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New reinsurance-related and arbitration developments from Carlton Fields

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Michael Wolgin

DELAWARE GOVERNOR SIGNS LAW CREATING STREAMLINED AND INEXPENSIVE REGULATORY REGIME FOR DORMANT CAPTIVE INSURANCE COMPANIES

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The bill defines a dormant captive insurance company as one that (1) did not contract for any direct premium or reinsurance premium for a full calendar year, (2) is not obligated as an insurance company under any contract of insurance or reinsurance during any year it is a dormant captive, and (3) has provided written notice to the Commissioner of its intent to be a dormant captive. Among various provisions, the bill requires a dormant captive to possess and maintain $25,000 in unimpaired capital and surplus (or such other amount determined by the Commissioner), and exempts a dormant captive from the payment of premium tax, the filing of annual statements, the preparing of audited financial statements, and obtaining statements of actuarial opinion. Del. HB 87 (eff. Aug. 31, 2017).

This post written by Nora A. Valenza-Frost.

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ALABAMA FEDERAL COURT FINDS CEDENT DID NOT WAIVE ARBITRATION, AND ORDERS REINSURANCE DISPUTE TO BE ARBITRATED

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Alabama Municipal Insurance Corp. (“AMIC”), an Alabama non-profit public insurer, brought suit in Alabama federal court against Munich Reinsurance America Inc. (“Munich Re”), alleging breach of a reinsurance contract for failing to fully reimburse a settlement of flood claims asserted against an insured city. Munich Re answered, denying liability under the reinsurance contract alleged in the complaint, and stated that another reinsurance contract (Agreement No. 1236-0009, endorsed by Agreement No. 1236-0009-E003) applied to the claims. After the parties submitted their Rule 26(f) report and a Scheduling Order was entered by the court, AMIC amended its complaint without opposition from Munich Re, asserting a claim under another reinsurance contract, Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Munich Re answered the Amended Complaint and AMIC noticed the depositions of two Munich Re employees. AMIC then filed a Motion to Stay Pending Arbitration under Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Thereafter, the depositions of the two Munich re employees took place.

Both parties agreed that Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003 referenced in the Amended Complaint contains an arbitration clause. However, Munich Re contended that AMIC’s claim in the case is not subject to arbitration because that agreement is not applicable to the claims. The Alabama federal court found that the only claim brought in the case was under a contract which contains an arbitration clause, and thus is subject to arbitration. Munich Re, however, claimed that AMIC had waived its right to arbitrate. In response, the court held that AMIC had not waived the right to arbitrate. The court found that the actions taken toward litigation prior to filing the Amended Complaint should not be considered a waiver of the right to arbitrate, as the Amended Complaint was the first time that AMIC had alleged a breach of a reinsurance contract which contained an arbitration clause. Thus, the Alabama federal court granted the motion to stay pending arbitration. Alabama Municipal Ins. Corp. v. Munich Reinsurance America Inc., Case No. 2:16-CV-948-WHA-SRW (USDC M.D. Ala. Sept. 7, 2017).

This post written by Jeanne Kohler.

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EIGHTH CIRCUIT HOLDS THAT A MOTION TO DISMISS BASED ON AN ARBITRATION CLAUSE IS NOT A CHALLENGE TO THE COURT’S JURISDICTION

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A municipality sued the company that constructed its water treatment facility, in connection with contaminants found in the water supply. The parties had entered into a series of agreements which contained choice of law and arbitration clauses governing the resolution of any disputes. The company filed a motion to dismiss for lack of jurisdiction based on the contracts’ forum selection and arbitration clauses, and the court construed the motion as falling under Rule 12(b)(1). The court then found that the contracts were inconsistent and ambiguous, and considered extrinsic evidence. The court ultimately granted the motion to dismiss and directed the parties to proceed to arbitration.

