Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

PROSECUTORS TO DISMISS INDICTMENT AGAINST GEN RE AND AIG EXECUTIVES

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On August 2, 2011, we reported on a decision by the United States Court of Appeals for the Second Circuit to vacate the criminal convictions of Gen Re and AIG executives stemming from an allegedly fraudulent finite reinsurance transaction designed to improve AIG’s financial statements. On June 22, 2012, the defendants entered into agreements with prosecutors to defer prosecution and dismiss the indictments after passage of one year, subject to the defendants’ respective payment of fines ranging from $250,000 to $100,000, and compliance with other conditions. The agreements identified “relevant considerations” to their execution, namely, (a) the Second Circuit’s vacatur decision, (b) the 12 months time that has now elapsed since the defendants’ conduct, (c) the significant resources required to conduct a retrial, (d) the defendants’ payment of fines, (e) SEC penalties, and (f) defendants’ admission that certain “aspects” of the reinsurance transaction were fraudulent. United States v. Ferguson, Case No. 3:06CR137 (USDC D. Conn. June 22, 2012).

This post written by Michael Wolgin.

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MULTI-STATE COMPACT FOR SURPLUS LINES TAX COLLECTION (NIMA) IS SHEDDING MEMBERS

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Several states have recently withdrawn from the Nonadmitted Insurance Multi-State Agreement (“NIMA”), the interstate compact sponsored by the NAIC to collect and allocate surplus lines tax revenues consistent with Dodd Frank’s Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). We have reported earlier on NIMA’s development and progress. States that have withdrawn include Alaska, Connecticut, Mississippi, Nebraska and Hawaii. Departing states have cited several reasons for withdrawing: the lack of a financial benefit from participating; the increased burden and cost in overseeing and auditing NIMA’s Clearinghouse; increased costs imposed on brokers and insureds from the Clearinghouse’s service fee; and conflict with state insurance laws on reporting requirements. Mississippi is among the states withdrawing notwithstanding that its insurance commissioner was a principal officer of NIMA. NIMA’s remaining members include only Florida, Louisiana, Nevada, Puerto Rico, South Dakota, Utah and Wyoming.

This post written by Ben Seessel.

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CLASS ACTION HALTED AFTER CERTIFICATION GRANTED AND ORDERED TO INDIVIDUAL ARBITRATION IN LIGHT OF CONCEPCION

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The Plaintiff brought a putative class action against his employer, alleging various Labor Code violations, in California State Court. Citing the parties’ arbitration agreement and class arbitration waiver, the Defendant moved to compel individual arbitration, which the trial court granted. Plaintiff appealed. Shortly thereafter, in 2007, the California Supreme Court decided Gentry v. Superior Court, which held that class action waivers should not be enforced if class arbitration was a more effective way to vindicate the class members’ claims than individual arbitration. The Appellate Court thus reversed and remanded in light of Gentry. After the case proceeded and the trial court certified the class, the U.S. Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion. The defendant renewed its motion to compel arbitration in light of Concepcion. The trial court granted the motion, and the Appellate Court affirmed. Iskanian v. CLS Transportation Los Angeles, LLC, No. B23158 (Cal. App. Ct. June 4, 2012).

This post written by John Pitblado.

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INSURANCE POLICIES CONTROL CALCULATION OF “LOSS” APPLICABLE TO “EXCESS OF LOSS” REINSURANCE

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In a case involving disputed claims made under “excess of loss” facultative reinsurance certificates, a court recently held that the reinsurer’s liability for “losses” should follow the meaning of “loss” and “expense” in the underlying insurance polices, rather than the meanings of those terms as used in the reinsurance certificates. The dispute surrounded whether the reinsurance covered litigation expenses, in addition to the indemnity paid under the underlying insurance policies. The court analyzed the certificates and determined that the liability of the reinsurer in this case should be determined by the scope of liability provided by the underlying insurance policies. Because the reinsurer “had copies of the underlying insurance polices, or at the very least had access to the underlying insurance policies” the reinsurer could be charged with knowledge of the policies’ terms. The court distinguished reinsurance expressly designated as “non-current,” or reinsurance that limits in the certificates coverage to only specific delineated risks. In that scenario, the court explained, “loss” and “expense” would be determined by the certificate, as opposed to the underlying policies. ACE Property & Casualty Insurance Co. v. R & Q Reinsurance Co., Case No. 11081920 (Pa. Ct. Comm. Pl. May 15, 2012).

This post written by Michael Wolgin.

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MOTION TO DISMISS CLAIM FOR BREACH OF CONFIDENTIALITY AGREEMENT IN REINSURANCE ARBITRATION DENIED

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INA Reinsurance recently moved to dismiss or to stay an action initiated by Utica Mutual Insurance arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. Utica alleged that INA breached the confidentiality agreement put in place in the reinsurance arbitration by improperly disclosing confidential information in a separate lawsuit against a third party. The federal district court denied INA’s motion to dismiss or to stay, finding that the Supreme Court’s Colorado River abstention doctrine inapplicable because the defendants in the two lawsuits were unrelated and the claims were significantly different. Further, the district court concluded that Utica was not required to pursue its claims for breach of the confidentiality agreements in the pending arbitration because there exists clear language in the confidentiality agreements authorizing Utica to pursue claims for breach in a judicial forum. Utica Mutual Insurance Co. v. INA Reinsurance Co., No. 12-cv-00194 (USDC N.D.N.Y. Apr. 24, 2012).

This post written by John Black.

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