Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Rob DiUbaldo

Kentucky Adopts 2016 Amendments to NAIC Credit for Reinsurance Model Law

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On April 26, 2018, Governor Matt Bevin of Kentucky signed House Bill No. 464, adding Kentucky to a growing list of states to have amended their Insurance Codes to conform with the 2016 amendments to the NAIC Credit for Reinsurance Model Law. These changes to Kentucky law include, among others:

  • allowing the commissioner to authorize reductions in the required surplus for single assuming insurers who have discontinued underwriting new business for three years;
  • making numerous changes to the trusts and surpluses required;
  • providing criteria by which the commissioner may certify reinsurers, including allowing the commissioner to defer to the certifications of other NAIC-accredited jurisdictions;
  • allowing certified reinsurers to maintain their certifications on inactive status after ceasing to assume new business;
  • requiring the commissioner to assign ratings to each certified reinsurer based on their financial strength and to publish such ratings;
  • specifically granting the commissioner the authority to promulgate regulations regarding reinsurance of certain types of life insurance, variable annuities, long-term care insurance, and other life and health insurance and annuity products for which the NAIC adopts model regulations related to reinsurance.

The amendments will take effect on January 1, 2019.

This post written by Jason Brost.

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Nebraska Adopts Reinsurance Credit Amendments to Insurance Law Based on NAIC Model

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On April 11, 2018 Nebraska Gov. Pete Ricketts (R) signed Legislative Bill 815 into law, joining the surge of states amending their insurance laws regarding when ceding insurers may claim credit for reinsurance. The introducer’s “Statement of Intent” indicates the bill’s intent to “adopt the latest updates to the credit for reinsurance model law” published by the National Association of Insurance Commissioners. The bulk of the amendments provide additional authority to the state Director of Insurance to regulate the circumstances and requirements for authorizing credit for reinsurance. Specifically, the bill authorizes the Director to promulgate rules and regulations relating to the valuation of assets or reserve credits, amount and form of security backing reinsurance agreements, or the circumstances surrounding reduction or elimination of credit. It also grants the Director the authority to promulgate specialized rules and regulations applicable only to reinsurance relating to specialized term and universal life insurance policies, variable annuities, and long-term care policies.

This post written by Thaddeus Ewald .

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Court of Appeal of England and Wales Finds That Party’s Forgery of Documents in Connection with a Transaction Does Not Bar Confirmation of Arbitration Award

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The Court of Appeal of England and Wales has rejected a challenge to an arbitration award issued by the China International Trade Arbitration Commission (the “Tribunal”) against RBRG Trading (UK) Limited in favor of Sinocore International Co. Ltd., despite an argument from RBRG that the award was contrary to public policy.

The matter arose from Sinocore’s agreement to sell steel to RBRG. The parties later amended the contract to give RBRG a right to inspect the steel, and RBRG claimed that the parties agreed to amend a letter of credit issued by a Dutch bank in connection to the transaction to change the shipping date to July 20 and 30, 2010. Sinocore then shipped the steel on July 7, 2010, a fact of which RBRG was informed, but presented bills of lading that falsely gave the date of July 20-21, 2010 to the bank. The bank refused to pay due to the fraudulent bills of lading, and Sinocore terminated the contract and sold the steel to a third party. RBRG then commenced the arbitration, claiming that Sinocore had breached the agreement to allow RBRG to inspect the steel by shipping it too soon, and Sinocore counterclaimed for damages related to the termination of the contract.

The Tribunal determined that RBRG had not asked to inspect the steel and had been timely notified of its shipment and thus could not claim damages from Sinocore’s failure to allow an inspection. The tribunal further determined that RBRG had breached the contract by instructing the bank to issue the amended letter of credit, an amendment to which Sinocore had not agreed. The Tribunal further determined that that forgery of the bills of lading had not harmed RBRG and had not been the cause of the termination of the agreement, which instead resulted from RBRG’s instruction to issue the non-conforming letter of credit.

When Sinocore attempted to enforce the award in the United Kingdom, RBRG argued that it should not be enforced because it was based on Sinocore’s forgery of bills of lading, and that it was contrary to public policy to assist a seller who present forged documents under a letter of credit. The court disagreed, however, and emphasized the importance both of enforcing arbitral awards and of strictly construing the exception for awards that violate public policy. Ultimately, relying in part on the Tribunal’s determination that RBRG’s conduct caused the contract to terminate, the court found that the connection between the forged bills of lading and the award was simply too weak to justify a departure from the general rule that arbitral awards should be enforced.

