New reinsurance-related and arbitration developments from Carlton Fields
Representing ceding insurers in the creation of catastrophe bonds has provided us experience in introducing creativity into traditional reinsurance agreements. Read some of our suggestions in our latest Treaty Tip.
This post written by Rollie Goss.
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A lender defendant successfully moved for the dismissal of a putative class action centered on residential mortgages acquired through National City Mortgage (“National City”). Plaintiffs allege that National City and its reinsurer National City Mortgage Insurance Company conspired with private mortgage insurers to create a “captive reinsurance scheme.” This scheme, with primary insurers paying NCMIC a portion of insurance premiums for the assumption of risk, circumvented the kickback prohibitions of the Real Estate Settlement Procedures Act. These insurance premium payments were allegedly made by the primary insurers for the referral of business. Plaintiffs alleged they were entitled to equitable tolling. The Court rejected this argument holding that the amended complaint contained only general allegations of an agreement between the defendants and contained no tolling date. Plaintiffs also failed to show “an affirmative act of concealment by each defendant.” The Court declined to exercise jurisdiction over a state-law claim for unjust enrichment. White v. PNC Financial Services Group, Inc., Case No. 2:11-cv-07928-LS (USDC E.D. Pa. June, 4, 2013).
This post written by Brian Perryman.
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The Consumer Financial Protection Bureau (“CFPB”) recently filed complaints in the Southern District of Florida against Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, Radian Guaranty Inc., and United Guaranty Corporation alleging violations of the Real Estate Settlement Procedures Act (“RESPA”) by engaging in the practice of paying kickbacks to captive reinsurance affiliates of mortgage lenders in exchange for referrals. All four mortgage insurers have agreed to consent orders, which inter alia (1) prohibit them from entering into any new captive mortgage reinsurance arrangements for a period of ten years, regardless of whether the arrangement includes any payments that might be interpreted as kickbacks, (2) prohibit them from accessing funds held in trust related to existing reinsurance arrangements other than for the reimbursement of reinsurance claims, (3) impose a civil penalty ranging from $2.6 to $4.5 million each, and (4) require them to submit to compliance monitoring and reporting to the CFPB. The fact that these settlements prohibit any captive reinsurance agreements for ten years, whether or not a “kickback” payment was involved, seems to overreach the allegations of the Complaints. See, e.g., CFPB v. Radian Guaranty Inc., Case No. 13-21188 (S.D. Fla. Apr. 9, 2013) (Order granting motion to approve consent judgment and Complaint).
This post written by Abigail Kortz.
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There has been significant development in both the cat bond and traditional reinsurance markets so far in 2013, with the emergence of competition between the markets, new bond terms, a cash influx into the reinsurance sector, a re-examination of business strategies and pricing reductions in both markets. Reinsurance Focus Blogmaster Rollie Goss, who has been representing ceding insurers in both cat bond and traditional reinsurance transactions, analyzes these developments in a Special Focus article titled The Developing Relationship Between the Catastrophe Bond and Traditional Reinsurance Markets.
This post written by Rollie Goss.
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The Second Circuit recently addressed the issue doctrine of uberrimae fidea. St. Paul Fire & Marine Insurance brought suit against Matrix Posh, LLC, its insured under a policy of marine insurance, seeking to have the policy declared void ab initio due to Matrix’s alleged misrepresentations about pre-existing damage to the insured vessel. The trial court granted summary judgment and the Second Circuit affirmed. The Second Circuit held that the determination of whether the misrepresentations were material hinged not on the extent of the damage to the vessel (Matrix claimed after the fact that the damage was minor), but on whether the misrepresentation that there was no damage, precluded St. Paul from the opportunity to investigate the risk itself, prior to acceptance. This violated Matrix’s duty of utmost good faith and the policy was therefore void. St. Paul Fire & Marine Insurance Co. v. Matrix Posh, LLC, No. 12-2045-CV (2d Cir. Jan. 16 2013).
This post written by John Pitblado.