX BENEFIT

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In a November 5, 2007 post, we commented upon action of the IRS in proposing a regulation which would eliminate certain tax benefits for captive insurance and reinsurance companies. Following heavy lobbying from politicians, including governors and Senators from states with active captive insurer programs, and heavy lobbying from the captive industry, the IRS has withdrawn the proposed regulation and cancelled the upcoming hearing on the proposal. This action has been viewed in the trade press as being a substantial victory for captive insurers.

This post written by Rollie Goss.

LONDON MARKET RESEARCH TOOL

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A subscription-only reporting service on the London reinsurance market cases is available at Lloyd’s Law Reports: insurance and reinsurance, with commentaries on cases by Ian Hunter (QC) and Professor Robert Merkin.  This company also sells a reinsurance treatise titled Reinsurance Practice and the Law.

This post written by Rollie Goss.