On September 19, 2007, in a 312-110 vote, the House passed H.R. 2761, the “Terrorism Risk Insurance Revision and Renewal Act of 1007.” The act extends TRIA for 15 years and includes group life insurance as a covered line of insurance. View H.R. 2761 (as amended) and the Committee Report.
Reinsurance Regulation
SOLVENCY II REGULATORY PROCESS COMMENCES IN THE EU
Regulation of insurance and reinsurance in the European Union has moved from the solvency issue-based initial phase, dubbed Solvency I, to a broader phase, dubbed Solvency II. Solvency II will address concepts of capital requirements, risk management practices, supervisory activities, reporting and disclosures. Final implementation of Solvency II is scheduled between 2010 and 2012, and substantial study and regulatory and legislative activities will precede final implementation. Information about Solvency II may be found on the EU's web site.
CREDITOR’S BREACH OF CONTRACT CLAIM BARRED BY FAILURE TO FILE CLAIM IN SEPARATE LIQUIDATION PROCEEDING
Plaintiff, Propak Loigistics, insured workers' compensation risks with Clarendon National Insurance Company, which reinsured the risks with Defendant, Foundation Insurance Company. Foundation entered into a risk sharing agreement directly with Propak, which was essentially an experience rating agreement. Foundation was placed in liquidation. Clarendon filed a timely claim in the liquidation estate, but Propak did not. The liquidation court entered an order distributing the remaining assets of Foundation to Clarendon. Because Propak failed to file notice of its claims under the Liquidation Order, the court held that it was barred from obtaining relief, noting that under South Carolina law, “the failure of a potential creditor to submit a claim in the liquidation estate, or have an ancillary estate opened in a reciprocal state, is conclusive as to that creditor’s rights.” Propak Logistics v. Foundation Ins. Co., No. 04-2178 (W.D.Ark., August 8, 2007).
LEGISLATIVE UPDATE
Many state legislatures have ended their session, and following is an update on a number of reinsurance-related bills previously reported in this blog:
- captives: There has been a good deal of activity on the captive front, and there have been a number of articles in the trade press about domestic jurisdictions attempting to become more competitive with each other and with off-shore locations. Hawaii has enacted general changes in HB 272 (effective July 1, 2007), allowing captives to be licensed as limited liability companies and changing tax, capital and surplus rules. Delaware has amended its statutes (HB 214, signed July 18, 2007) to allow special purpose financial captives, with new minimum capital requirements for such entities. Missouri has enacted legislation (SB 215, effective August 28, 2007) which provides for the formation of captive insurance companies.
- alternative financing: Maine has allowed the edtablishment of special purpose reinsurance vehicles to facilitate the securitization of insurance risks. LD 1390, effective June 21, 2007.
- reinsurance placement: New Hampshire has adopted rules (HB 782, effective January 1, 2008) clarifying its law with respect to reinsurance intermediaries, brokers and managers. Texas has proposed modifying its provisions relating to the placement of reinsurance with an unauthorized reinsurer. SB 1136, pending – see page 247 of 409.
- credit for reinsurance: Connecticut has amended its regulations relating to credit for reinsurance with respect to the assets of a single beneficiary trust, effective May 30, 2007.
- health reinsurance: Oregon has enacted provisions, effective June 25, 20007 (SB 183) making emergency provisions for a reinsurance program for medical progessional liability insurance policies provided by the state's Accident Insurance Fund.
- voluntary restructuring: Rhode Island continues to legislate in the area of voluntary restrcturing of solvent insurers, expanding the definition of commercial run-off insurer effective July 6, 2007 to include a Rhode Island domestic insurer formed or re-activated for the purpose of entering into a voluntary restructuring.
DISTRICT COURT AFFIRMS BANKRUPTCY COURT ORDER DENYING IMPOSITION OF CONSTRUCTIVE TRUST
This matter came before the Northern District of New York on appeal from a Bankruptcy Court Order, awarding Richard Breeden, Chapter 11 trustee (the “Trustee”) of The Bennett Funding Group, judgment on the pleadings and dismissing the Ades and Berg Groups’ (the “Ades Investors”) counterclaims for imposition of a constructive trust upon the proceeds of a reinsurance policy allegedly covering the Ades Investors’ losses. The proceeds of the reinsurance policy were to be paid to the Trustee pursuant to the terms of a settlement agreement with Sphere Drake.
In a de novo review, the Court affirmed the Bankruptcy Court’s Order, concluding that the Ades Investors’ claim failed to satisfy all four elements applicable under New York law for the imposition of a constructive trust. Specifically, the Court concluded that while three of the four elements were satisfied, the fourth element, requiring a showing that the Trustee was unjustly enriched when he retained the settlement proceeds from Sphere Drake, was not met. In re: The Bennett Funding Group, Case No. 97-70049 (N.D.N.Y. July 10, 2007).