Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Week's Best Posts

Week's Best Posts

TENNESSEE OVERHAULS ITS CAPTIVE INSURER REGULATIONS

by

In December 2012, the Tennessee Department of Commerce and Insurance revamped its regulations concerning captive insurers by repealing a law regarding letters of credit used by captive insurance companies and replacing it with a more extensive regulatory scheme. The new regulatory scheme requires annual reports of a captive insurance company’s financial condition and examinations by the insurance commissioner every three to five years. The five year cycle for examinations is only available for captive insurers that submit to annual audits conducted by independent certified public accountants authorized by the commissioner. The annual audits consist of an examination of financial statements by the independent CPA according to GAAP, an evaluation of internal controls, and certification as to the adequacy of the captive insurer’s loss reserves. Tenn. Comp. R. & Regs. tit. 0780, Ch. 01-41 (effective February 28, 2013).

This post written by Abigail Kortz.

See our disclaimer.

DECLARATORY RELIEF ACTION REJECTED AS A MEANS TO CHALLENGE INTERLOCUTORY ARBITRATION ORDERS FOR LACK OF “RIPENESS”

by

In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

See our disclaimer.

COURT DECLINES TO ORDER PREJUDGMENT SECURITY FROM A FOREIGN NATIONAL DOING REINSURANCE BUSINESS

by

Pine Top Receivables LLC (“PTR”) was formed when a buyer purchased the assigned rights under certain reinsurance contracts from the Illinois liquidator handling the Pine Top Insurance Company receivership. PTR then brought suit against reinsurer Banco De Seguros Del Estados, which had entered into reinsurance contracts with Pine Top. PTR alleged that Banco owed more than $2,000,000 in overdue balances on the contracts. PTR’s suit sought to compel arbitration. Banco filed a motion to dismiss on jurisdictional grounds. PTR moved to strike the motion, on the grounds that Banco had not paid prejudgment security under Illinois’ statute requiring security by a nonresident reinsurer. Banco resisted the motion, asserting that the Foreign Sovereign Immunities Act prohibited the assessment of any “attachment” on a foreign governmental entity. The Court agreed with Banco, finding that it is a government instrumentality of the Republic of Uruguay, and that pre-judgment security under the statute was effectively an “attachment” as the term is used in the Act. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estados, No. 12 C 6357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by John Pitblado.

See our disclaimer.

NEW YORK COURT ORDERS THAT UMPIRE BE APPOINTED TO COMPLETE REINSURANCE ARBITRATION PANEL

by

Petitioner American Home Assurance Company sought appointment of an umpire, or a third arbitrator under certain treaties, to preside over arbitrations of disputes arising under three reinsurance treaties with respondent Clearwater Insurance Company. The treaties provided that each side would select an arbitrator and the two would select an umpire or third arbitrator; the parties had each selected an arbitrator but the two arbitrators had not chosen an umpire or third arbitrator. The court granted petitioner’s request pursuant to New York CPLR 7504, which provides that a court shall appoint an arbitrator if the method the parties’ agreed upon “fails or for any reason is not followed.” In so holding, the court rejected respondent’s argument that CPLR 7504 did not apply because it was not mentioned in the reinsurance treaties, holding that the law was in existence at the time of the formation of the contracts and thus incorporated in them. The court also dispensed with respondent’s argument that the arbitrations should proceed before an umpire is selected, i.e., that an umpire need not be selected unless the two arbitrators failed to agree, reasoning that having an umpire present during the arbitrations to hear the proof is the more practical approach. The court ordered a specific selection process for the umpire (or third arbitrator) – a hybrid of the ARIAS-US ranking method and the “strike and draw” method. In re American Home Assurance Co., Case No. 653079/2012 (N.Y. Sup. Ct. Jan. 15, 2013)

This post written by Ben Seessel.

See our disclaimer.

PARTICIPATION IN NEW YORK ARBITRATION NOT AN IMPLICIT WAIVER OF SOVEREIGN IMMUNITY UNDER THE FSIA

by

A pro se attorney sued his former clients, Argentina’s economic ministry and a reinsurance company owned by the Argentine government, for malicious prosecution based on the Argentine government’s criminal prosecution of the attorney for allegedly exorbitant fees. In the malicious prosecution action, the Southern District of New York decided it could not exercise subject matter jurisdiction over the defendants because none of the exceptions to sovereign immunity provided by the Foreign Sovereign Immunities Act applied. Although the court acknowledged that defendants’ retention of the attorney in connection with commercial matters qualified as commercial activity, it determined that the commercial activity exception did not apply because the activity in question was the government initiated criminal prosecution. The court also concluded that defendants’ prior consent to arbitrate the issue of alleged overbilling by the plaintiff was not an “unmistakable or unambiguous waiver” of immunity from the separate tort action of malicious prosecution. Moreira v. Ministerio de Economia y Produccion de la Republica Argentina, Case No. 10 Civ. 266 (LTS)(KNF) (S.D.N.Y. Dec. 7, 2012).

This post written by Abigail Kortz.

See our disclaimer.