In October 2004, New York Attorney General Elliot Spitzer announced the filing of a civil Complaint against Marsh & McLennan Companies, alleging fraud and antitrust violations and implicating major insurance companies. The next day, an analyst reported that the St. Paul Travelers Companies (“Travelers”) could expect to be involved in the investigation and be subject to a subpoena. Travelers' stock price dropped $2.06 per share. About one month later, Travelers disclosed the receipt of a second subpoena, relating to finite reinsuracne issue. A class action securities fraud suit was filed against Travelers. The Complaint did not allege a drop in stock price following the disclosure of the finite reinsurance subpoena. Travelers moved for judgment on the pleadings with respect to claims relating to finite reinsurance issues, contending that the Complaint filed to adequately allege loss causation with respect to those issues. The court agreed, and granted the motion, but provided the Plaintiffs leave to file an amended Complaint. In re St.Paul Travelers Secutieis Litigation II, Case No. 04-4697 (USDC D Minn. June 1, 2007).
Reinsurance Transactions
England Court of Appeals Denies Request to Reopen Case Upon Allegation of Fraud, Asserting Lack of Jurisdiction
This case involves claims by Lloyds names against Lloyds, alleging that they had been misled by misrepresentations by Lloyds of its syndicate auditing and operational controls into becoming members of Lloyds syndicates. The names later suffered serious financial losses with respect to asbestos claims. The names lost the case, but then discovered additional evidence which they contended demonstrated that the judge had been misled by Lloyds. The issue before the court was whether the England and Wales Court of Appeals had jurisdiction to reopen a case upon an allegation that the Court had been misled by a party’s evidence and by fraud. The applicants, who were names at the Society of Lloyds, asserted that under the jurisprudence of Taylor v. Lawrence, 2003 QB 528, the Court had authority to reopen the case.
The Court disagreed, noting that, unlike the present case, Taylor v. Lawrence concerned misconduct by a court in that the judge was said to have been biased. Taylor v. Lawrence did not contain authority for extending the recognition of jurisdiction to reopen an appeal on the grounds of bias to a case where the allegation was not that the court had misbehaved, but that the court had been misled by one of the parties. The court cited authority directly denying the existence of jurisdiction in the latter case, providing that the proper remedy was to bring a collateral action to set aside the judgment allegedly obtained by fraud. Jaffray v. The Society of Lloyds, [2007] EWCA Civ 586 (June 20, 2007).
Law review articles relating to reinsurance
Three articles were recently published in law reviews and journals relating to reinsurance:
- Health care reform – In The Present and Future of Government-Funded Reinsurance, 51 St. Louis U. L. J. 369 (Winter 2007), John Jacobi, a professor at Seton Hall Law School, contends that government-funded reinsurance could play a valuable role in incremental health care reform.
- Reinsurance intermediaries – In Reinsurance Intermediaries: law and litigation, 29 U. Haw. L. Rev. 59 (Winter 2006), Douglas Richmond, a Senior Vice President with Aon Risk Services, analyzes the duties and potential liabilities of reinsurance intermediaries using fairly traditional agency concepts.
- Hedge funds – In The Utility of Hedge Funds: an alternative to traditional reinsurance, 49 For The Defense 32 (April 2007), practitioners James Somers and Katie Lewis Bordeau offer a general description of the participation of hedge funds in the reinsurance market. Although the title of the article describes hedge funds as an “alternative” to reinsurance, the text really describes hedge funds as a source of capital for vehicles such as side cars.
Survey on US run-off operations
PriceWaterhouse Coopers has published an interesting report on a survey that it conducted relating to US run-off operations. The report covers various aspects of run-off operations and strategies. Especially combined with the recent Lloyd’s report on capitalization and operation of Lloyd’s run-off syndicates, which was the subject of a post on this blog on May 28, this makes interesting reading.
Lloyds issues guidance for run-off syndicates
Lloyds has issued a report providing minimum standards and guidance for the individual capital adequacy of syndicates in run-off. This report provides extensive guidance for the management of such syndicates, in order to assist them in achieving the capital standards.