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Arbitration / Court Decisions

LIQUIDATOR NOT BOUND TO ARBITRATE REINSURANCE DISPUTE WITH JOHN HANCOCK

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This dispute is between the Ohio Superintendent of Insurance, in her capacity as liquidator for Credit General, and John Hancock over amounts potentially owed by Hancock under 13 reinsurance agreements pursuant to which Hancock reinsured risks initially insured by the now-insolvent Credit General. The sole issue presented on this appeal was whether the provisions of the Ohio Liquidation Act precluded enforcement of arbitration clauses against the Superintendent of Insurance functioning as liquidator, when those arbitration provisions were part of a contract that the liquidator otherwise sought to enforce.

The state appellate panel held that the liquidator was not bound to the arbitration clause in a reinsurance agreement finding that the purpose of the Ohio Liquidation Act outweighed the public policies in favor of arbitration. The panel also disagreed with John Hancock’s argument that the Ohio Liquidation Act could not overcome the explicit enforcement of arbitration under the Federal Arbitration Act. The panel reasoned that under the McCarran-Ferguson Act, state statutes that govern the liquidation of insurers supersede federal statutes. Hudson v. John Hancock Financial Srvs., No. 06AP-1284 (Ct. App. Ohio, Dec. 27, 2007).

This post written by Lynn Hawkins.

NINTH CIRCUIT RULES INSURER ALLOWED TO CANCEL POLICY DUE TO UNAVAILABLITY OF REINSURANCE

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The Ninth Circuit affirmed a magistrate’s ruling that Coregis Insurance Company complied with the plain language of an insurance policy issued to Independent School District of Boise City when Coregis cancelled coverage. The policy permitted Coregis to cancel the policy after it had been in effect for more than 60 days if it was unable to secure adequate reinsurance. The policy also contained a rate guarantee endorsement in which Coregis agreed “to keep this policy in effect and that rates will not increase more than 3% per year for the 2002-2003 and 2003-2004 policy years.” After one of the school shootings, reinsurance for terrorism risks was not available. The court determined that the two policy provisions could be read in harmony. Independent School District of Boise City v. Coregis Ins. Co., No. 06-35627 (9th Cir. Jan. 23, 2008).

This post written by Lynn Hawkins.

REN RE SHAREHOLDER CLASS SETTLEMENT RECEIVES FINAL APPROVAL

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Ren Re's finite reinsurance legal actions appear finally to be over. In an October 23, 2007 post, we reported on the preliminary approval of a class settlement with Ren Re's shareholders, coming after Ren Re's settlement with the SEC. The shareholder settlement has been given final approval by the Court, which entered a Final Approval Order (1/18/08), an Order awarding attorneys' fees and expenses (1/30/08) and a Final Judgment (1/30/08). In re Renaissancere Holdings Ltd. Securities Litigation, Case No. 05-6764 (USDC S.D. N.Y.).

This post written by Rollie Goss.

AMBIGUOUS ARBITRATION PROVISION FOR ARBITRATION PANEL, NOT COURT, TO DECIDE

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This dispute arose out of property damage to two Dow Chemical facilities caused by Hurricanes Katrina and Rita in 2005. Dow sought payment for the damage from Dorinco, Dow’s captive insurer. Dorinco then sought reimbursement under the policy from its reinsurers, the respondents in this case. The reinsurers disputed their obligation to reinsure the settlement amounts, totaling $289.7 million. Dorinco made two arbitration demands to the Reinsurers, one for claims resulting from Hurricane Katrina, and the other for the claim resulting from Hurricane Rita. Dorinco argued that the Reinsurers – as a group – were required to appoint a single arbitrator to each of the two panels. The Reinsurers contended that each reinsurer was entitled to its own arbitration panel and to appoint its own arbitrator to each panel.

The Court concluded that the arbitration provision was ambiguous and that, as a result, the Court was without authority to determine the parties’ intentions with respect to the provision. Relying on the Supreme Court’s decision in Green Tree v. Bazzle, and the arbitration provision at issue, the Court held that the arbitrators, not the Court, possess the authority to determine the parties’ intentions in agreeing to the arbitration provision. Dorinco Reinsurance Co. v. Ace American Ins. Co. et. al., No. 07-12622 (E.D. Mich. Jan. 23, 2008).

This post written by Lynn Hawkins.

CASE UPDATE: TRIAL REQUIRED TO DETERMINE ISSUES OF BAD FAITH OR EX GRATIA PAYMENTS

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On November 3, 2006 we reported on a decision of a New York state court that followed the follow-the-fortunes provision of a reinsurance agreement, granting summary judgment as to the majority of the reinsurance claims. A New York appellate court recently reversed that decision, revisiting the scope of the follow-the-fortunes doctrine and ex gratia exceptions under New York reinsurance law. The court found that the general “follow-the-fortunes” obligation comes with exceptions for claim payments that are “fraudulent, collusive or otherwise made in bad faith” or are “ex gratia.” Ex gratia payments are payments made by a cedent insurer “that recognizes no legal obligation to pay, but makes payment to avoid greater expense, as in the case of a settlement by an insurance company to avoid the cost of a suit.”

The reinsurer in this case contended that, years after making settlements in thousands of pesticide poisoning cases, the cedent’s parent company reallocated some of its settlement payments from sister companies to the cedent/plaintiff just to obtain the benefit of the reinsurance coverage. The reinsurer charged that the cedent insurance company's conduct constituted bad faith or at least an ex gratia payment that should relieve the reinsurer of any obligation as a matter of law on summary judgment. The New York appellate court disagreed, finding that issues as to the intent and circumstances of the underlying settlements remained unresolved, requiring a trial. Granite State Ins. Co. v. ACE American Reinsurance Co., 2007 NY Slip Op. 10464 (NY App. Div., Dec. 27, 2007).

This post written by Lynn Hawkins.