Carlton Fields

DELAWARE COURT ORDERS BANK TO TURN OVER $156 MILLION OF REINSURER’S ASSETS TO STATE INSURANCE COMMISSIONER

February 26, 2015 by Carlton Fields

The Delaware Court of Chancery has denied U.S. Bank, N.A.’s request for an order establishing its right to retain cash and securities valued at $156 million and maintained by Freestone Insurance Company, a reinsurer now in receivership, in a custodial account at the Bank. When Freestone’s delinquency proceedings began, it maintained assets valued at $175 million with the Bank, which held the assets in trust to secure the insurer’s right to payment from Freestone (and others) as reinsurer. The Bank turned over only $19 million of the assets and moved for an order establishing its right to retain the rest, arguing it was entitled to keep the assets as security for potential indemnification claims and present and future expenses. The court denied the Bank’s motion, finding the Bank was not entitled to retain indefinitely assets valued at $156 million nor was it entitled to a security interest in those assets. Instead, the court ordered the Bank to turn over the $156 million to the Insurance Commissioner of the State of Delaware, allowing the Bank to keep only its current administrative fees to the extent incurred as of a date thirty days after the date the commissioner demanded the assets’ return. In the Matter of the Liquidation of Freestone Insurance Co., C.A. No. 9574-VCL (Del. Ch. Dec. 24, 2014).

This post written by Renee Schimkat.

See our disclaimer.

REINSURANCE-RELATED DISPUTE STAYED PENDING ARBITRATION DESPITE LATER EXECUTED SETTLEMENT AGREEMENT

February 25, 2015 by Carlton Fields

Steadfast Insurance Company entered into a settlement agreement with its insured, Barton Malow Enterprises after agreeing to pay $15 million on Barton’s claim. The settlement included a complete release of all claims by Steadfast against Barton and its affiliates and subsidiaries. Thereafter, Steadfast discovered that it had purchased reinsurance covering a portion of the settlement proceeds under a reinsurance agreement with United Integrity. United denied the claim, arguing that Steadfast released United because United was in fact a wholly-owned subsidiary of Barton’s. Steadfast then served an arbitration demand on United pursuant to the arbitration clause in their reinsurance agreement. Barton and United responded by filing suit against Steadfast, which moved to stay the action pending arbitration. Barton and United opposed the motion for stay, arguing that the later-executed settlement agreement overrode the arbitration provision. The court disagreed and stayed the case pending arbitration. The arbitration provision was not superseded by the settlement agreement because the settlement agreement did not specifically preclude arbitration. Moreover, United’s claims fell within the scope of the arbitration provision; the claims implicated both sides’ rights and obligations under the reinsurance agreement. Finally, although Barton was not a party to the reinsurance agreement, the court found that judicial economy warranted staying Barton’s claims against Steadfast pending conclusion of the arbitration. Barton Malow Enterprises, Inc. v. Steadfast Insurance Co., No. 14-cv-7347 (USDC S.D.N.Y. Dec. 31, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

COURT DENIES MOTIONS TO COMPEL PRODUCTION OF DOCUMENTS UNRELATED TO REINSURANCE POLICIES AT ISSUE IN ACTION

February 24, 2015 by Carlton Fields

The dispute continues between Utica Mutual and Clearwater Insurance in the Northern District of New York where the court recently denied, in large part, the parties’ respective motions to compel discovery of insurance and reinsurance documents unrelated to the specific facultative reinsurance policies at issue in the action. In this case, on which we have previously reported, the issue is whether reinsurance is due under contracts between Utica Mutual and Clearwater for a reinsurance claim relating to a settlement with one of Utica Mutual’s insureds. Utica Mutual sought to compel Clearwater to produce unrelated reinsurance contracts, claim notices, claim files, claim billing information, and other documents concerning contractual relationships with non-parties, arguing these documents were relevant to Clearwater’s defenses and counterclaim that it was misled into paying amounts toward that settlement. Clearwater, in turn, sought to compel Utica Mutual to produce information about primary commercial insurance policies issued by Utica Mutual to a number of its commercial insureds, claiming the information was needed, in part, to determine damages relating to the underlying settlement.

The court denied the parties’ motions, finding the documents sought were not relevant and noting that any issues as to the underlying settlement were already litigated and resolved. Discovery of entirely different contracts and documents that are “not germane or are only faintly relevant” would create confusion and diversion. The court did grant that part of Utica Mutual’s motion seeking to compel Clearwater to respond to an interrogatory requesting the factual and legal bases for Clearwater’s assertions that the amounts it paid to Utica Mutual were not due and payable. That single interrogatory, the court found, sought relevant information. Utica Mutual Insurance Co. v. Clearwater Insurance Co., No. 6:13-cv-01178 (USDC N.D.N.Y. Jan. 20, 2015).

This post written by Renee Schimkat.

See our disclaimer.

SPECIAL FOCUS: ALTERNATIVE CAPITAL AND REINSURERS

February 23, 2015 by Carlton Fields

One hot topic in the reinsurance industry over the last year or two has been the influx and role of alternative capital. In a Special Focus article titled Alternative Capital Proving That For Reinsurers, Size Does Not Matter, Bob Shapiro and Scott Shine explore some of the issues in this area.

This post written by Rollie Goss.

See our disclaimer.

SEVENTH CIRCUIT FINDS ATTORNEY FEE DISPUTE ARBITRABLE

February 19, 2015 by Carlton Fields

The Seventh Circuit recently held that a cost-sharing agreement (“CSA”) between Hennessy Industries Inc. (“Hennessy”) and National Union Fire Insurance Co. (“National Union”) required the parties to arbitrate a dispute over attorneys’ fees stemming from asbestos-related personal injury claims. Hennessy and National Union entered into a CSA that set forth a framework to govern asbestos claims handling and payment in 2008. The CSA was governed by Illinois law and contained an agreement that the parties would submit disputes to arbitration, though arbitrators would not have jurisdiction to award punitive damages, fines, or penalties.

Despite the language of the CSA, Hennessy sued National Union in federal court, seeking penalties, attorneys’ fees, and costs as provided by Section 155 of Illinois’s insurance law. National Union moved to compel arbitration of that claim, but the district court denied the motion, finding that the Section 155 claim was not within the scope of the parties’ arbitration agreement. National Union appealed to the Seventh Circuit, which reversed the district court’s ruling. Judge Posner, writing for the court, held: (1) Section 155 “regulate[s] the business of insurance” and thus could not be preempted by the Federal Arbitration Act; and (2) Section 155 was within the scope of the arbitration agreement, and so it was arbitrable by its terms. Hennessy Industries, Inc. v. National Union Fire Ins. Co. of Pittsburgh, No. 14-1277 (7th Cir. Oct. 28, 2014)

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.