John Pitblado

WASHINGTON ADOPTS NEW RULES REGARDING CREDIT FOR REINSURANCE

February 3, 2016 by John Pitblado

The Office of the Insurance Commissioner for Washington State recently adopted rules that amend the existing Credit for Reinsurance rules within the state. In addition, that office adopted new rules to conform Washington’s rules regarding credit for reinsurance to the NAIC Credit for Reinsurance Model Regulation and amendments made by the 2015 legislative session to the credit for reinsurance laws. The new rules went into effect on January 2, 2016.

Washington Insurance Commissioner Matter No. R 2015-09.

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

See our disclaimer.

NEW YORK FEDERAL BANKRUPTCY COURT FINDS INSURANCE INSOLVENCY PROCEEDING DOES NOT “REVERSE – PREEMPT” BANKRUPTCY COURT JURISDICTION

February 2, 2016 by John Pitblado

In a recent adversary proceeding in the chapter 11 case involving Ames Department Stores, Inc. (“Ames”), Lumbermens Mutual Casualty Company (“Lumbermen’s”) argued that under the McCarran-Ferguson Act, the issues in dispute between it and Ames should be decided in Illinois state court as part of Lumbermens’ insolvency proceedings.

The procedural history and the issues in the case between Ames and Lumbermens can be found here. In short, Ames filed a Chapter 11 bankruptcy in New York in 2001. In 2006, a dispute between Lumbermens and Ames commenced, which centered around the ownership of an approximate $8 million trust account. By 2012, Lumbermens entered state rehabilitation proceedings in Illinois. Lumbermens’ rehabilitator challenged the bankruptcy court’s jurisdiction over the adversary proceeding in New York federal court, arguing for the issues to be addressed in Illinois state court as part of Lumbermens’ ongoing insolvency proceeding. The court granted the rehabilitator’s motion to withdraw reference, and requested a report and recommendation on Lumbermens’ jurisdictional motion from a New York federal bankruptcy court.

The New York bankruptcy court first found that it had authority to hear all the claims at issue. Next, it determined whether the McCarran-Ferguson Act applied to “reverse – preempt” federal law. The court utilized a three part analysis to determine whether the McCarran-Ferguson Act applies and whether a federal statute can be reverse preempted by a state law. First, the court considered whether the Bankruptcy Code, the federal law at issue, specifically relates to the business of insurance, and concluded that it does not. Next, the court considered whether the state law at issue relates to the business of insurance, finding that the Illinois statute, relegating jurisdiction to the Illinois state court, was to ensure orderly and predictable liquidations of insurance companies. Thus, the court found that the state law at issue was enacted for the purpose of regulating the business of insurance. Finally, with respect to the third prong, whether allowing the case to proceed in federal bankruptcy court would “impair, invalidate, or supersede” Illinois state law, the court found that the bankruptcy court’s jurisdiction would not contravene Illinois law in any meaningful way, because any bankruptcy court judgment would remain subject to the priority scheme of the Illinois insurance insolvency proceeding. Therefore, the court held that hearing the adversary proceeding in federal bankruptcy court would not impair, invalidate or supersede Illinois insurance law, and thus, found that the Bankruptcy Code was not reverse – preempted by McCarran-Ferguson.

In re Ames Department Stores Inc., et al., No. 01-42217 (REG) (Bankr. S.D.N.Y. Dec. 7, 2015).

This post written by Jeanne Kohler.

See our disclaimer.

GEORGIA APPELLATE COURT HOLDS MALPRACTICE COVERAGE SUIT MUST BE ARBITRATED

February 1, 2016 by John Pitblado

The Court of Appeals of Georgia recently affirmed a trial court’s ruling compelling arbitration in a malpractice coverage dispute. McLarens Young International Inc. (McLarens) and American Safety Casualty Insurance Company (ASCIC) shared a claims handling agreement (CHA) that required McLarens to provide the insurer with claims management and adjustment services for ASCIC policies issued under a Lawyers Professional Liability Program. Under one of those policies, ASCIC was required to pay the $2 million policy limits to satisfy a malpractice settlement. ASCIC then sought reimbursement from its reinsurer, Excalibur Reinsurance Corp. (Excalibur), and the reinsurer paid.

