Carlton Fields

NURSING HOME ARBITRATION AGREEMENT UPHELD

January 17, 2008 by Carlton Fields

A former Air Force intelligence officer with a bachelor’s degree in English and 27 years of experience as a claims examiner and manager for an insurance company, pursuant to a power of attorney and health care directive, signed papers admitting his 91-year old father to a nursing home. The arbitration provision was presented as a separate document, was not a requirement for admission and was discussed prior to its execution. After the father passed away and negligence claims were filed, a motion to compel arbitration was filed, and the validity of the arbitration provision was contested. The Massachusetts Supreme Court, applying both Massachusetts law and the Federal Arbitration Act, found that the arbitration agreement was enforceable, and not unconscionable. Some of the defendants were parties to the arbitration agreement, while others were not. The lower courts had held that it was inequitable and inefficient to force the plaintiff to litigate against some defendants in court and others in arbitration, but the Supreme Court disagreed, holding that this was “the necessary result of the choice that Miller made when he signed the arbitration agreement.” Miller v. Cotter, 448 Mass. 671 (Mass. 2007).

This post written by Rollie Goss.

INSURANCE COMPANY SANCTIONED FOR FAILURE TO COMMUNICATE

January 16, 2008 by Carlton Fields

A New York district court sanctioned Excess Insurance Company in the amount of $4,500 for its failure to communicate with the defendants and with the court. The plaintiff initially filed this action in December 2005, seeking reimbursement under reinsurance agreements executed in 1979 and 1980 with Metropolitan Reinsurance Company. At the initial pre-trial conference, Defendant Odyssey America maintained that it was not the proper party because it was not the successor-in-interest to Met Re. Shortly thereafter, plaintiffs commenced arbitration proceedings against the proper party. For the following six months, the defendant and the court were unable to contact the plaintiff regarding voluntary dismissal of the action. The court, recognizing plaintiff’s “grossly negligent” conduct, sanctioned plaintiff’s in the amount of $4,500 and dismissed the case with prejudice. Excess Ins. Co. v. Odyssey Am. Reinsurance Co., No. 05 Civ. 10884 (NRB), (USDC S.D.N.Y. Nov. 28, 2007).

This post written by Lynn Hawkins.

NEW JERSEY SUPREME COURT HOLDS THAT IBNR CLAIMS CANNOT PARTICIPATE IN FINAL DIVIDEND PLAN FOR INSOLVENT INSURER

January 15, 2008 by Carlton Fields

Integrity Insurance Company, which among other risks insured environmental and products liability risks with long claim tails that were subject to reinsurance, was declared insolvent. The issue arose as to whether the IBNR claims for such risks could participate in the liquidation plan, which would mean that the liquidator could collect on such claims from Integrity’s reinsurers immediately. The applicable New Jersey statute provides that only “absolute” claims may participate in a liquidation plan. The liquidation court held that IBNR claims could participate in the liquidation plan, but the Court of Appeals reversed (reported on in an October 11, 2006 post to this blog). The New Jersey Supreme Court held that since IBNR claims are actuarial estimates, they are not “absolute” as of the claim bar date, and therefore cannot participate in the liquidation plan. The holding turned on the interpretation of “absolute,” which the Court held required that the claims be capable of being determined on their own merit, standing on their own, independent of any other claim. Since IBNR claims are estimated in part based upon the insurer’s historical experience, they did not qualify as being “absolute.” It had been estimated that allowing IBNR claims, instead of requiring that they be considered in a run-off mode, would have saved $45 million in administrative expense. This principle could have a significant effect upon the duration of liquidation proceedings, their expense and the amount and timing of funds available from reinsurance to fund liquidation plans. In re Liquidation of Integrity Insurance Company, A-29 (December 13, 2007).

This post written by Rollie Goss.

OREGON SUPREME COURT PIERCES SUPERIOR NATIONAL CORPORATE VEIL IN INSOLVENCY CONTEXT

January 14, 2008 by Carlton Fields

The case involved a dispute over a $10.6 million deposit that Superior National Insurance Company (“SNIC”) made with the Oregon Department of Consumer and Business Services (“DCBS”). The Court was asked to decide whether DCBS could use SNIC’s deposit to satisfy the statutory liabilities of an insolvent insurer, Commercial Compensation Casualty Company (“CCCC”). SNIC was a retrocessionaire of CCCC, and both SNIC and CCCC were under the common control of a parent holding company, Superior National Insurance Group (“Superior National”).

The court first concluded that a retrocessionaire was a “reinsurer” for purposes of the insurance code, making its statutory deposits subject to control by DCBS. Despite this, the court held that SNIC was not liable for all of CCCC’s losses since, under the pooling agreement, SNIC only agreed to pay for 22% of the losses and expenses of the pooled business.

The court next concluded that SNIC and CCCC were “operationally a single company for all practical purposes,” and held that Superior National caused CCCC to violate the Insurance Code by failing to make the required deposit. Because SNIC and CCCC were under the common control of Superior National and because Superior National took actions to evade government regulation, the Oregon Supreme Court held that the requirements for corporate veil piercing were met. As such, the Court ordered Superior National to reimburse the Oregon Insurance Guaranty Association for payments made on behalf of CCCC. Oregon Insurance Guaranty Association v. Superior National Insurance Company, No. 00C-18554, (Or. Nov. 29, 2007).

This post written by Lynn Hawkins.

COURT DENIES MOTION TO VACATE ARBITRATION AWARD

January 9, 2008 by Carlton Fields

Commercial Risk Reinsurance Company Limited (“Commercial Risk”) brought this action to vacate an arbitration award against it and in favor of Security Insurance Company of Hartford (“Security”). In the underlying arbitration, Security sought to recover losses arising from workers compensation programs covered by two reinsurance agreements entered into by the parties in 1999 and 2000. In those contracts, Commercial Risk agreed to accept a certain share of Security’s interests and liabilities associated with the covered workers compensation programs insured by Security. Commercial Risk denied payments of amounts billed by Security under the treaties contending that a portion of the losses were not covered. The arbitration panel found in favor of Security.

Commercial Risk argued that the award should be overturned because: (1) the panel issued the Award jointly rather than severally against the two separate Commercial Risk entities; (2) the arbitration proceeding was fundamentally unfair because the panel excluded testimony of Commercial Risk’s witnesses and exhibits pertaining to damages; and (3) the panel exceeded its authority in a variety of ways. The Court rejected all of Commercial Risk’s arguments finding “no evidence that the arbitrators engaged in misconduct, or exceeded their authority, or that Security committed any fraud sufficient to vacate the Award.” Commercial Risk Reinsurance Co. Ltd. v. Security Insurance Co. of Hartford, Case No. 07 Civ 2772 (S.D.N.Y., Nov. 30, 2007). Commercial Risk’s motion for reconsideration also was denied. Commercial Risk Reinsurance Co. Ltd. v. Security Insurance Co. of Hartford, Case No. 07 Civ 2772 (S.D.N.Y., Dec. 12, 2007).

This post written by Lynn Hawkins.