Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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John Pitblado

CONNECTICUT INSURANCE DEPARTMENT ISSUES TWO BULLETINS

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The Connecticut Insurance Department recently issued two bulletins, both of which mandate financial reporting by insurers to the Department. Bulletin Number FS-4AR-17, issued on December 6, 2017, requires all accredited reinsurers doing business in Connecticut to submit to the Department a report of its financial condition as of December 31, 2017, by March 1, 2018, as well as a copy of the company’s 2017 independent audit report, by June 1, 2018. Bulletin Number FS-4C-17, issued on December 11, 2017, requires each captive insurance company domiciled or licensed in Connecticut to file financial reports with the Department by either March 1 or March 15, 2018, depending on the type of captive.

This post written by Jeanne Kohler.

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NDNY JURY AWARDS $35M PLUS INTEREST FOR AMOUNTS DUE UNDER REINSURANCE CONTRACTS

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Following a jury trial, Utica Mutual Insurance Company was awarded $35 million, plus interest ($29,092,191.78) on its claims against Fireman’s Fund Insurance Company to enforce the terms of the certificates of reinsurance issued by Fireman’s Fund to Utica. The Court, ruling on Utica’s Motion for Judgment on Partial Findings, dismissed Fireman’s Fund’s counterclaims for intentional and negligent misrepresentation. Post-trial motions are to be filed by December 29, 2017.

Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 6:09-CV-0853 (USDC N.D.N.Y. Dec. 15-16, 2017)

This post written by Nora A. Valenza-Frost.

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NATIONAL FLOOD INSURANCE PROGRAM IS RELIEVED OF $16 BILLION OF DEBT

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On October 26, 2017, President Donald Trump signed H.R. 2266, a disaster relief bill. Pursuant to section 308 of the bill, the Department of the Treasury will forgive $16 billion in debt owed by FEMA under the National Flood Insurance Program. The forgiven debt is designated as an emergency requirement under the Statutory Pay-As-You-Go Act of 2010 and the Balanced Budget and Emergency Deficit Control Act of 1985. See the full text H.R. 2266 here.

This post written by Jeanne Kohler.
See our disclaimer.

DISTRICT OF COLORADO AFFIRMS FINRA ARBITRATION AWARD

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A Colorado federal court affirmed a FINRA arbitration award, despite a cross-motion to vacate the award on the bases of alleged panel misconduct; exceeding its powers; manifest disregard of the law; and that the award did not contain a showing as to how the evidence justifies the award.

First, the Court rejected defendant’s argument that the Panel’s refusal to grant a second continuance did not amount to misconduct. Following the first continuance, defendant was given ample time – three months – to obtain new counsel and have them prepare for the hearing.

Second, the Court also rejected defendant’s argument that the panel exceeded its powers by hearing and ruling on claims that were beyond the Panel’s jurisdiction under FINRA rules. The Court reasoned that, “because it was for the Panel and not this Court to decide whether Plaintiff’s claims fell within Rule 12206(a)’s six-year time frame, the Court reject[ed] Defendant’s invitation to second-guess the Panel’s interpretation of FINRA Rule 12206(a).”

Third, the Court rejected defendant’s argument that the Panel acted in manifest disregard of the law by hearing, and ruling on, claims which were barred by state law under the relevant statutes of limitations. The Court reasoned that, even if the Panel had erroneously applied the applicable statutes of limitations, “incorrect application of a state’s statute of limitations does not rise to the level of manifest disregard of the law.”

Lastly, the Court rejected defendant’s argument that the award did not contain a showing as to how the evidence justifies the award, findings of fact or conclusions of law. Despite this argument being improperly raised in defendant’s reply, the arbitration provision specifically stated the arbitrators do not have to explain the reasons for their award, and the “Panel could have reasonably concluded that this provision allowed the Panel to dispense with written findings of fact and conclusions of law”.

Huitt v. Wilbanks Securities, Inc., 1:17-cv-00919 (USDC D. Col. Oct. 19, 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

COURT RULES AGAIN ON MOTION TO DISMISS IN MATTER INVOLVING UNFILED RATES CHARGED UNDER REINSURANCE AGREEMENT

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On July 21, 2016, we reported on a putative class action filed in a California U.S. district court by Shasta Linen Company against Applied Underwriters, Inc. and its affiliated entities, alleging that the “EquityComp” workers’ compensation insurance program marketed and sold by Applied Underwriters violated California insurance law and regulations. Shasta asserted that the defendants unlawfully used a Reinsurance Participation Agreement (“RPA”) to control workers’ compensation rates (and thus, charge higher rates) without first having the RPA filed and approved by the department of insurance as required by law. The court dismissed Shasta Linen’s claims to the extent that they sought to invalidate the RPA’s rates on the theory that the RPA was an unfiled plan pursuant to section 11735 of the California Insurance Code. The court reasoned that the use of a rate that has not been filed is not an unlawful rate unless and until the commissioner conducts a hearing and disapproves the rate.

On December 1, 2016, we reported that subsequent to the court’s ruling, the California Commissioner issued an order in an administrative proceeding, finding that the RPA was void because it had not been filed and approved by the department. Shasta Linen then sought reconsideration of the court’s prior dismissal, arguing that the Commissioner’s Order was a “change in controlling authority meriting reconsideration” by the court. On October 17, 2016, the court held that the Commissioner’s order misinterpreted the law, and was not “controlling.” The court denied reconsideration, but it did so “without prejudice as to attempts by plaintiff to invalidate the [RPA] on grounds other than the theory that defendants violated” section 11735.

Since our last blog on the case, Pet Food Express filed a separate class action against Applied Underwriters and its affiliates in California state court, which was removed to federal court. As they had in the Shasta case, the defendants moved to dismiss Pet Food’s complaint to the extent it sought to invalidate the RPA on the ground that it is an unfiled plan in violation of section 11735. The court denied the motion as Pet Food’s complaint did not rely on section 11735. Both plaintiffs in the two action then filed nearly identical amended complaints, asserting claims under RICO, the California Unfair Competition Law (“UCL”), California Business and Professional Code and for unjust enrichment. Defendants moved to dismiss. The court consolidated the actions for pre-trial purposes.

With respect to the motions to dismiss, the court granted them as to the RICO claims because plaintiffs had not sufficiently alleged a plausible basis to infer a specific intent to defraud with respect to the RPA. Consistent with its earlier rulings, it also again granted defendants’ motions to dismiss as to plaintiffs’ attempts to invalidate the RPA on the theory that defendants violated Insurance Code section 11735. The court denied as to plaintiffs’ UCL claim and unjust enrichment claim, and on the ground that plaintiffs lacked standing to seek injunctive relief and to seek restitution.

Shasta Linen Supply, Inc. v. Applied Underwriters, Inc., Case No. 2:16-cv-00158 and Pet Food Express Ltd. V. Applied Underwriters, Inc., Case No. 2:16-cv-012111 (E.D. Cal. Oct. 17, 2017).

This post written by Jeanne Kohler.

See our disclaimer.