Contract Interpretation

CLASS SETTLEMENT AND ATTORNEYS’ FEES APPROVED IN ACTION INVOLVING CAPTIVE REINSURANCE

January 31, 2013 by Carlton Fields

After more than four years of litigation, a class action suit brought against Washington Mutual comes to a close with an unopposed class settlement in the amount of $4 million, which includes $1.2 million for attorneys’ fees and litigation costs. The class action involved allegations that defendants received kickbacks from private mortgage insurers to whom they referred borrowers that exceeded the value of reinsurance services provided by defendants to those insurers. The Eastern District of Pennsylvania determined that class settlement was fair and reasonable because continued litigation would be complex, expensive, and lengthy since formal discovery would still need to be completed. The court also concluded that plaintiffs ran the risk of losing on summary judgment or at trial because resolving the issue of whether the reinsurance agreements adequately transferred risk to the defendants would depend on a battle of the experts. Finally, the court reasoned that there was a strong likelihood a class would not be certified outside of settlement because the defendants had potentially viable defenses that could not adequately be litigated on a class-wide basis. The court approved the class settlement and the award of attorney’s fees and costs in separate orders. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (E.D. Pa. Dec. 4, 2012).

This post written by Abigail Kortz.

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STATE LAW REQUIRING “JURISDICTION OF ACTION” IN COURTS FOR INSURANCE DISPUTES RENDERED ARBITRATION CLAUSE VOID

January 28, 2013 by Carlton Fields

The Washington Supreme Court affirmed the denial of a motion to compel arbitration in an insurance dispute, based on a state statute that prohibits insurance contracts from “depriving the courts of [Washington] of the jurisdiction of action against the insurer.” The court analyzed the legislative history of the statute and state court precedent to find that the statute is more than a forum selection provision, but is a requirement for insurance disputes to be litigated in court. The court rejected the argument that a court’s ability to confirm an arbitration award constitutes “jurisdiction of action,” holding that a court’s power to confirm an award reflects only “limited” jurisdiction. The court further held that the state law regulated the “business of insurance” under the McCarran-Ferguson Act, so as to reverse preempt the FAA and preclude any application of Concepcion to this case. This result is similar to that in states which have a statute prohibiting arbitration provisions in certain insurance contracts. Washington Department of Transportation v. James River Insurance Co., Case No. 87644-4 (Wash. Jan. 17, 2013).

This post written by Michael Wolgin.

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COURT CERTIFIES APPEAL IN COMMUTATION/COMMISSION DISPUTE

January 9, 2013 by Carlton Fields

In our September 17, 2012 post, we reported on Acumen Re Management Corporation’s reinsurance-related suit against General Security National Insurance Company, in which it claimed that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied any breach. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. Acumen moved to reconsider, or, in the alternative, for certification for immediate appeal. The court declined reconsideration, but granted certification to appeal, finding the appeal could efficiently dispose of a number of issues before trial. Acumen Re Management Corp. v. General Security National Insurance Co., No. 09-Civ-1796 (USDC S.D.N.Y. Dec. 4, 2012)

This post written by John Pitblado.

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COURT DISMISSES PORTIONS OF CAPTIVE REINSURANCE CASE

January 4, 2013 by Carlton Fields

We previously posted on a putative class action filed in federal court in California alleging violations of the Real Estate Settlement Procedures Act in the placement of private mortgage insurance and its reinsurance with captive reinsurance companies. After partially lifting a stay put in place pending a deicison by the United States Supreme Court in a pending case, the district court has dismissed, with prejudice, claims against what it terms non-contracting parties, finding that the plaintiff lacked standing to bring such claims and that, in the alternative, the claims were barred by the applicable statute of limitation. The court found that the Complaint at best alleged parallel threads of misconduct rather than an overall “captice reinsurance scheme.” Claims against other defendants were dismissed with leave to amend. McCarn v. HSBC USA, Inc., Case No 12-375 (USDC ED Cal. Nov. 13, 2012).

This post written by Rollie Goss.

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COURT DENIES DIRECTORS’ MOTION TO AMEND JUDGMENT FINDING THEM LIABLE FOR DEBT PERTAINING TO SALE OF INSURANCE BUSINESS

December 12, 2012 by Carlton Fields

Continental Casualty Company sold its crop insurance book of business to IGF Insurance Company, which subsequently sold the business to Acceptance Insurance Companies. Continental asserted claims against IGF, its affiliates, and certain of its officers and directors, alleging that $24,000,000 that Acceptance paid IGF to purchase the business had been illegally diverted to IGF affiliates and IGF officers and directors, rendering IGF unable to pay its significant debt to Continental. The court found that IGF had illegally diverted the $24,000,000 and, further, that certain of its officers and directors were jointly and severally liable for the debt owed to Continental. More than two years later, these officers and directors filed a motion to amend the court’s findings of fact and conclusions of law and for entry of judgment in their favor. The court rejected the directors’ request in substance, amending only an inconsequential finding of fact. IGF Insurance Co. v. Continental Casualty Co., Case No. 1:01-cv-799-RLY-MJD (S.D. Ind. Nov. 14, 2012).

This post written by Ben Seessel.

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