On appeal, the Eighth Circuit found that the district court erred by analyzing the motion to dismiss as a 12(b)(1) challenge to its jurisdiction. The court explained that the U.S. Supreme Court has held that “federal venue laws, not forum-selection clauses, govern the propriety of venue under Rule 12(b)(3). The same logic applies where, as here, a party seeks to enforce an arbitration agreement under Rule 12(b)(1). Just as a forum-selection clause has no bearing on the issue of whether venue is ‘wrong’ or ‘improper,’ an arbitration agreement has no relevance to the question of whether a given case satisfies constitutional or statutory definitions of jurisdiction.” The Eighth Circuit found that summary judgment standards should apply on remand because the parties submitted, and the district court considered, matters outside the pleadings. City of Benkelman, Nebraska v. Baseline Engineering Corp., et al., Case No. 16-1949 (8th Cir. Aug. 11, 2017).

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS ARIZONA FEDERAL COURT’S ORDER DENYING PETITION TO VACATE ARBITRATION AWARD AS UNTIMELY

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A. Miner Contracting, Inc. (“Miner”) appealed an Arizona federal court’s order denying Miner’s petition to vacate an arbitration award entered against it and in favor of Appellee Dana Kepner Company, Inc.

The Ninth Circuit found that the district court did not err in finding that Miner’s petition to vacate the award was untimely because under Section 12 of the Federal Arbitration Act, the petition had to have been served within three months after the award was filed or delivered, and Miner’s petition was filed more than three years after the award was final. On appeal, Miner argued that the district court should have applied the doctrine of equitable tolling to find the petition was timely filed. Noting that “equitable tolling” would be applied “in situations where, despite all due diligence, the party invoking equitable tolling is unable to obtain vital information bearing on the existence of the claim”, the court held that the facts of the case at hand did not merit application of the doctrine. The information Miner claimed it could not discover was the “evident partiality” of the arbitrator, namely that two of the partners in the arbitrator’s law firm represented the attorney for Miner’s adversary in the arbitration, in an unrelated divorce matter. The Ninth Circuit ruled that Miner had not acted with due diligence because it admitted that it discovered that information by searching the internet, which was readily available to it during the limitations period. The Ninth Circuit also found that even if the petition to vacate was not time-barred, Miner had not shown that there was “evident partiality” on the part of the arbitrator, as the connection alleged “is too attenuated and too insubstantial to create the necessary ‘impression of partiality.’” Thus, the Ninth Circuit affirmed the district court’s order. A. Miner Contracting, Inc. v. Dana Kepner Co., Inc., Case No. 16-15209 (9th Cir. Aug. 17, 2017).

This post written by Jeanne Kohler.

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GEORGIA REVAMPS LAW GOVERNING CAPTIVE INSURANCE COMPANIES

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Significant changes to Georgia law governing captive insurance companies took effect on July 1, 2017. The changes relate to the permitted corporate structure of captive insurance companies, new restrictions on risks that may be reinsured by certain captives, procedures for forming, converting and dissolving a captive, and streamlining the issuance of certificates of authority to newly formed captives, among other changes.

Specifically, the new law authorizes captive insurance companies to be formed as manager-managed limited liability companies, in addition to continuing to permit them to be organized as stock or mutual insurers. The Act streamlines the default process to obtain a certificate of authority by directing the Insurance Commissioner to “promptly issue” a certificate of authority to a captive upon satisfaction that the documents filed by the captive comply with the requirements for captive formation. The prior procedure, which the Act authorizes the Commissioner to follow if he chooses, required a captive to provide additional documentation regarding the company’s capital or surplus and a certified financial statement. Under the new default procedure, the captive is required to provide this same documentation “as soon as practicable” after issuance of the certificate of authority, rather than before.

In addition, the law restricts “agency captive insurance companies” to reinsuring (1) risks of insurance or annuity contracts placed by the entity owning the agency captive, or (2) contractual liabilities arising out of service contracts or warranties sold by an entity owning the agency captive. Captives are exempted from the provisions of the insurance code relating to domestic stock and mutual insurers except as otherwise provided by certain specified provisions of the insurance code or by the Commissioner through regulation. The law also requires a captive to obtain prior written approval from the Commissioner before reinsuring certain risks, restricts taxes that apply to risk retention group captives to those on direct premiums for coverages in Georgia, and substantially amends several definitions. Georgia SB 173 (eff. 7/1/2017).

This post written by Benjamin E. Stearns.

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