Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

IAIS POLICY PAPER: REINSURANCE DOES NOT CREATE OR AMPLIFY SYSTEMIC RISK

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The International Association of Insurance Supervisors recently released a policy paper entitled Reinsurance and Financial Stability which addresses specific issues related to the insurance industry along with evaluating the marketplace as a whole. Notably, the paper examined how current trends in reinsurance impact the stability of the financial markets. The IAIS concluded that traditional reinsurance is unlikely to cause or amplify systemic risk that may or may not already exist in the market. However, considerable systemic risk may arise from non-insurance entities (such as investment banks) which have started to offer longevity and pension services with risk transformation and risk transfer features similar to products offered by insurers. The paper may be found at the IAIS website (www.iaisweb.org).

This post written by John Black.

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BURDEN RESTS WITH REINSURER TO SHOW LESSER LIABILITY UNDER RETROCESSIONAL INSURANCE AGREEMENT

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On January 23 and April 12, 2012, we reported on orders concerning liability and damages in a suit involving disputed payment obligations under reinsurance and retrocessional agreements between Munich Re and Tower Insurance. The court recently addressed the parties’ motions in limine designed to determine whether Munich must affirmatively prove that Tower was 100% liable for claims under one of the retrocessional agreements at issue, or whether a burden rested with Tower to show that it was obligated to pay only 10% under certain conditions provided in the agreement. The court interpreted the agreement’s language and found that the burden of proof belonged to Tower because the 10% indemnity provisions constituted policy exclusions, which, under state law, must be “construed narrowly with the onus on the insurer to bring the case within the exclusion.” Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-02598 (USDC D.N.J. July 17, 2012).

This post written by Michael Wolgin.

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DISTRICT COURT CONFIRMS REINSURANCE ARBITRATION AWARD AGAINST TWO BRAZILIAN COMPANIES

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Several developments have occurred in the ongoing reinsurance dispute between Aurum Asset Managers and several Brazilian companies. In April, Aurum filed a petition in federal district court to confirm an amended arbitration award, entering judgment in Aurum’s favor, and granting Aurum equitable relief. On June 11th, the district court denied the award as against respondent Banco do Estado do Rio Grande do Sul. The court, however, confirmed the award as against two respondents (Bradesco Companhia de Seguros and Bradesco Auto/Re Companhia de Seguros) unless and until the court received arguments from any party opposing the confirmation prior to June 22nd. On June 26th, having not heard any arguments opposed, the court confirmed the final arbitration award and entered judgment against the two Bradesco entities. Aurum Asset Managers, LLC v. Banco do Estado do Rio Grande do Sol, No. 08-mc-102 (USDC E.D. Pa. June 12, 2012 & June 26, 2012).

This post written by John Black.

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DISTRICT COURT REJECTS APPLICATION OF NLRB HORTON CASE ON CLASS ARBITRATION WAIVERS

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We previously posted on the NLRB’s rejection of the application of the Supreme Court’s Concepcion decision in contracts subject to the National Labor Relations Act, invalidating a class arbitration waiver which Concepcion arguably would have upheld (In Re D.R. Horton, Inc.). A district court has refused to follow Horton in an action alleging that the assessment of redemption fees to cash voucher payments rendered wages below the legal minimum, ruling instead that temporary staffing service employees must arbitrate their claims on an individual basis against their employer pursuant to their employment agreements. Relying on Concepcion, the court rejected Plaintiffs’ argument that collective-arbitration waivers in adhesion contracts were per se unconscionable and ruled that the Federal Arbitration Act preempted the state’s unconscionability doctrine in both the consumer contract and employment contract contexts. The district court also excused Defendants’ fifteen-month delay in invoking arbitration, holding that Concepcion constituted a post-commencement “intervening change in the law” that unambiguously weighed against a finding of waiver.

In an opinion on a motion for reconsideration, Plaintiffs argued that Horton prohibits employers from compelling employees to waive their right to pursue collective litigation of employment claims in both arbitral and judicial forums, rendering the arbitration clause void. The court found the NLRA argument procedurally defective because it lacked binding authority and substantively defective because neither state nor federal courts possess jurisdiction over claims based on activity that is arguably subject to the NLRA’s exclusive collective action provisions. Brown v. Trueblue, Inc., No. 10-CV-0514, 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012).

This post written by Rollie Goss.

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VACATION OF ARBITRAL AWARD REFUSED DUE TO PARTY’S FAILURE TO CHALLENGE AWARD IN FOREIGN FORUM

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Parties to a stock purchase agreement between two British Virgin Islands companies arbitrated a dispute in Miami, Florida. One party was required to pay a $11 million award. The prevailing party applied to the High Court of the British Virgin Islands (“the BVI court”) for enforcement of the award, pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, while the losing party moved to vacate the award in the U.S. District Court for the Southern District of Florida. Although the BVI court offered to stay the action pending the resolution of the district court case if the losing party posted bond, the losing party failed to either provide the requested $7 million security or appeal the order. The BVI court then granted the application and entered a judgment on the award, which the losing party failed to appeal. The BVI court appointed liquidators, who collected enough funds to satisfy the judgment. The losing party then moved to reopen the vacatur proceedings, which the district court had stayed at the liquidators’ request. The district court reopened the case and granted the prevailing party’s motion to dismiss, holding that it did not have subject matter jurisdiction over the motion to vacate the award.

On appeal, the Eleventh Circuit affirmed the dismissal on other grounds, concluding that the case was prudentially moot, as the district court would be unable to provide effective relief, holding that a party may not sit idly by while an arbitration award is confirmed and only then seek to vacate it. Emphasizing the uniqueness of the facts of the present case, the court stated that the failure to act in the BVI court and consent to a stay of the district court proceeding allowed the BVI case to take precedence. Furthermore, the BVI court had indicated that vacatur in the district court would not affect its final judgment, except in the case of fraud or mistake, which, combined with losing party’s own failure to act, made the likelihood of meaningful relief in the district court virtually non-existent. Ingaseosas Int’l. Co. v. Aconcagua Investing Ltd., No. 11-10914 (11th Cir. July 5, 2012).

This post written by Rollie Goss.

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