The UK Queen's Bench Division of the Commercial Court has denied applications to vacate prior judgments in an action brought by a reinsured against several defendants which served as reinsurance intermediaries under two binders involving short tail property and contingency risks and personal accident risks. Prior liability judgments had found that the intermediary group had fraudulently abused the binders by placing risks through the binders which were not authorized, and by signing an addenda to the binders, without authority, that provided the intermediaries an extra 40% commission on the first 12 months gross premium. Prior judgments had rescinded the binders and awarded damages for fraud and conspiracy totaling approximately £17,000,000. The opinion holds that liability judgments against several of the defendants were proper. R & V Versicherung AG v. Risk Insurance and Reinsurance Solutions SA, [2007] EWHC 79 (Comm. Jan. 29, 2007).
Reinsurance Avoidance
Fourth Circuit vacates Order dismissing policy rescission claim
The financial collapse of Reciprocal of America, an insurer and reinsurer, resulted in a number of lawsuits, including a series of lawsuits by policyholders and state Insurance Commissioners in Alabama and in other states against the company's officers and directors. When two officers pleaded guilty to criminal charges relating to the operation of the company, the company's D&O insurer filed a declaratory judgment action, seeking rescission of the policies it had issued. While the actions filed by the policyholders and Insurance Commissioners were granted MDL status, the MDL Panel declined to add the D&O insurer's action to that proceeding. The District Court dismissed the D&O insurer's action, on the basis that it would abstain from hearing the claims in deference to the parallel state court actions. The Fourth Circuit reversed, vacating the decision, finding that the requirements for abstention were not present, and that the rescission action should go forward. Great American Ins. Co. v. Gross, Case No. 05-2069 (4th Cir. Oct. 30, 2006).
Parties litigate issues relating to London arbitration award in US Court
Noble Assurance Company insured its parent, Shell Petroleum, Inc., and reinsured the risks with Gerling-Konzern General Insurance Co – UK. When a dispute arose over the reinsurance, the parties arbitrated the dispute in London. The Panel ruled in Nobel's favor, and Gerling then filed suit in US District Court in Vermont against Noble and Shell, seeking rescission of the reinsurance agreement, vacature of the London arbitration award on the basis that it violated public policy and was issued in manifest disregard of the law and declarations that various contracts were void. In a preliminary ruling, the District Court permitted jurisdictional discovery as to the claim against Shell, denied Gerling's motion for summary judgment and granted Noble's motion to dismiss in part. The fundamental issue of whether the US court action could attack the London arbitration award was not presented in these motions. Gerling-Konzern General Ins. Co – UK v. Noble Assurance Co., Case No. 06-76 (D. Vt. Nov. 1, 2006). It will be interesting to follow this action, since it appears to be, at least in significant part, a collateral attack on the London arbitration award.
Arbitration award refusing to avoid reinsurance confirmed
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.).
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.