Week's Best Posts

RHODE ISLAND COURT APPROVES COMMUTATION OVER CHALLENGE TO CONSTITUTIONALITY

May 10, 2011 by Carlton Fields

GTE Reinsurance Company, in runoff since 1990, proposed a commutation plan regarding its remaining potential property-casualty related liabilities. The commutation plan is essentially a statutory “solvent scheme of arrangement.” Two of GTE’s cedents objected. One challenged Rhode Island’s Voluntary Restructuring of Solvent Insurers Act, G.L. 1956 § 27-14.5-1 as unconstitutional under the Contract Clause and Due Process Clause of the Rhode Island and federal Constitutions. The court rejected the challenges, crediting the large majority of cedents (34 out of 39) that voted in favor of the plan, and noting that, while some rights under the contracts between the objectors and GTE would be impaired by the commutation, they would not be “substantially impaired” – the standard for a contract clause challenge. The court also found the Act to have a legitimate public purpose, and to employ reasonable and necessary means to carry out that purpose. It rejected the due process argument for essentially the same reasons, noting that a “Contract Clause inquiry is more searching than the rational basis review employed in a due process challenge.” In re GTE Reinsurance Co. Ltd., No. PB 10-3777 (R.I. Super. Ct. Apr. 25, 2011).

This post written by John Pitblado.

COMMUTATION AGREEMENT EXTINGUISHES REINSURANCE LIABILITIES, BUT REINSURER CANNOT RECOUP VOLUNTARY PAYMENTS MADE POST-COMMUTATION

May 9, 2011 by Carlton Fields

Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).

This post written by Ben Seessel.

COURT COMPELS DISCOVERY IN REINSURANCE DISPUTE INVOLVING MUNICH RE

May 3, 2011 by Carlton Fields

Recently, the US District Court for the District of New Jersey granted defendant American National Insurance’s motion to compel discovery responses, extend discovery, and for a protective order. The dispute arose out of a reinsurance contract where, according to plaintiff Munich Re, defendant agreed to reinsure certain liabilities arising as a result of Munich Re’s participation in a Workers Comps Excess of Loss Reinsurance Agreement. Granting American National’s motion, the Court ordered that Munich Re produce a 30(b)(6) designee for deposition regarding relating to whether plaintiff will pay certain claims (and thus whether defendant will be liable) and provide substantive responses to interrogatories, rather than merely citing to all documents produced. The Court also extended the discovery period and granted American National’s motion for protective order pending an in camera review of the purported privileged documents. Munich Reinsurance Am., Inc. v. American Nat. Ins. Co., Case No. 09-6435 (D. N.J. Apr. 18, 2011).

This post written by John Black.

SUPREME COURT HOLDS STATE UNCONSCIONABILITY LAW PREEMPTED BY FAA IN AT&T v. CONCEPCION

May 2, 2011 by Carlton Fields

On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.

Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.

Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)

This post written by John Black.

TWO ADDITIONAL BERMUDA REINSURERS ADMITTED UNDER FLORIDA’S REDUCED COLLATERAL REQUIREMENTS

April 26, 2011 by Carlton Fields

Alterra Bermuda Limited and Arch Reinsurance Limited were both approved by Consent Order of the Florida Office of Insurance Regulation, to become the eleventh and twelfth reinsurers, respectively, admitted under Florida’s law allowing foreign reinsurers to post reduced collateral, upon demonstration that they are financially sound and highly rated by eligible ratings institutions. As set forth in the respective Orders, Alterra is a Bermuda-based reinsurer with capital and surplus in excess of $1.5 billion, and Arch is a Bermuda-based reinsurer with over $4.2 billion in capital and surplus. In re: Alterra Bermuda Limited, No. 115697-11-CO (Fla. O.I.R. March 23, 2011); In re: Arch Reinsurance Limited, No. 115570-11-CO (Fla. O.I.R. March 31, 2011).

This post written by John Pitblado.