Brokers / Underwriters

CALIFORNIA BILL REVISES PROVISIONS GOVERNING SURPLUS LINES COVERAGE TO CONFORM TO DODD-FRANK

August 18, 2011 by Carlton Fields

Approved by Governor Jerry Brown on July 13, 2011, California Assembly Bill 315 significantly changes provisions of the California Insurance Code governing surplus lines coverage to make them consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Certain of the Bill’s provisions became operative on July 21, 2011. The Bill sets forth detailed legislation altering the manner in which surplus lines brokers and non-admitted insurers are governed. Among other provisions, the Bill creates rules regulating the advertising, marketing, and sales of surplus lines coverage, capital requirements for non-admitted insurers, and the taxation of surplus line insurance. The Bill also gives the Commissioner of Insurance the authority to create an advisory organization to monitor surplus lines activity. Assembly Bill No. 315, Ch. 83 (Cal. 2011).

This post written by Ben Seessel.

U.K. COURT AFFIRMS 21-MONTH SENTENCE FOR REINSURANCE BROKER CONVICTED OF GOVERNMENT CORRUPTION

August 16, 2011 by Carlton Fields

Julian Jeffrey Messent, a reinsurance broker who was head of the Property Division (Americas) of PWS International Limited, a London-based reinsurance broker, was convicted in London in late 2010 of corruption offenses, stemming from his supervision of payments made to various Costa Rican governmental officials. The payments were found to be bribes meant to steer reinsurance placement for Costa Rican government-owned utility organizations to PWS. For his placement of the contracts, Messent received large incentive bonuses between 1999 and 2002 from PWS. After a new President of Costa Rica was elected in 2002, newly appointed Costa Rican officials discovered the improper payments, and both the Costa Rican and U.K. governments undertook criminal investigations which led to Messent’s arrest in 2007. Messent appealed his sentencing of 21 months each on two counts of corruption (to run concurrently), as well as a fine of £100,000. The convictions were affirmed on appeal, the court noting “there can be no doubt that corruption of foreign government officials . . . is at the top end of serious corporate offending both in terms of culpability and harm.” Regina v. Messent, [2011] EWCA Crim 644 (Eng. Ct. App.).

This post written by John Pitblado.

JUDGMENT AFFIRMED AGAINST GUY CARPENTER OVER TERMINATION OF REINSURANCE BROKERAGE AGREEMENT

June 6, 2011 by Carlton Fields

The Second Circuit affirmed a judgment against reinsurance broker Guy Carpenter, finding that its former client, Royal Palm Insurance Company, effectively terminated the parties’ brokerage agreement when it switched to another broker before the end of the agreement’s three-year term. Guy Carpenter contended the district court improperly relied on a Florida statute, which allows a reinsurer to terminate a brokerage agreement at any time. The Second Circuit affirmed, however, noting the statute was irrelevant given the plain terms of the brokerage agreement, which afforded Royal Palm the right to unilaterally terminate the agreement at any time. The three-year term was merely an outer time limit for the relationship, rather than a fixed term. Royal Palm Insurance Co. v. Guy Carpenter & Co., No. 10-2814-CV (2d Cir. May 27, 2011).

This post written by John Pitblado.

REINSURANCE BROKER CANNOT BE SUED FOR BREACH OF FIDUCIARY DUTY

May 23, 2011 by Carlton Fields

Insurance brokers are not subject to breach of fiduciary duty claims under California law, a court held. Workmen’s Auto Insurance Co. sued its reinsurance intermediary-broker, Guy Carpenter & Co., for negligence, breach of fiduciary duty, and breach of contract in connection with Carpenter’s placement of a finite quota share reinsurance agreement on Workmen’s behalf. The trial court granted Carpenter’s motion for summary adjudication with respect to Workmen’s allegation that Carpenter failed to secure the best terms for reinsurance, and sustained Carpenter’s demurrer on Workmen’s breach of fiduciary claim. A jury found for Carpenter on the negligence and breach of contract claims. Workmen’s appealed, but the court of appeal affirmed, holding that an insurance broker cannot be sued for breach of fiduciary duty. An insurance broker’s duties are defined by California insurance law, which ascribes to brokers a duty of care, not a fiduciary duty. The appellate court declined to address as untimely raised Workmen’s argument that the standard should be different for reinsurance brokers because the nature of the relationship with the client is more complex and comprehensive. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., No. B211660 (Cal. Ct. App. May 4, 2011).

This post written by Ben Seessel.

CONNECTICUT AG SETTLES ANTITRUST CASE AGAINST GUY CARPENTER & EXCESS RE

February 7, 2011 by Carlton Fields

Connecticut Attorney General George Jepsen announced an antitrust settlement with Guy Carpenter & Co and Excess Re on January 31, 2011, concluding litigation pending for over three years. The settlement, amounting to $4.25 million, resolved allegations that the reinsurers were engaged in a series of antitrust conspiracies to fix prices, create closed reinsurance markets, and allocate reinsurance markets. The litigation against Guy Carpenter and Excess Re was the first such suit brought by a state or federal antitrust enforcement agency. The Hartford Financial Services Group settled similar claims with the Connecticut AG for $1.3 million in 2009.

This settlement is notable because, in addition the significant monetary payment, Guy Carpenter agreed as part of the settlement to reform a number of its nationwide business practices. The reforms, designed to prevent any suspicion of future antitrust violations, include disclosure of ownership interest in reinsurance companies, compensation arrangements, descriptions of facilities, disclosure of factors leading to its brokers making placement recommendations, implementation of minimum competitive bid requirements and a nationwide sampling program. State of Connecticut v. Guy Carpenter & Company and Excess Reinsurance Company, Case No. 07-4033778 (Conn. Super. Ct. Jan. 31, 2011).

This post written by John Black.