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New reinsurance-related and arbitration developments from Carlton Fields

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Reorganization and Liquidation

DISTRICT COURT REMANDS CLAIM AGAINST LIQUIDATOR TO STATE COURT

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In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party. Though the case was properly removed, the Court explained that a Nebraska statute prevented the federal court from entering a judgment against the Liquidator, and that the McCarran-Ferguson Act prevented the Court from entering an order for distribution of any FCIC/RMA judgment proceeds. Rather than dismissing the claim against the Liquidator, the District Court remanded the claim to Nebraska state court while also granting FCIC/RMA’s request to transfer the claims against those parties to the District Court for the District of Columbia. Granite Reinsurance Co., LTD v. Ann M. Frohman, Case No. 08-410 (D. Neb. Oct. 26, 2009).

This post written by John Black.

THIRD CIRCUIT AFFIRMS DISMISSAL OF DI LORETO’S CLAIMS

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This dispute has spanned over two decades, and we have previously reported on: (1) the award of attorney’s fees and costs for an improper bankruptcy filing by the Superintendent of the New York State Insurance Department; and (2) the dismissal of Mrs. Di Loreto’s complaints that sought to prevent the execution of a $20 million judgment obtained against her for reinsurance moneys owed. In this latest installment, Mrs. Di Loreto has appealed the dismissal of her complaints, arguing that the $20 million judgment was obtained in violation of her due process rights. The Third Circuit disagreed, finding that the proceedings bore all the hallmarks of due process. The court thus affirmed the dismissal of her complaints. Di Loreto v. Costigan, No. 09-1812 (3d Cir. Nov. 6, 2009).

This post written by Dan Crisp.

THIRD CIRCUIT AFFIRMS DENIAL OF COVERAGE AND REINSURANCE CLAIMS FOR UNDERLYING SUITS UNDER D&O POLICIES

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G-I Holdings, Inc. purchased directors & officers liability coverage from Reliance Insurance Company, covering claims made from 1999 – 2002. Due to Reliance’s putatively impending insolvency at that time, it reached an agreement with Hartford Fire Insurance Company, whereby Hartford agree to take over some of Reliance’s claims administration, and agreed to reinsure obligations under Reliance policies for claims made after July 15, 2000. Reliance remained responsible for covering claims made under its policies prior to July 15, 2000. Thereafter, Reliance became insolvent and went into liquidation. G-I Holdings asserted a claim for coverage for three fraudulent conveyance suits against its CEO and Chairman. The first suit was brought during the Reliance coverage period, and the other two were brought during the period covered by Hartford. However, Hartford declined coverage, and the parties litigated, based on the question of whether the two later suits related back to the Reliance coverage period. The district court agreed with Hartford, finding that all three suits were Reliance’s responsibility. The Third Circuit affirmed. G-I Holdings, Inc. v. Reliance Ins. Co., No. 07-2510 (3d Cir. Oct. 26, 2009)

This post written by John Pitblado.

SCOTTISH COURT DISAPPROVES A SOLVENT SCHEME OF ARRANGEMENT

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The Scottish Court of Session Decisions has nixed a scheme of arrangement under the UK Companies Act of 2006, stating it could not be judicially sanctioned without the assent of all creditors. A scheme of arrangement is a reorganization device in which, with the approval of at least three-quarters of a company’s creditors, the company may compromise the claims of all its creditors. A somewhat analogous device might be a “cram-down” under U.S. bankruptcy law, with the important distinction that a scheme of arrangement may be used even by a solvent company. This procedure has been criticized by US insurance companies. There are three stages to a scheme of arrangement. First, there must be an application to the court for an order that a meeting of creditors be summoned. Second, the scheme proposals are put to the meeting and are approved (or not) by the requisite majority. Third, if approved at the meeting, there must be a further application to the court to obtain the court’s sanction to the arrangement.

In the case before the Court of Session Decisions, Scottish Lion Insurance Company had been in runoff since late 1994, and in 2008 had proposed a scheme of arrangement to terminate its exposures under short- and long-tail policies. The scheme was opposed by various U.S.-based creditors which were insureds under general liability or general aviation insurance policies with Scottish Lion. The court, noting it was not bound to sanction a scheme which had achieved the statutory majority at the creditors’ meeting, declined to exercise its discretion to approve the scheme. Scottish Lion was solvent and appeared to have made provision to meet its potential liabilities in the future. Thus, the court asked rhetorically, “in a situation where the Company is sound financially, why should one group of creditors who might wish to enter into a commutation agreement with the Company be entitled to force other creditors to participate against their will?” In such a case, sanctioning a solvent scheme smacked of “unreasonableness” to the minority. In the Petition of Scottish Lion Insurance Company, Ltd. [2009] CSOH 127.

This post written by Brian Perryman.

DISTRICT COURT FINDS NO SUBJECT MATTER JURISDICTION IN AIG SUIT

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The District Court for the District of New Jersey recently granted defendant AIG’s motion to dismiss Robert Plan Corporation’s claims arising out of a series of reinsurance agreements between the parties. The procedural history of the action is complex, and it involves underlying state court action, financial rehabilitation and bankruptcy proceedings. Robert Plan filed a Notice of Removal in January, 2009, and AIG subsequently moved to dismiss for lack of subject matter jurisdiction. The court granted the motion to dismiss, finding that that there was no case or controversy for the court to decide because the underlying state court action had been dismissed by the time plaintiffs filed their notice of removal. Additionally, because the Court found subject matter jurisdiction lacking, it denied as moot Robert Plan’s Motion to Transfer Venue. The Robert Plan Corp. v. American Int’l Group, Case No. 09-200 (D.N.J. Aug. 10, 2009).

This post written by John Black.