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Arbitration / Court Decisions

COURT AFFIRMS ORDER APPROVING UP-FRONT DEDUCTION OF BROKER FEES IN DISPUTE OVER ALLOCATION OF REINSURANCE PREMIUM

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The plaintiff insurance company wanted to underwrite a commercial automobile insurance program, but lacked the ability to provide direct insurance. It obtained the services of a reinsurance broker, which set up a complicated transaction involving a fronting insurer, ceding 100% of risk to a reinsurer, which in turn retroceded a portion of the risk to the plaintiff. The dispute surrounded whether the reinsurer satisfied its obligation of paying commissions to the plaintiff by paying to the broker and fronting company the brokerage amounts owed by plaintiff. The reinsurer prevailed on summary judgment, and the plaintiff appealed, contending that the reinsurer was not authorized to offset its commission obligations with the cost of broker fees and expenses. On appeal, the court affirmed summary judgment and rejected the plaintiff’s argument, finding that each separate agreement underlying the various relationships amongst the program participants were inextricably intertwined such that the reinsurer acted properly in accounting for amounts owed by the plaintiff company to the broker and fronting company. The court further relied on industry custom and the course of dealings between the parties, including monthly bordereaux sent to the plaintiff (without protest) that disclosed all premium, commission, and expense allocations under the program. Eastern Atlantic Insurance Co. v. Swiss Reinsurance America Corp., Case No. 179 MDA 2013 (Pa. Sup. Ct. Nov. 1, 2013).

This post written by Michael Wolgin.

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UK COURT HOLDS THAT REINSURANCE BROKERS OWE A CONTINUING DUTY TO THEIR REINSUREDS; TIME-BARRED DEFENSE NO LONGER PACKS A PUNCH

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Resolving a dispute between a reinsured and its reinsurance broker, the UK Commercial Court has held that reinsurance brokers owe a continuing duty to remit money received from reinsurers to their reinsureds. The reinsurance broker conceded that it breached its duty, but argued that the first breach was more than six years (the limitations period) before the litigation was commenced and that the claims are time-barred. The reinsured argued, and the High Court agreed, that the reinsurance broker’s duty is continuous, such that a “fresh cause of action arose on each day when [the broker] failed to make a remittance which it ought to have made.” Equitas Ltd. v. Walsham Bros. & Co., [2013] EWHC (Comm) 3264 (Eng.).

This post written by Abigail Kortz.

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ANOTHER ASBESTOS REINSURANCE SETTLEMENT

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A settlement in principle was reached in Century Indemnity Company v. Global Reinsurance Corporation of America, a breach of contract case involving the nonpayment by Global Reinsurance of its portion of an asbestos exposure-related loss incurred by Century under two umbrella liability policies. Global had an uphill battle because the facultative reinsurance agreements contained a follow-the-fortunes provision, obligating Global to follow all loss settlements made by Century, provided that such settlements are within the terms and conditions of both the original policies and the reinsurance certificates. Century Indemnity Co. v. Global Reinsurance Corp. of Am., Case No. 13-CV-797 (KBF) (S.D.N.Y. Aug. 26, 2013).

This post written by Kyle Whitehead.

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SECOND CIRCUIT FINDS ARBITRATION WAIVER DUE TO PROTRACTED LITIGATION

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Although federal policy strongly favors arbitration and waiver of a right to arbitrate is not lightly inferred, the Second Circuit recently affirmed the Southern District of New York’s finding of waiver in a case involving “protracted litigation that prejudice[d] the opposing party.” While bright-line rules do not exist for determining when a party has waived its right to arbitration, there are certain factors that courts consider: (1) the time elapsed from commencement of litigation to the request for arbitration, (2) the extent of litigation (including any substantive motions and discovery), and (3) proof of prejudice. The Second Circuit found waiver because the defendant, with knowledge of the arbitration provision, had waited fifteen months after the complaint was filed to raise its contractual rights and had already argued two substantive motions to dismiss, engaged in extensive written discovery requests, and deposed a key plaintiff witness. Additionally, the court defused the defendant’s argument that Second Circuit arbitration jurisprudence conflicted with the Federal Arbitration Act, ultimately holding that its waiver case law “derives from the uncontroversial premise that affirmative defenses like arbitrability ‘are subject to forfeiture if not raised in a timely fashion.’” Technology in Partnership, Inc. v. Rudin, No. 12-3699-cv (2d Cir. Sept. 17, 2013).

This post written by Kyle Whitehead.

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REINSURERS BEWARE: ATTEND YOUR INSURERS’ REHABILITATION PROCEEDINGS

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A Wisconsin Court of Appeals recently affirmed an order enjoining a reinsurer from withholding or failing to make payments to an insurer’s segregated account, which the insurer had established for troubled parts of its insurance business, including mortgage-backed securities, credit default swaps, and municipal bonds. Under an approved rehabilitation plan for the troubled segregated account, policyholders were to receive 25% of their claim amounts in cash and the remaining 75% in surplus notes. Although the reinsurer acknowledged an obligation to pay proportionately for the cash portion of any settlement agreements reached, it refused to reimburse the segregated account for the value of any surplus notes provided to policyholders unless and until the segregated account made cash payment on those notes and sought to compel arbitration. The rehabilitation court disagreed, and the Court of Appeals affirmed, finding: (1) that the rehabilitation court in Wisconsin had personal jurisdiction over the nonresident reinsurer based on minimum contacts and the reinsurer’s notice of the pending rehabilitation plan; (2) that the rehabilitation court had exclusive jurisdiction to determine any matter relating to a delinquent insurer that would otherwise be subject to an arbitration proceeding; and (3) that the reinsurer’s payment obligations stemmed not only from the contracts themselves, but also from the policies underlying the reinsurance contract. In re Rehabilitation of: Segregated Account of Ambac Assurance Corp., Case No. 2010CV1576 (Wis. Ct. App. Oct. 24, 2013).

This post written by Kyle Whitehead.

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