Arbitration / Court Decisions

CAPTIVE REINSURANCE LAWSUIT DISMISSED

July 11, 2013 by Carlton Fields

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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REINSURER BREACHED CONTRACT TO AVIATION INSURER CONCERNING 9/11 LOSSES

July 10, 2013 by Carlton Fields

In a case on which we have previously posted, following a bench trial, a court held that a reinsurer breached its contract to an aviation insurer by overbilling the insurer after entering into commutation agreements. These agreements sought to save the insurer from bankruptcy following massive losses it sustained in connection with the terrorist attacks of September 11, 2001. The court sided with the insurer’s interpretation limiting the insurer’s liability to either 48% or 43.2% of the total amount paid by the reinsurer, following the commutations. Moreover, the insurer was able to maintain that it was not liable for more than a portion of reinstatement premiums paid by the insurer, despite extrinsic evidence casting doubt on the contract itself. Aioi Nissay Dowa Insurance Co. Ltd. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. June 20, 2013).

This post written by Brian Perryman.

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REINSURANCE-RELATED DISCOVERY DENIED IN CONNECTION WITH CHOICE OF LAW ISSUES

July 10, 2013 by Carlton Fields

An insurer denied coverage to a corporate insured for losses sustained at one of its Indiana processing plants under the pollution exclusion, arguing that Michigan law should apply and that Michigan law recognizes such exclusions. The corporation argued instead that Indiana law applied and, thus, the exclusion could not be enforced. After both parties moved for summary judgment on the choice of law issue, the corporation sent discovery requests related to reinsurance and premium calculation information, which the magistrate judge determined were irrelevant to the choice of law issue. In addition, the magistrate judge stated that it was inconsistent for the corporation to claim it needed additional discovery to brief the choice of law issue after they had already moved for summary judgment. The district judge affirmed, holding it was only relevant for the choice of law issue where the insurance premiums were paid, not the rationale for calculating premiums. Visteon Corp. v. National Union Fire Insurance Co., Case No. 1:11-cv-200 (USDC S.D. Ind. June 17, 2013).

This post written by Brian Perryman.

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SUMMARY JUDGMENT DENIAL AFFIRMED AGAINST MAURICE GREENBERG AND HOWARD SMITH IN ALLEGED SHAM FINITE REINSURANCE CASE

July 9, 2013 by Carlton Fields

In affirming the appellate division’s order against former American International Group, Inc. executives Maurice Greenberg and Howard Smith, the New York Court of Appeals held that claims brought by the State’s Attorney General had enough support to withstand summary judgment. The case, which began in 2005, centers on reinsurance transactions between AIG and General Reinsurance Corporation. The Attorney General alleges that Greenberg and Smith entered AIG into transactions which did little to actually allocate risk amongst the parties but, instead, were used by AIG to increase certain financial metrics. These transactions would benefit AIG’s stock price once better financial numbers were reported in their insurance business. The Attorney General alleges Greenberg and Smith violated the Martin Act and engaged in common law fraud by entering AIG into these contracts.

New York’s high court decided two questions: first, whether the information known by Greenberg and Smith presented an issue of fact for trial; and second, whether the Attorney General was barred from attaining equitable relief from Greenberg and Smith. The court acknowledged that previous criminal proceedings against the two defendants did find enough evidence for conspiracy based on telephone conversations between Greenberg and the General Reinsurance’s CEO. The court also found sufficient evidence in the record to proceed to trial, and allowed for equitable relief to proceed as well. People v. Greenberg, No. 63 (N.Y. June 25, 2013).

This post written by Brian Perryman.

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CALIFORNIA COURT UPHOLDS ARBITRATION PROVISION INVOKED BY NON-SIGNATORY

July 5, 2013 by Carlton Fields

In a dispute alleging violations of the Telephone Consumer Protection Act related to attempts to collect on a credit card debt, defendants moved to compel arbitration. Although defendants were not signatories to the agreement containing the arbitration provision, the court found the defendants had standing to compel arbitration because the language of the agreement was broad enough to include them. The arbitration provision governed ‘[a]ny claim, dispute or controversy . . no matter by or against whom the claim is made, whether by or against either you or us or . . . by or against any involved third party.” (emphasis added). The court also determined that the unavailability of the National Arbitration Forum (“NAF”), which was specifically designated as the arbitral forum in the arbitration provision, as an arbitration forum for consumer disputes did not render the agreement unenforceable. Significant to the court was the fact that the arbitration provision itself contained a severability provision, which allowed the provisions naming the NAF as the arbitral forum to be deemed invalid without rendering the entire arbitration provision unenforceable. Selby v. Deutche Bank Trust Co. Ams., Civ. No. 12-cv-01562 (USDC S.D. Cal. Mar. 28, 2013).

This post written by Abigail Kortz.

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