Both McLarens and Excalibur filed a demand for arbitration against McLarens for a claim of negligent oversight of the underlying claim. McLarens countered in the trial court that the arbitration demand was outside the scope of the CHA’s arbitration provision. Both the trial court and the appellate court disagreed, holding that “the dispute pertains solely to whether McLarens is required to indemnify ASCIC under the terms of the CHA, and there is no greater or lesser right to indemnification because Excalibur has been inserted into the proceedings.” Because of the Reinsurance Agreement with ASCIC, Excalibur is merely subrogated to any right to indemnification that ASCIC may have against McLarens under the CHA due to the negligent handling of the claim. The appellate court held that the scope of the suit remains the same as if it were only between McLarens and ASCIC and, thus, is within the scope of the arbitration clause.

McLarens Young International, Inc. v. American Safety Casualty Insurance Co., et al., No. A15A0932 (Ga. App., 4th Div. Nov. 20, 2015).

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

See our disclaimer.

CONNECTICUT INSURANCE DEPARTMENT PUBLISHES THREE BULLETINS MANDATING FINANCIAL REPORTING

December 24, 2015 by John Pitblado

The Connecticut Insurance Department issued three bulletins on November 17, 2015, each of which mandate financial reporting by insurers to the Department. Bulletin Number FS-4AR-15 requires all accredited reinsurers doing business in Connecticut to submit to the Department a report of its financial condition as of December 31, 2015, by March 1, 2016, as well as a copy of the company’s 2015 independent audit report, by June 1, 2016. Bulletin Number FS-4C-15 requires each captive insurance company domiciled or licensed in Connecticut to file financial reports with the Department by either March 1 or March 15, 2016, depending on the type of captive. Finally, Bulletin Number FS-4SL-15 requires each foreign eligible surplus lines insurer to submit a report of its financial condition to the Department on a quarterly basis.

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

See our disclaimer.

COURT DENIES PARTY’S MOTION TO COMPEL ARBITRATION AND STAY COURT PROCEEDINGS DUE TO PARTY’S WAIVER OF ARBITRATION RIGHTS BY FAILING TO PAY ARBITRATOR’S FEES AND DEFAULTING IN EARLIER ARBITRATION

December 23, 2015 by John Pitblado

A Colorado federal court denied a party’s motion to compel arbitration, finding that the party had previously waived its right to arbitrate the dispute by defaulting and failing to pay its share of arbitration fees in an earlier arbitration involving the same contract and issue.

The lengthy procedural history regarding this case can be found here. In short, the dispute arose under a purchase agreement between the parties, NPL and Norgren, for certain parts produced by NPL to be used in Norgren’s products. NPL initially filed an arbitration demand against Norgren in 2009 (the “First Arbitration”), alleging that Norgren failed to pay amounts due under the purchase agreement. Norgren filed an Answer and Counterclaim, and paid its share of the arbitration filing fee and also paid its share of the estimated fees of the arbitrator assigned to the case. NPL failed to pay its share of the arbitrator’s estimated fees. After numerous communications with NPL, the arbitrator stayed the arbitration and then later granted Norgren’s motion to dismiss for NPL’s failure to pay the fees. Subsequently, NPL initiated a second arbitration in 2014 (the “Second Arbitration”). Norgren filed an objection to the arbitration and challenged the jurisdiction of the arbitrator and the arbitrability of NPL’s claims. It also commenced the Colorado litigation, in which NPL filed the motion to compel arbitration and stay the court proceedings.

The Colorado federal court held that NPL’s failure to pay the arbitration fees in the First Arbitration was a default and breach of the arbitration agreement, and thus NPL waived its right and was precluded from subsequently attempting to enforce that arbitration agreement in the Second Arbitration.

Norgren, Inc. v. Ningbo Prance Long, Inc., No. 1:14-cv-03070 (D. Colo. Sept. 22. 2015).

This post written by Jeanne Kohler.

See our disclaimer.