RBRG Trading (UK) Limited v. Sinocore International Co. Ltd., [2018] EWCA (Civ) 838

This post written by Jason Brost.

See our disclaimer.

SDNY Denies Plaintiff’s Attempt To Vacate Arbitral Awards In Administrative Charge Dispute With Verizon

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Verizon Wireless prevailed recently in confirming certain arbitration awards related to a dispute based on allegedly unlawful administrative charges for a cellular contract. Verizon’s customer agreement contained an arbitration clause prohibiting class arbitrations, and an arbitrator issued two relevant decisions during the course of the dispute. The first decision held the plaintiff could not pursue general injunctive relief. The second decision held, in part, that plaintiff did not have standing because, while he continued to pay the phone bill, he had assigned his account to his partner, thus rejecting plaintiff’s request for individual injunctive relief. The arbitrator also ordered Verizon to pay $1,500 without interest—the full amount of disputed administrative charges that Verizon had previously tendered and plaintiff rejected—$500 in attorney’s fees, and arbitrator compensation. The parties cross-moved to confirm and vacate various aspects of the arbitral decisions.

First, the court declined plaintiff’s request to vacate the arbitrator’s first decision. It disagreed with plaintiff’s argument that the arbitrator exceeded his authority by precluding general injunctive relief where the claim for such relief should have been non-arbitrable, because the “narrowest of circumstances” required to overturn an arbitrator’s decision on that ground were not present. The court also refused to find the arbitrator manifestly disregarded the law by precluding injunctive relief because plaintiff’s contention constituted a “mere disagreement” with the arbitral decision and because the arbitrator had valid grounds for his decision.

Second, the court likewise refused plaintiff’s attempt to vacate the second decision. The court concluded the arbitrator did not exceed his powers in awarding $500 in attorney’s fees because attorney’s fees issue was properly before the arbitrator. It determined the arbitrator did not manifestly disregard the law because plaintiff failed to establish the arbitrator “intentionally defied the law” as required to overturn on that ground. Similarly, the court rejected plaintiff’s arguments of arbitral misconduct and partiality. There was no misconduct because the limited nature of permitted discovery, challenged by plaintiff, was entirely within the arbitrator’s broad discretion. Further, the arbitrator was not partial where Verizon paid the mandatory arbitrator fees because the arbitration agreement provided for such payment by Verizon. Lastly, the court declined to find the arbitration violated plaintiff’s due process rights because the “law of the case”—via a prior finding of the court—determined the signing of the arbitration agreement could not constitute state action required for a due process claim.

Thus, the court confirmed the arbitrator’s two decisions and closed the case.

Katz v. Cellco P’ship, Case No. 12-9193 (USDC S.D.N.Y. Apr. 17, 2018).

This post written by Thaddeus Ewald .

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Virginia To License Domestic Insurers To Sell Surplus Lines Insurance

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Virginia has amended its insurance law to allow the licensing of domestic insurers (i.e., insurers incorporated or organized under Virginia law) as “domestic surplus lines insurers” eligible to sell surplus lines insurance within the state.

In order to qualify for such a license, insurers must have a policyholder surplus of $15 million, and their board of directors must pass a resolution seeking this license. The law also provides that “a domestic surplus lines insurer shall be considered a nonadmitted insurer” as the term “nonadmitted insurer” is used in the Nonadmitted and Reinsurance Reform Act of 2010 (15 U.S.C. § 8201 et seq.). When issuing insurance to insureds whose home state is Virginia, such domestic surplus lines insurers will be subject to the same taxes and maintenance assessments as nonadmitted insurers from other states who sell such insurance within the state. They will also be exempt from laws regarding insurance rating plans, policy forms, policy cancellation and nonrenewal, and premium charged to the insured to the same extent as such nonadmitted insurers.

These changes will go into effect July 1, 2018.

2018 Virginia Senate Bill No. 542, Virginia 2018 Regular Session

This post written by Jason Brost.

See our disclaimer.