Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Brokers / Underwriters

Brokers / Underwriters

UNDISCLOSED CONTINGENT COMMISSION PROGRAM VIOLATES CONNECTICUT UNFAIR TRADE PRACTICES ACT

by

The State of Connecticut brought an action pursuant to Connecticut’s Unfair Trade Practices Act against Acordia, Inc. alleging unfair trade practices that harmed a class of insurance companies. Acordia is an independent insurance agent and broker working through a contingent commission program called the Millennium Partnership Program, in which which five insurers (Travelers, The Hartford, Chubb, Atlantic Mutual and Sun Alliance) agreed to participate. The Connecticut Superior Court found that Acordia’s non-disclosure of the MPP to its clients constituted a conflict of interest in violation of its fiduciary obligations which in turn violated Connecticut’s Unfair Trade Practices Act. However, because the violation was predicated on 1999-2002 common law (and does not constitute a violation of public policy in 2010) the Court declined to issue an injunction. Acordia was, however, order to account for non-disclosed MPP based commissions for products purchased by consumers in the State of Connecticut. State of Connecticut v. Acordia, Inc., Case No. 074020455S (Conn. Super. Ct. Apr. 10, 2010).

This post written by John Black.

New York Appellate Court: Claims Against Reinsurance Brokers Survive Dismissal

by

New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.

SOVEREIGN IMMUNITY BARS LAWSUIT ALLEGING INTERNATIONAL REINSURANCE FRAUD

by

The Second Circuit affirmed the dismissal of a lawsuit alleging that the Republic of Indonesia and its state-owned social security insurer, P.T. Jamsostek, negligently supervised Jamsostek employees who perpetrated an international commercial reinsurance fraud scheme against plaintiff Anglo-Iberia Underwriting Management Company. Indonesia and Jamsostek moved for dismissal for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, arguing the defendants were not engaged in “commercial activity” under FSIA. FSIA abrogates sovereign immunity where a foreign state has engaged in commercial activity; a foreign state engages in commercial activity when it acts not as a regulator of a market, but in the manner of a private player within it. In ruling on the motion, the district court found, and the Second Circuit later agreed, that Jamsostek does not sell insurance to workers or employers “in any traditional sense,” and does not compete in the marketplace like a private insurer. Rather, as the default health insurer under Indonesia’s national social security program, Jamsostek provides a “floor” for health insurance, and ensures that certain Indonesian employers comply with the governmental mandate that they provide basic health insurance coverage to their workers. Thus, FSIA barred the suit. Anglo-Iberia Underwriting Management Co. v. P.T. Jamsostek (Persero), Case No. 08-2666 (2d Cir. Mar. 29, 2010).

This post written by Brian Perryman.

ARBITRATION AWARD CONFIRMED WHERE ARBITRATOR RELIED ON THE SAME CONTRACTUAL PROVISIONS TO DENY DAMAGES FOR ONE CLAIM AND AWARD DAMAGES FOR ANOTHER CLAIM

by

This dispute concerns sales commissions allegedly owed to three employees of Umpqua Bank (“Umpqua”) pursuant to a third-party brokerage agreement (the “Agreement”) between Umpqua and Woodbury Financial Services. Employment agreements between Umpqua and the employees required the matter to be submitted to arbitration. After the arbitrator issued an award granting damages for breach of fiduciary duty and attorneys’ fees and costs for two of the employees, Umpqua moved to vacate this award, arguing that this award exhibited manifest disregard of the law or was completely irrational because the arbitrator relied on the same provisions in the Agreement to deny damages for the third-party beneficiary claim and to award damages for the breach of fiduciary duty claim. The employees consequently moved to confirm the award and for attorneys’ fees and costs. The court disagreed with Umpqua’s argument, ruling that the arbitrator could rationally find a breach of fiduciary duty but not third-party beneficiary rights under the Agreement because the two claims have separate legal standards. The third-party beneficiary claim requires a showing of intent, and the breach of fiduciary duty claim does not require a showing of intent. The court thus granted the employees’ motion to confirm the award. Then, looking to the language of the employment agreements, the court confirmed the award of attorneys’ fees and costs and granted the employees’ motion for attorneys’ fees and costs incurred to enforce this award. Swarbick v. Umpqua Bank, Case No. 08-00532 (USDC E.D. Cal. Feb. 26, 2010).

This post written by Dan Crisp.

COURT DISMISSES INARTFULLY PLED CONTRACT CLAIM AGAINST MANAGING GENERAL AGENT

by

An Alabama federal judge dismissed a contract claim brought by the Alabama Municipal Insurance Corporation (“AMIC”) against Alliant Insurance Services, AMIC’s alleged managing general agent. AMIC alleged that Alliant breached a contract between the parties requiring Alliant to place and service certain reinsurance policies covering AMIC, by failing to serve timely notices to reinsurers, who then denied claims based on late notice defenses. From the allegations of the complaint, it appears the claims were ultimately paid by the reinsurers, but AMIC brought suit against Alliant seeking recompense for lost interest on the delayed payments. The Court found the allegations vague, and not adequately supportive of a contract action against Alliant under the new Ashcroft v. Iqbal pleading standard. The court dismissed the one-count complaint, allowing AMIC leave to amend. AMIC filed an Amended Complaint on March 2, 2010. Alabama Municipal Ins. Corp. v. Alliant Ins. Serv’s, No. 2:09-cv-928 (USDC M.D. Ala. March 1, 2010).

This post written by John Pitblado.