Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

NEW YORK HIGH COURT DISMISSES DONNELLY ACT CLAIMS AGAINST EQUITAS

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New York’s Court of Appeals reversed the Appellate Division of the Supreme Court and upheld the trial court’s dismissal of plaintiff’s claim against Equitas under the Donnelly Act, New York’s antitrust law. The plaintiff, a cedent under certain retrocessional agreements with various Lloyd’s syndicates covering non-life exposures, alleged that Equitas engaged in antitrust violations because it controlled the market for retrocessional and reinsurance claims adjustment for these types of so-called “long tail” claims, such as asbestos-related injury claims. Equitas was formed and approved by European governmental authorities, as a claims adjustment facility for the Lloyd’s syndicates, in order to manage exposures which threatened the financial stability of syndicates, and the market itself. The high court held that even if there were a “market” for the claims handling function performed by Equitas (which it found dubious), it held that any such market would not have a sufficient nexus with New York State to warrant extra-territorial application of its antitrust law. Global Reinsurance Corp. v. Equitas, Ltd., No. 2012-53 (N.Y. March 27, 2012).

This post written by John Pitblado.

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STATE LEGISLATIVE UPDATE ON REINSURANCE COLLATERAL REFORM

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In the first quarter of 2012, a number of state legislatures introduced bills proposing to amend state credit for reinsurance laws following, in large measure, the recently amended NAIC Model Law #785. Connecticut (HB 5484), Georgia (SB 385), Illinois (HB 3987 & SB 2864), Louisiana (HB 849), Missouri (HB 1936), and Virginia (HB 1139) all proposed legislation that would, among other changes, allow full credit to insurers for insurance ceded to unauthorized reinsurers that satisfy certain financial strength ratings, without the need to post full collateral. Following the amended NAIC Model Law, each of the bills also contains provisions increasing oversight of the nature and extent of risk ceded by domestic insurers. Only the Virginia bill, however, included a provision based on a section in the Model Law clarifying that the reduced collateral provisions do not have retroactive application.

On a related note, the New Jersey Department of Banking and Insurance proposed new rules and amendments (NJAC 11:2-28.4) to implement the previously enacted credit for reinsurance law in that state. In particular, the rules provide the standards by which a reinsurer may be deemed a “certified reinsurer” for purposes of insurers taking credit for reinsurance, tracking the amendments NAIC Model Regulation #786. The proposed rules also include provisions from the amended Model Law that had not previously been incorporated into the New Jersey law.

As to the current status of the bills, the Virginia bill passed both chambers and was signed into law on April 4, 2012. All other bills are at varying stages in the legislative process, with the Georgia bill farthest along, having been passed by both chambers and sent on April 5, 2012 for the Georgia governor’s signature. We will report on whether the still-pending bills and rules become law in a later post.

This post written by Michael Wolgin.

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COURT REJECTS REPETITIVE CHALLENGE TO CLASS ARBITRATION UNDER STOLT-NIELSEN

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After losing on essentially the same issue in an appeal to the Fourth Circuit Court of Appeals, the defendants in an ongoing class arbitration Amerix Corporation and Genus Credit Management initiated an action on the eve of termination of the class arbitration attacking the propriety of class arbitration, alleging that the arbitrator was exceeding the scope of his authority as defined in Stolt-Nielsen and Concepcion. They also filed a motion under Fed. R. Civ. P. 60(b) seeking review of the court’s decision declining to vacate the arbitrator’s initial Clause Construction Award. The class claimants moved to dismiss this new action, filed an opposition to the Rule 60(b) motion, and moved for attorneys fees.

The District Court concluded that res judicata could apply to bar reconsideration of the clause construction, which the court declined to vacate. Further, the court explained that Stolt-Nielsen did not present a sufficient change to revisit prior issues, and thus, the law of the case doctrine precluded relitigating the construction of the arbitration clause. Finally, the court held that Stolt-Nielsen itself provided another ground for dismissing the new action. Specifically, the court ruled that the arbitrator’s decision was based on applicable law and contract principles, so his determination to allow class arbitration did not run afoul of Stolt-Nielsen. Unlike Stolt-Nielsen, the agreement was not silent as to the parties intent, which the arbitrator was able to determine in the instant case. Thus, the new action was dismissed. Additionally, the court denied further review under Rule 60(b) and denied the motion for attorneys fees. Amerix Corp. v. Jones, Case No. 11-02844 (USDC D. Md. Jan. 17, 2012).

This post written by John Black.

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COURT OF APPEALS VACATES $185 MILLION ARBITRATION AWARD WHERE CLAIMANT FAILED TO ABIDE BY TREATY’S PREREQUISITE OF BRINGING A LAWSUIT IN THE ARGENTINEAN COURTS

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The United States Court of Appeals for the D.C. Circuit has vacated an arbitration award in excess of $185 million issued against the Republic of Argentina and in favor of a British company, BG Group, PLC, that had invested in gas distribution in Argentina. It reversed a district court order that, as we reported earlier, had confirmed the award. The court cited BG Group’s failure to abide by a provision in the governing Bilateral Investment Treaty between Argentina and the U.K. requiring disputes to be submitted to an Argentinean court and litigated for eighteen months without resolution before an arbitration could be commenced. The appellate court further rejected the arbitration panel’s decision that it would be “senseless” to comply with this provision, which the panel based on an opinion, rendered by a former Argentinean Attorney General and Minister of Justice, that it could take six years to resolve BG Group’s claims in the Argentinean courts. The court of appeals further held that the district court erred in determining that the arbitrators properly decided the threshold question of arbitrability because there was no clear and unmistakable evidence that the arbitrators should decide the issue where the precondition of bringing the dispute to court had not been met. Republic of Argentina v. BG Group, PLC, No. 11-7021 (D.C. Cir. Jan. 17, 2012).

This post written by Ben Seessel.

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“RIGHT TO KNOW” LAW INAPPLICABLE TO RECORDS SOUGHT IN INSURER’S LIQUIDATION PROCEEDINGS

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A court vacated an order of the Pennsylvania Office of Open Records that denied a request for documents in the possession of the department of insurance related to the drafting of the reinsurance offset guidelines of a liquidating insurer. The OOR had found that the documents were exempt from disclosure as “internal predecisional deliberations” in the possession of the department, which was serving as the insurer’s statutory liquidator. On appeal, while the court tended to agree with the OOR’s reasoning, it found that the state disclosure law was “inapplicable to rehabilitation or liquidation proceedings because [the records] are solely within the control of the court under the Insurance Act.” As a result, the court held that it, and not the OOR, had jurisdiction over the documents relating to the drafting of the guidelines. Greenberger v. Pennsylvania Insurance Department, Case No. 931 C.D. 2011 (Pa. Commw. Ct. March 7, 2012).

This post written by Michael Wolgin.

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