Week's Best Posts

SUPREME COURT REQUIRES APPLICATION OF FAA IN STATE COURTS

November 21, 2011 by Carlton Fields

The U.S. Supreme Court has issued a per curiam decision holding that the Federal Arbitration Act must be enforced in both state and federal courts. In this case, a Florida state court of appeal upheld a trial court’s refusal to compel arbitration after determining that two of the four claims in a complaint were nonarbitrable. The Supreme Court cited prior precedent requiring that courts send arbitrable claims to arbitration even if it will lead to piecemeal litigation. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985). The Court vacated the judgment and remanded the case so that the lower court could determine if any of the claims were arbitrable. KPMG, LLP v. Cocchi, No. 10-1521, 565 U.S. – (U.S. Nov. 7, 2011).

This post written by John Black.

NAIC ADOPTS REINSURANCE COLLATERAL REDUCTION AMENDMENTS TO CREDIT FOR REINSURANCE MODEL LAW AND MODEL REGULATION

November 15, 2011 by Carlton Fields

On November 6, 2011, the NAIC Executive Committee-Plenary adopted revisions to the NAIC’s Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786). The revisions, as finally adopted, are substantially in the form covered in our Special Focus analysis of the revisions adopted in September by the Financial Condition (E) Committee, with one notable addition. The Model Law, in new Section 2(J), now imposes certain notification requirements on a ceding company when its reinsurance recoverables from a single reinsurer (or group of assuming companies) exceed specified levels of the ceding company’s surplus or gross written premium. Note: The redlining in these documents is from the NAIC, and apparently shows the differences between the just adopted versions and the previously existing text of the model law and model regulation.

This post written by Anthony Cicchetti.

REINSURER LIMITED TO COMPLAINT’S REQUEST FOR APPOINTMENT OF NEUTRAL UMPIRE

November 14, 2011 by Carlton Fields

A dispute arose between Century Indemnity Company and Everest Reinsurance Company over reinsurance coverage for certain asbestos claims. The parties each selected an arbitrator pursuant to the procedure set forth in their reinsurance treaty. Unable to reach agreement on the selection of a neutral umpire, Everest filed an action seeking appointment of an umpire or, in the alternative, to compel Century to participate in an ARIAS neutral umpire selection process. After Everest filed its complaint, however, Century agreed to the ARIAS process as part of a global agreement involving the arbitration (the “Formosa Arbitration”), and two other pending arbitrations (the “Congoleum Arbitration” and the “Flintkote Arbitration”), mooting the issue. Everest thereafter moved to enforce the global agreement, complaining that Century had sought to consolidate the Congoleum Arbitration with another arbitration that was not part of the agreement, and in which a panel of arbitrators had already been selected, circumventing the agreed-upon panel selection process. The court denied Everest’s motion on the basis that it was outside the complaint’s scope, which merely sought appointment of a neutral umpire in the Formosa Arbitration. To obtain relief regarding the Congoleum Arbitration, Everest could file a motion with the Congoleum Arbitration panel or in the court where other motions relating to that proceeding were pending. Everest Reinsurance Co. v. Century Indemnity Co., Case No. 11-2789 (USDC D.N.J. Oct. 31, 2011).

This post written by Ben Seessel.

PROGRESS IN DODD-FRANK IMPLEMENTATION

November 8, 2011 by Carlton Fields

A number of activities of potential significance have occurred in the implementation of the Dodd-Frank Act:

Surplus Lines Regulation:

The Kentucky Insurance Commissioner has proposed a compromise position which would result in the merger of the NAIC sponsored NIMA and the NCOIL sponsored SLIMPACT interstate compacts into a single agreement for the regulation of surplus lines insurance. Many questions remain, including whether such a compromise will be agreed to by the two competing groups, whether the new entity would regulate anything other than premium taxes, and whether the states with the greatest percentage of surplus lines premium tax collections will join such a compact and voluntarily give up a substantial part of their tax revenues.

Systemic Regulation of Companies:

The Financial Stability Oversight Council has a final rule exposed for comment addressing the factors and process for the designation of certain non-bank financial companies for supervision and prudential regulation by the Federal Reserve. It proposes a three step process, with all companies with total consolidated assets of more than $50 billion which satisfy one or more of five financial ratios or thresholds satisfying the first step of the process, with no exemption for any industry or type of company.

The Federal Reserve and the FDIC have approved a final rule requiring that bank and non-bank financial companies which will be subject to its prudential regulation under Dodd-Frank prepare and submit a “resolution plan,” i.e., liquidation plan, as required by Dodd-Frank.

Liquidation of Insurance Companies:

The NAIC is considering for final approval guidelines for state insurance departments designed to assist departments prepare for the implementation of the receivership provisions of Dodd-Frank as they may apply to insurance companies. Although insurance companies would be liquidated pursuant to applicable state law, the timing of the initiation of a liquidation and certain administrative aspects of a liquidation would occur pursuant to the provisions of Dodd-Frank, and would occur much faster than in liquidations conducted strictly under existing state laws.

Insurance Regulation Modernization:

Dodd-Frank requires that the Federal Insurance Office (“FIO”) submit a report to Congress on how to “modernize” and improve the regulation of insurance in the United States, and the FIO has issued a request for comments on that topic. Although the FIO’s Director has testified that his office is not an insurance “regulator” or “supervisor,” the prospect of such a report may cause unease among some advocates of the state regulation of insurance.

This post written by Rollie Goss.

STATE INSURANCE LAW THAT PRECLUDES ARBITRATION PREEMPTED IN FAVOR OF THE FAA UNDER THE LIABILITY RISK RETENTION ACT

November 7, 2011 by Carlton Fields

A court recently compelled arbitration in a dispute between an insured and an insurer-risk retention group, concluding that the McCarren-Ferguson Act did not mandate the enforcement of a state anti-arbitration law over the FAA and broad arbitration agreements between the parties. The court held that while McCarran-Ferguson was met to the extent that (1) the federal law (the FAA) impaired the state insurance law, and that (2) the FAA does not clearly relate to the “business of insurance,” here the relationship between the parties was not a classic insurance relationship. The insurer was not a public offering insurance company, but rather a risk retention group, which necessitates the application of the federal Liability Risk Retention Act, a law that preempts state laws that impair the “formation or operation” of risk retention groups. The court concluded that such an impairment existed in this case because the state law prohibiting arbitration would significantly increase the costs of litigation, adversely affecting the risk retention group’s operations. Central Claims Service, Inc. v. Claim Professionals Liability Insurance Co., Case No. 10-04672 (USDC E.D. La. Sept. 2, 2011).

This post written by Michael Wolgin.