Week's Best Posts

COURT ANALYZES MEANING OF “TREATY REINSURANCE” IN DENYING DISMISSAL OF REINSURER’S AFFIRMATIVE DEFENSES

February 10, 2014 by Carlton Fields

Insurers sued their reinsurer for breach of certain facultative reinsurance certificates when the reinsurer ceased paying claims made for underlying losses under excess liability coverage for asbestos-related personal injuries. The reinsurer defended its decision to stop paying claims by contending that the insurers violated the reinsurance certificates when they transferred losses to another company; warranties in the reinsurance certificates provided that the insurers would “retain for [their] own account, subject to treaty reinsurance only, if any, the amount specified on the face of” the certificates. The insurers moved to dismiss this defense, arguing that they did not breach the certificates because their transfer of liability constituted a purchase of “treaty reinsurance,” and thus met the stated exception in the warranties. The court rejected the insurers’ argument, holding that “treaty reinsurance is obtained in advance of actual coverage,” and here, it was undisputed that the transfer took place “some 30 years” after the insurer wrote the policies and after the losses occurred. The court also rejected a number of other arguments made by the insurers with respect to other defenses, with two exceptions: (1) that the insurers were correct that the defense of failure to settle promptly was without merit in light of the reinsurer’s duty to follow the settlements of the insurers, and (2) that the reinsurer’s uberrima fides defense was duplicative of the reinsurer’s breach of contract defense, and was therefore due to be dismissed. The court also denied a motion for summary judgment filed by one insurer, which attempted to argue that the reinsurer was liable as a matter of law under the doctrines of waiver and account stated. Granite State Insurance Co. v. Transatlantic Reinsurance Co., Case No. 652506/2012 (N.Y. Sup. Ct. Dec. 23, 2013).

This post written by Michael Wolgin.

See our disclaimer.

THE SCOPE OF DISCOVERY LIMITATIONS MAY AFFECT THE AVAILABILITY OF STAYS

February 4, 2014 by Carlton Fields

In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

See our disclaimer.

POTENTIAL FOR FRUITS OF DISCOVERY FROM AN AMERICAN LITIGATION TO BE USED IN A FOREIGN ARBITRATION NOT THE BUSINESS OF AN AMERICAN COURT

February 3, 2014 by Carlton Fields

Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

See our disclaimer.

CANADA ISSUES NEW RULES ON REINSURANCE WITH A RELATED PARTY

January 28, 2014 by Carlton Fields

The Office of the Superintendent of Financial Institutions of Canada promulgated new reinsurance rules under Canada’s Insurance Companies Act, governing reinsurance transactions with a “related” reinsurer. The rules require detailed disclosures by the applicant (primary insurer) of required due diligence, objectives, risks, premiums, coverage, choice of law and other issues involved in the transaction. The rules also require detailed submissions from the proposed related reinsurer, regarding its financials, jurisdictions in which it operates, organization charts and past history of administrative or criminal sanctions, among other things. OSFI Index DA No. 21 (Dec. 2013).

This post written by John Pitblado.

See our disclaimer.

GAO REPORTS ON THE EFFECTS OF THE NONADMITTED AND REINSURANCE REFORM ACT ON THE SURPLUS LINES MARKET

January 27, 2014 by Carlton Fields

The United States Government Accountability Office has issued a Report to Congressional Committees entitled “Property and Casualty Insurance – Effects of the Nonadmitted and Reinsurance Reform Act of 2010.” The Report describes the size and condition of the surplus lines insurance market and examines actions states have taken to implement the Act’s provisions and the effects of the Act, if any, on the price and availability of coverage. The GAO analyzed end-of-year financial data for 2008 through 2012 for insurers who sold surplus lines insurance in 2012 and interviewed insurance regulators from states with a large number of surplus lines insurers, industry associations representing interests in the surplus lines market, and large insurers and brokers. Among the GAO’s finding are: (1) surplus lines insurers’ premiums have increased modestly from $24.8 billion to $25.2 billion; (2) the companies have generally remained profitable; (3) the Act has caused little noticeable shifting in coverage between the admitted and surplus lines markets; (4) nearly all states have modified their laws to implement at least portions of the Act; (5) the changes in states’ laws have simplified compliance for multistate risks, according to market participants; and (6) a few states are also participating in a premium tax-sharing agreement, as permitted by the Act.

This post written by Michael Wolgin.

See our disclaimer.