Reinsurance Regulation

REINSURER’S CLAIMS DISMISSED FOR FAILURE TO COMPLY WITH LIQUIDATION ORDER

August 13, 2007 by Carlton Fields

This action was brought by the Statutory Liquidator of two insolvent Pennsylvania insurers (Legion and Villanova) against their reinsurer, Stateco Insurance Company. Plaintiff sought relief for an alleged breach of contract arising out of a Management Agreement between the insurers and Stateco. Stateco asserted several counterclaims.

Plaintiff moved to dismiss Stateco’s counterclaims on the basis that Stateco did not comply with an Order of Liquidation, pursuant to which anyone asserting claims against Legion was required to file a proof of claim on or before June 30, 2005. Defendants argued that their claims could not be barred by the Liquidation Order in light of Ninth Circuit precedent (Hawthorne Savings Bank v. Reliance Insurance Co.), as well as lack of personal jurisdiction, among other reasons.

In July, a California District Court granted plaintiff’s motion to dismiss defendant’s counterclaims. The court distinguished Hawthorne on the basis that the claim in Hawthorne was asserted by a policyholder against its insurer which had no connection to the insolvency proceedings. In contrast, the Court held the instant case was “inextricably intertwined with the liquidation proceedings, and Stateco’s counterclaims seek to interfere with those proceedings.” Additionally, the Court held that it did have personal jurisdiction over the defendant as a result of its long-term agency relationship with a Pennsylvania insurer in addition to the choice of law clause contained in the Management Agreement. The court summarily dismissed Defendant’s remaining arguments relating to mutuality and recoupment. Koken v. Stateco Inc., Case No. 05-03007 (N.D. Cal. July 25, 2007).

Court Approves Settlement of Coverage Dispute Involving Asbestos Liabilities and UK Scheme of Arrangement

August 3, 2007 by Carlton Fields

A US Bankruptcy Court has approved a settlement with a London market insurer that includes that insurer in an earlier approved settlement with insurers providing a bankrupt copper company with coverage for asbestos-related claims. The London market insurer is itself a party to a scheme of arrangement being administered in London. This opinion is an interesting intersection of the UK scheme of arrangement process and US bankruptcy laws. The motion seeking approval of the settlement contains details of the settlement and attaches copies of pertinent documents. In re ASARCO LLC, Case No. 05-21207 (US Bank. Ct. S.D. Tex. Mar. 23, 2007).

Congress Considers Renewal of Terrorism Risk Insurance Act

July 16, 2007 by Carlton Fields

The Terrorism Risk Insurance Act, which is implemented through the Terrorism Insurance Program of the Department of the Treasury, expires at the end of 2007. A bill had been filed to extend the program for 10 years and add coverage for group life insurance and nuclear, chemical, biological and radiological risks. A Treasury official has stated that the program must be temporary and short-term, should provide for increased participation by the private sector in the covered risks, and rejected the proposal for inclusion of group life insurance. During a prior renewal of the program, the Treasury Department opposed adding group life insurance to the coverage of the program. The proposed renewal bill is H.R. 2761.

English Court Rules on Request for Transfer of Assets in International Insolvency Case

July 12, 2007 by Carlton Fields

The English Court of Appeal dismissed an appeal by the Australian liquidators of HIH Casualty and General Insurance Limited (“HIH”). The question before the court was whether it had jurisdiction to entertain a request under the Insolvency Act for directions to the liquidators in England to transfer assets collected by them to the liquidators in an Australian liquidation. The court considered whether such a transfer would interfere with the statutory scheme imposed on those assets by the Insolvency Act and whether or not the court should exercise its discretion in favor of such a transfer. The Court found that if the companies were in liquidation in England, the court would have jurisdiction to entertain a request under section 426 of the Insolvency Act for directions to the liquidators in England to transfer the assets collected by them to the liquidators in the principal liquidation, even though the result would interfere with the statutory scheme imposed on those assets by the Insolvency Act.

The Court held that if section 426 could authorize a transfer then the only question would be whether the court should exercise its discretion to do so. In exercising its discretion, the court had to consider the prejudice to the interests of some creditors of such a transfer. In this case, the Court of Appeal held that it would not direct a transfer of the English assets by the English provisional liquidators to the Australian liquidators because to do so would prejudice the interests of many of the creditors. Accordingly, the appeal was dismissed. HIH Casualty & General Insurance Ltd & Ors v. McMahon, [2006] EWCA Civ 732 (June 9, 2006).

Legislative update

July 4, 2007 by Carlton Fields

In celebration of our nation's birthday (no, the blogmaster is not actually making this post on the 4th), here is a review of what our various legislators are doing with respect to reinsurance. With respect to pending legislation:

The Governor of Nebraska signed LB 117 into law on May 30, 2007, which contains amendments to the Suprlus Lines Insurance Act and a new Captive Insurers Act (sections 35-53). The terms of this new act may vary from a different captive bill introduced that was profiled in a January 29 post to this blog.
The Governor of South Carolina, on June 14, signed S. 589, which makes amendments to the captive provisions of the South Carolina Code.
On June 11, the Governor of South Carolina signed H. 3820, the Omnibus Coastal Property insurance Reform Act of 2007, which provides credits to property owners and insurers, establishes various associations and damage mitigation programs and provides for the formation of Coastal Captive Insurance Companies.
The Governor of Vermont, on May 25, signed S. 91 into law, which makes amendments to the captive provisions of the Vermont Code, adding provisions relating to special purpose financial captive companies.

With respect to pending legislation:

Delaware HB 214 passed the state House on June 26, providing amendments to Delaware's captive insurance provisions.
A potentially interesting risk pool concept was introduced in Louisiana House Concurrent Resolution No. 175, which seeks an investigation of the feasibility of establishing a regional cat fund that would allow Gulf Coast states to pool property insurance risks and other resources as a method of reducing insurance premiums.
LD 1390 was introduced into the Maine legislature, providing for the establishment and regulation of special purpose reinsurance vehicles by insurers domiciled in Maine.
H 6503 was introduced into the Rhode Island General Assembly, providing for the establishment of a state commission on hurricane loss projection methodology.
In the US Congress, this term's version of the Nonadmitted and Reinsurance Reform Act (see the March 7, 2007 post to this blog) passed the House on a voice vote on June 26, and was sent to the Senate. The companion Senate bill has made no progress in committee. Last year, this bill passed the House late in the fall and was not considered by the full Senate before the end of the term.