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New reinsurance-related and arbitration developments from Carlton Fields

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Contract Formation

DISTRICT COURT CERTIFIES STANDING ISSUE FOR INTERLOCUTORY APPEAL IN CAPTIVE REINSURER KICKBACK CASE

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On July 21, 2008, we reported on the decision of a court denying a motion to dismiss, which contended that the filed rate doctrine barred claims relating to alleged kickbacks on mortgage insurance placed with a captive reinsurer. One of the issues addressed was whether the plaintiffs, who are borrowers, have standing to assert claims that their lender and a mortgage reinsurance company violated the Real Estate Settlement Procedures Act by collecting illegal referral payments in the form of excessive reinsurance premiums. The district court has denied a motion for reconsideration, but has certified the issue of whether the plaintiffs have standing to sue for interlocutory appeal pursuant to 28 U.S.C. §1292(b). Under §1292, the Third Circuit has discretion to accept or decline to accept the interlocutory appeal. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (USDC E.D. Pa. Aug. 4, 2008).

This post written by Rollie Goss.

COURT DENIES MORTGAGE COMPANY’S MOTION TO DISMISS CLAIMS RELATING TO ALLEGED KICKBACKS ON MORTAGAGE INSURANCE PLACED WITH CAPTIVE REINSURER

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Mortgage loan borrowers filed a class action complaint alleging that Washington Mutual, Inc. (WaMu) violated the Real Estate Settlement Procedures Act (RESPA) by collecting illegal kickbacks or splitting fees from private mortgage insurance providers who had agreed to reinsure the borrowers’ mortgage insurance with WaMu’s captive reinsurer, WaMu Mortgage Reinsurance. WaMu Mortgage Reinsurance allegedly received nearly $300 million in premiums while never paying a single loss.

Citing the policy reason that statutes “like RESPA are enacted to protect consumers from unfair business practices,” the court held that while the filed rate doctrine may bar direct challenges to insurance rates, it does not prohibit plaintiffs from bringing suit for a violation of fair business practices based upon allegations of illegal kickbacks. The court also rejected the other grounds argued for dismissal. Alexander v. Wash. Mut., Inc., Case No. 07-4426 (USDC E.D. Pa. June 30, 2008).

This post written by Rollie Goss (with thanks to Jason Morris).

SEC files civil action against RenRe executives relating to finite reinsurance transactions

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The SEC has filed a civil action against three former executives of Renaissance Reinsurance Ltd., alleging that they were involved in fraudulent finite reinsurance transactions to improve the company's financial statements and earnings. The case was filed in the Southern District of New York. SEC v. Stanard, Merritt and Cash, Case No. 06-7736 (Sept. 27, 2006).

UK Court finds lack of authority for reinsurance agreement

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The UK Commercial Court has held that a reinsurer is not bound by a contract signed by an agent, supposedly on its behalf, due to the lack of authority to do so, rejecting contentions that the agent had ostensible authority to do so, or that the reinsurer had ratified the contract. ING Re (UK) Limited v. R & V Versicherung AG, [2006] EWHC 1544 (Commercial Court June 29, 2006).