Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

REINSURER BREACHED CONTRACT TO AVIATION INSURER CONCERNING 9/11 LOSSES

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In a case on which we have previously posted, following a bench trial, a court held that a reinsurer breached its contract to an aviation insurer by overbilling the insurer after entering into commutation agreements. These agreements sought to save the insurer from bankruptcy following massive losses it sustained in connection with the terrorist attacks of September 11, 2001. The court sided with the insurer’s interpretation limiting the insurer’s liability to either 48% or 43.2% of the total amount paid by the reinsurer, following the commutations. Moreover, the insurer was able to maintain that it was not liable for more than a portion of reinstatement premiums paid by the insurer, despite extrinsic evidence casting doubt on the contract itself. Aioi Nissay Dowa Insurance Co. Ltd. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. June 20, 2013).

This post written by Brian Perryman.

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SUMMARY JUDGMENT DENIAL AFFIRMED AGAINST MAURICE GREENBERG AND HOWARD SMITH IN ALLEGED SHAM FINITE REINSURANCE CASE

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In affirming the appellate division’s order against former American International Group, Inc. executives Maurice Greenberg and Howard Smith, the New York Court of Appeals held that claims brought by the State’s Attorney General had enough support to withstand summary judgment. The case, which began in 2005, centers on reinsurance transactions between AIG and General Reinsurance Corporation. The Attorney General alleges that Greenberg and Smith entered AIG into transactions which did little to actually allocate risk amongst the parties but, instead, were used by AIG to increase certain financial metrics. These transactions would benefit AIG’s stock price once better financial numbers were reported in their insurance business. The Attorney General alleges Greenberg and Smith violated the Martin Act and engaged in common law fraud by entering AIG into these contracts.

New York’s high court decided two questions: first, whether the information known by Greenberg and Smith presented an issue of fact for trial; and second, whether the Attorney General was barred from attaining equitable relief from Greenberg and Smith. The court acknowledged that previous criminal proceedings against the two defendants did find enough evidence for conspiracy based on telephone conversations between Greenberg and the General Reinsurance’s CEO. The court also found sufficient evidence in the record to proceed to trial, and allowed for equitable relief to proceed as well. People v. Greenberg, No. 63 (N.Y. June 25, 2013).

This post written by Brian Perryman.

See our disclaimer.

PRIOR TO AMERICAN EXPRESS, MASSACHUSETTS SUPREME COURT FINDS CLASS WAIVER UNENFORCEABLE UNDER THE FAA ON COST-PROHIBITIVE GROUNDS

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Eight days before the U.S. Supreme Court issued its American Express decision, the Massachusetts Supreme Court appeared to reach a contrary conclusion when it found that U.S. Supreme Court precedent interpreting the FAA precluded a class waiver when a party would be precluded from pursuing individual statutory relief due to the complexity and cost of the case. The Massachusetts court made this determination in an opinion that reversed its own previous holding made prior to Concepcion in the same putative class action, regarding a class waiver provision in a consumer contract that the court had invalidated because it was “contrary to the fundamental public policy of the Commonwealth favoring consumer class actions” under state statute. It seems likely that the defendant will either seek further review of renew its motion to compel arbitration in light of the American Express decision. Feeney v. Dell Inc., Case No. SJC-11133 (Mass. June 12, 2013).

This post written by Michael Wolgin.

See our disclaimer.

U.S. SUPREME COURT UPHOLDS CLASS WAIVER PROVISIONS UNDER THE FAA, NOTWITHSTANDING COST-PROHIBITIVENESS OF INDIVIDUAL RELIEF

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On June 20th, the U.S. Supreme Court reversed a decision from the Second Circuit that refused to enforce a class waiver arbitration provision in a putative antitrust class action. The Supreme Court held that individual arbitration could be compelled under the FAA based on a class waiver contract provision, notwithstanding that the cost of arbitration exceeded the potential recovery. The Supreme Court based its decision on its prior ruling in Concepcion, and the fact that nothing in the antitrust laws or the class action procedural rules guarantee an affordable path to litigating claims. Additionally, the Court held that the class waiver did not run afoul of prior case law stating that a class waiver might be prohibited if it precluded “effective vindication” of statutory rights. The Court explained that that exception is intended to prevent only a “prospective waiver” of a right to pursue statutory remedies, which does not exist simply because it is not cost-effective to prove one’s case. American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (S. Ct. June 20, 2013).

This post written by Michael Wolgin.

See our disclaimer.

REINSURED PERMITTED TO ADD FRAUD CLAIMS IN COMMISSION OVERCHARGE ACTION AGAINST REINSURANCE BROKERS

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We previously reported on interlocutory decisions rendered in a lawsuit brought by Instituto Nacional de Seguros against Florida insurance broker Hemispheric Reinsurance Group, L.L.C. and London-based Howden Insurance Brokers Limited. INS alleges that HRG and Howden overcharged it on commissions in connection with its purchase of $300 million in faculty reinsurance coverage. The Florida circuit court recently allowed INS to amend its complaint to add fraud claims premised on the allegation that HRG and Howden engaged in “grossing up,” i.e., added their commissions to premium charges without informing INS. The court permitted INS’s amended complaint and ordered the pleadings closed. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, L.L.C., Case No. 10-33653 (Fla. Cir. Ct. June 12, 2013).

This post written by Ben Seessel.

See our disclaimer.