Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Contract Formation

Contract Formation

CFPB ENTERS INTO SETTLEMENT PROHIBITING CAPTIVE MORTGAGE REINSURANCE

by

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.

See our disclaimer.

SPECIAL FOCUS: RECENT DEVELOPMENTS IN THE CAT BOND AND REINSURANCE MARKETS

by

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.

See our disclaimer.

BREACH OF UBERRIMAE FIDEA – THE UTMOST DUTY OF GOOD FAITH – AFFIRMED BY SECOND CIRCUIT

by

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.

See our disclaimer.

SECOND CIRCUIT AFFIRMS DISMISSAL OF LAWSUIT BASED ON ARBITRATION PROVISIONS BUT REFUSES TO ORDER SANCTIONS

by

Ipcon Collections sued Costco over a dispute regarding a series of agreements in which Costco agreed to sell karaoke systems on a consignment basis on behalf of Ipcon’s predecessor in interest. Costco initiated arbitration and moved to dismiss the lawsuit based on arbitration clauses in the agreements, and for sanctions. The lower court granted Costco’s motion to dismiss in favor of the pending arbitration proceedings and denied its motion for sanctions. The Second Circuit affirmed. The Court of Appeals held that Ipcon’s argument that Costco “never intended to honor” the contracts sounded in fraud in the inducement, and it was up to the arbitrators to decided the merits of such claim. The court also rejected Ipcon’s alternative argument that there had been no “meeting of the minds,” holding that the executed contracts constituted objective evidence of a meeting of the minds. Though finding that Ipcon’s argument was “weak,” the court affirmed the decision not to award Costco sanctions “given the confusing nature of the division of responsibility between courts and arbitrators as to contract formation.” Ipcon Collections, LLC v. Costco Wholesale Corp., No. 11-3944 (2d Cir. Oct. 9, 2012).

This post written by Ben Seessel.

See our disclaimer.

U.S. INSURER AND BERMUDA CAPTIVE REINSURER NOT CONSIDERED ALTER EGOS

by

In a dispute over a long-term care insurance contract, a court rejected the plaintiff’s allegation that five defendants “are an association of entities acting together for the purpose of providing long term care insurance under the name Ability Insurance and also act as the alter egos and/or agents of each other.” The defendants are Ability Reinsurance Holdings (a Bermuda-based holding company) and 4 subsidiaries, including Ability Resources Holdings, Ability Insurance (U.S. insurer), Ability Reinsurance (Bermuda-based captive reinsurer) and Ability Resources, Inc. The court granted a motion for judgment on the pleadings in favor of the Bermuda-based holding company, the Bermuda-based captive reinsurer, and Ability Resources Holdings for lack of personal jurisdiction based on the determination that they do not act as an alter ego for Ability Insurance. The court held that while regulators permitted Ability Insurance to purchase reinsurance from a member of the same corporate family, that fact “does not render the contractual relationship a ‘sham’ or otherwise make Ability Reinsurance (Bermuda) susceptible to suit in Iowa.” The court also dismissed the claims against Ability Resources, Inc., holding that simply alleging that Ability Resources is the alter ego of Ability Insurance, “without more,” failed to satisfy federal pleading requirements. Schultz v. Ability Insurance Co., Case No. 2:11-cv-01020-JSS (USDC N.D. Iowa Oct. 9, 2012).

This post written by Abigail Kortz.

See our disclaimer.