Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Reinsurance Regulation / Reorganization and Liquidation

Reorganization and Liquidation

ANTECEDENT DEBT IS “FAIR CONSIDERATION” FOR REINSURANCE CONTRACT

by

The Rehabilitator of Frontier Insurance Company challenged a New York federal court to reconsider summary judgment rulings that dismissed claims against Everest Reinsurance Company. The Rehabilitator’s claims against Everest sounded in fraudulent conveyance on the theory that payments made to Everest under a reinsurance contract it issued to Frontier were not based on fair consideration because no risk was transferred under the contract. The Court had previously ruled that there was fair consideration due to an antecedent debt at the time the parties entered into the reinsurance contract. The Court allowed reconsideration, but upon review maintained its prior ruling. Mills v. Everest, Case No. 05-8928 (USDC S.D.N.Y. June 8, 2009). Further background to supplement the brief opinion is found in a related Memorandum of Law.

This post written by John Pitblado.

REINSURER’S CLAIM FOR SETOFF IN LIQUIDATION PROCEEDING FOR PAYMENT OF LIQUIDATED COMPANY’S OBLIGATION DENIED

by

Century Indemnity Company (“CIC”) reinsured The Home Insurance Company (“Home”). Due to Home’s liquidation proceedings, which began in 2003, CIC became fully liable for a $13 million settlement of certain environmental claims for which CIC and Home were both primarily liable under the parties’ respective insurance contracts. CIC, a debtor in the Home proceedings, sought a setoff of $8 million against other obligations owed to Home, for Home’s share of the settlement that CIC paid in full. The New Hampshire Supreme Court reversed the trial court’s order permitting the setoff. Finding that the trial court’s reading of the statute governing setoff was too narrow, the Court cited the remedial nature of the statute, and the legislative purpose of obtaining “full payment from reinsurers despite an insurer’s insolvency.” In Re Liquidation of The Home Ins. Co., No. 2008-407 (N.H. May 27, 2009).

This post written by John Pitblado.

FRAUD CLAIM AGAINST PARTICIPANT IN REINSURANCE PROGRAM HELD TIME-BARRED

by

A fraud claim asserted by the New York Superintendent of Insurance against a tire company was barred by the applicable California statute of limitations, since the “discovery rule” did not operate to save the claim. The plaintiff superintendent, in his capacity as rehabilitator of Frontier Insurance Company, alleged that Frontier entered into a reinsurance agreement with Automotive Services Insurance Limited in 1999. ASIL was a captive insurance agency set up by the president of the defendant tire company, Ramona Tire. Under this agreement, ASIL agreed to reinsure Frontier for insurance proceeds paid out by Frontier on policies for a group of independent tire dealers, including Ramona. The superintendent alleged that Ramona defrauded Frontier by purposefully undercapitalizing and underfunding ASIL so as to make it unable to comply with its contractual obligations to Frontier. A suit was filed in 2007. In its motion for summary judgment, Ramona argued that Frontier was on notice of ASIL’s undercapitalization from the moment it began negotiations on the reinsurance agreement. For example, Frontier investigated ASIL’s capitalization prior to approving the workers compensation program in which Ramona participated. This was held sufficient to trigger the discovery rule and run the three-year statute of limitations beginning in at least 2000. Accordingly, the fraud claims were time-barred. Mills v. Ramona Tire, Inc., Case No. 07-52 (USDC S.D. Cal. May 22, 2009).

This post written by Brian Perryman.

SPECIAL FOCUS: FEDERAL REGULATORY MODERNIZATION PROPOSALS

by

There have been many proposals floated for the “modernization” of the regulation of various sectors of the financial services industry. What are the implications of such proposals for the reinsurance industry? In a SPECIAL FOCUS feature, Rollie Goss, blogmaster and chair of a Task Force formed by Carlton Fields to monitor federal regulatory proposals which may affect its clients, discusses generally the major proposals to date which may affect the reinsurance industry. Many of the proposals made to date remain in a fairly conceptual stage, but a few now are progressing to the stage of proposed Congressional bills. The documents discussed in this short paper include:

For additional Special Focus items, see the new sidebar box with quick links to selected Special Focus items.

This post written by Rollie Goss.

CASE CLOSED: EASTERN DISTRICT OF PENNSYLVANIA DISMISSES DI LORETO’S CLAIMS

by

We have previously reported on the procedurally tortured case between the New York Insurance Department, as liquidator of Nassau Insurance Company, and Jeanne Di Loreto to recover assets contended to have been diverted from Nassau. In the latest salvo, defendants New York Insurance Department, William Costigan, and Eric DiNallo, Mark Peters and Andrew Lorin separately moved to dismiss plaintiff Di Loreto’s Complaints seeking to prevent execution of a judgment obtained against her by the New York Liquidation Bureau. The court granted all three motions to dismiss, finding that it lacked jurisdiction over the New York Department, and that the other claims failed to state a claim. Di Loreto v. Costigan, et al., Case Nos. 08-989, 08-990 (USDC E.D. Pa. Feb. 19, 2009).

This post written by John Black.