Anglo-Iberia Underwriting Management Company and Industrial Re International sued an employee of the Indonesian state-owned social security insurer, Jamsostek, who while on leave in Colorado studying for an M.B.A. perpetrated an international reinsurance fraud scam that cost the Plaintiffs an estimated $55 million. Plaintiffs also sued Jamsostek and the Republic of Indonesia, alleging that they had breached contractual obligations to Plaintiffs and negligently failed to supervise their employee. The district court had dismissed all claims against Indonesia and Jamsostek based upon the sovereign immunity conferred by the Foreign Sovereign Immunities Act. The Second Circuit addressed the issue of whether the immunity exception for commercial activities applied. The Court of Appeal found that the contract claims were properly dismissed, but that the district court had failed adequately to consider the negligent supervision claim, and remanded for further consideration with respect to that claim. In remanding, the appellate panel set out the standards for the application of the commercial activity exception. Anglo-Iberia Underwriting Management Co. v.Lodderhose, Case No. 03-9260 (2d Cir. May 25, 2007).
Arbitration / Court Decisions
Silverstein Properties reaches settlement with seven World Trade Center insurers
New York Governor Eliot Spitzer and Insurance Superintendent Eric Dinallo have assisted in negotiating a settlement of all outstanding insurance claims arising from the destruction of the World Trade Center with seven insurers: Travelers Companies; Zurich American Insurance Company; Swiss Reinsurance Company; Employers Insurance Company of Wausau; Allianz Global Risks US Insurance Company; Industrial Risk Insurers; and Royal Indemnity Company. The amount of the settlement is $2 billion. A press release announcing the settlement states that this will clear the way for construction on the site.
Court restricts discovery of reinsurance-related issues
American Re and other reinsurers sued USF&G seeking a declaratory judgment with respect to reinsurance they had issued USF&G that covered asbestos risks. USF&G had agreed to pay approximately $975 million for ultimate distribution to asbestos claimants, while its insured, Western MacArthur Company, filed for bankruptcy. USF&G sought to recover approximately $400 million from its reinsurers. The reinsurers sought discovery of how USF&G had allocated the underlying risks to a single policy year as well as information about the preparation and presentation of the reinsurance claim. USF&G contended that the documents were protected by attorney-client and work product privileges. The lower court had allowed broad discovery, but the appellate panel restricted the scope of discovery to the preparation of the reinsurance claim, which had been covered in a deposition in the underlying case, thus placing the preparation of the claim at issue despite the existence of an applicable privilege. American Re-Insurance Co. v. United States Fid. & Guar. Co., 07 NY Slip Op 04523 (App. Div. First Dept. May 29, 2007).
Survey on US run-off operations
PriceWaterhouse Coopers has published an interesting report on a survey that it conducted relating to US run-off operations. The report covers various aspects of run-off operations and strategies. Especially combined with the recent Lloyd’s report on capitalization and operation of Lloyd’s run-off syndicates, which was the subject of a post on this blog on May 28, this makes interesting reading.
COURT HOLDS DISPUTE OVER SETTLEMENT OF DISPUTES UNDER REINSURANCE ADMINISTRATION AGREEMENT ARBITRABLE
Trustmark Insurance and American General Assurance entered into a Reinsurance Administration Agreement with Transamerica Occidental Life Insurance, pursuant to which Transamerica provided administration services. Trustmark cancelled the Agreement, and a dispute arose as to Transamerica’s performance of the Agreement and whether it was entitled to further payments for services that it had provided pursuant to the Agreement. Trustmark and Transamerica reached a “settlement” of the dispute, which later fell apart. There was no written settlement agreement, and although the Agreement contained an arbitration provision, no party sought arbitration of the dispute under the Agreement.
Trustmark sued Transamerica, seeking to compel performance of the settlement agreement. Transamerica moved to compel arbitration. The District Court held that even though there was no written settlement agreement, the arbitration provision of the Reinsurance Administration Agreement covered any dispute “relating to” the parties’ performance of the Agreement, including Transamerica’s claim for further payments under the Agreement. The court therefore compelled arbitration of the substance of the dispute that was covered by the “settlement agreement.” Trustmark Insurance Co. v. Transamerica Occidental Life Insurance Co., Case No. 06-5561 (N.D.Ill. May 1, 2007).