A court has confirmed, by agreement of the parties, an arbitration award that rejected an attempt to avoid multiple excess of loss reinsurance agreements based upon the contention that the reinsured had not disclosed information in its possession at the time of placement with respect to prospective losses. The Petition to Confirm Arbitration Award describes the background of the dispute, which resulted in an Award, which was confirmed in an Order entered based upon a joint stipulation. American Home Assur. Co. v. CGU Int’l Ins., Case no. 06-6819 (S.D. N.Y.).
Arbitration / Court Decisions
Court allows discovery of reinsurance information on bad faith claim
CIGNA, as the administrator of managed care organizations, became a defendant in a number of federal and state class actions and individual lawsuits, some of which gave rise to a federal MDL action. CIGNA sought coverage and a defense from its insurers, and asserted a bad faith claim against one insurer which refused to provide coverage and which did not settle with CIGNA. A Pennsylvania state court has permitted CIGNA to obtain discovery as to the details of that insurer's reinsurance relationships, on the theory that such information might be relevant or lead to admissible information with respect to CIGNA's bad faith claim. Executive Risk Indemnity, Inc. v. CIGNA Corp., 2006 WL 2439733 (Pa. Ct. Common Pleas Aug. 18, 2006).
Court takes on task of appointing umpires
Parties to facultative and quota share reinsurance involving two separate arbitration demands had protracted disputes over the selection of arbitrators. In both arbitrations, the appointed umpire resigned, and the parties disagreed as to how to appoint a replacement. Noting that it had been two years since the service of the arbitration demands, that neither arbitration had an umpire in place, and that the reinsurance agreements did not specifically address the appointment of replacement arbitrators, the Court ruled that it would appoint umpires, giving the parties an opportunity to suggest names and then to object to the persons suggested by the other party. AIG Global Trade and Political Risk Ins. Co. v. Odyssey America Reinsur. Corp., Case No. 05-9152 (USDC S.D. N.Y. Sept. 21, 2006).
Former Fremont execs sued over alleged reinsurance fraud
The California Insurance Commissioner, as conservator of Fremont Indemnity Company, has sued former executive officers and directors of Fremont in a civil fraud case, alleging that they caused Fremont over $200 million is loss due to fraudulent underwriting and reinsurance placement activities, which caused reinsurers to seek rescission of reinsurance, forcing Fremont to enter into commutation agreements with the reinsurers. Garamendi v. Rampino, Case No. BC357691 (Cal Super. Ct. Aug. 29, 2006). The Complaint alleges that the defendants inappropriately gave pricing discounts, wrote risks in high severity NCCI grades, wrote on a net line underwriting basis, and abused deductible and retrospective rating underwriting principles, in many respects contrary to express representations made to reinsurers.
Arizona Court rejects collateral modification of an arbitration award
Cundiff and State Farm arbitrated the amount of damage suffered by Cundiff as a result of an automobile accident while working. Neither party challenged the award or sought confirmation. The policy contained a provision allowing State Farm to offset benefits received from worker's compensation from any policy claim. Cundiff sued State Farm, contending that she was entitled to recover the full amount of her loss, without an offset for the workers' compensation benefits. The Court determined that the full amount of Cundiff's loss, at least implicitly including the offset issue, had been litigated in the arbitration, and that Cundiff's failure to follow Arizona law to seek modification of the arbitration award barred her action, justifying summary judgment in favor of State Farm. Cundiff v. State Farm Mut. Auto. Ins. Co., Case No. 2005-0209 (Az. Ct. App. Oct. 27, 2006).