Week's Best Posts

BANKRUPTCY COURT AWARDS PRE- AND POST-JUDGMENT INTEREST ON REINSURER’S CLAIM FOR UNPAID PREMIUM

January 31, 2011 by Carlton Fields

Granite Reinsurance Company won an award for unpaid premiums from Acceptance Insurance Company (in rehabilitation) in a bankruptcy adversary proceeding. The unpaid premiums amounted to $9 million on a $15 million dollar policy that was purchased to cover Acceptance for five years. The parties had agreed to a $3 million per year premium payment schedule, due at the beginning of each of the five years covered under the reinsurance agreement. However, a dispute arose as to the calculation of pre-judgment interest on the award. The bankruptcy court awarded Granite Re pre-judgment interest calculated from the date each $3 million dollar premium payment became due (a different date for each of the three unpaid premium payments), and also awarded post-judgment interest from the date of judgment. In Re Acceptance Ins. Cos., Inc. No. BK-of-80059 (USDC Bankr. D. Neb. Jan. 19, 2011).

This post written by John Pitblado.

DISTINCT CLAIMS AGAINST REINSURANCE BROKERS WERE NOT IMPERMISSIBLY COMMINGLED

January 25, 2011 by Carlton Fields

In September, 2010, Instituto Nacional de Seguros filed an amended complaint against two reinsurance brokers (Hemispheric Reinsurance and Howden Insurance) alleging breach of contract, negligence, and breach of fiduciary duty, alleging that the two brokers failed to provide reinsurance slips and other requested information, and when finally forced to do so, the documents revealed significant brokerage overcharges. Howden subsequently filed a motion to dismiss. A Florida state court General Magistrate has recommended the denial of the motion, finding that INS did not impermissibly commingle separate and distinct claims in a single count. Instituto Nacional De Seguros v. Hemispheric Reinsurance Group, LLC, Case No. 10-33653 (Fla. Cir. Ct. Dec. 13, 2010).

This post written by John Black.

DISMISSAL REVERSED IN NEW YORK RETROCESSIONAL REINSURANCE CASE

January 24, 2011 by Carlton Fields

Global Re filed a suit in the New York Supreme Court alleging that Equitas (and a number of co-defendants) were the hub of a conspiracy in violation of New York state antitrust law. The market in question is a worldwide market for non-life retrocessional reinsurance coverage, including the purchase, sale, and service of such coverage. Following a dismissal of the action for lack of an antitrust injury, plaintiff appealed. The Supreme Court Appellate Division reversed the dismissal, finding plaintiff’s allegations sufficient to survive a motion to dismiss. The Court specifically held that Global Re sustained antitrust injury because the quality of what it purchased (retrocessional coverage) was adversely affected by an agreement eliminating competition over claims handling. Global Reinsurance Corp. v. Equitas Ltd., Case No. 600815/07 (N.Y. Sup. Ct. Jan. 18, 2011).

This post written by John Black.

STATE SURPLUS LINES REGULATION AND REINSURANCE ACCOUNTING CHANGES

January 18, 2011 by Carlton Fields

The following are selected State bills and regulations that were recently introduced or adopted on the topic of reinsurance.

Nonadmitted and Reinsurance Reform: In response to the mandates of the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act, the legislatures of Connecticut (Bill No. 50), Kentucky (Bill No. 167), and North Dakota (Bill No. 1123) have introduced bills to establish requirements that are consistent with the federal law for surplus lines insurers doing business in the state. Kentucky’s bill is modeled after the surplus lines proposal approved by the National Conference of Insurance Legislators (“NCOIL”). At this time, it is unclear based on what has been published whether the Connecticut or North Dakota bills follow the surplus lines proposal approved by NCOIL, the proposal approved by the National Association of Insurance Commissioners or are unlike either of those proposals.

Reinsurance Covering Title Insurance Policies: Proposed legislation (Bill No. 322) relating to the requirements for reinsurance contracts covering title insurance policies was introduced in the Texas Senate. The proposed legislation amends Section 2551.302 of the Texas Insurance Code to remove the requirement that prior approval of the form of reinsurance contract be obtained from the Insurance Department. The proposed legislation also repeals Section 2551.303 concerning additional requirements regarding the approval and form of reinsurance contract.

Reinsurance and Accounting Practices and Procedures Manual: Pursuant to emergency rulemaking, the New York Insurance Department adopted amendments to New York Insurance Regulation No. 172 (11 NYCRR 83) to incorporate by reference the NAIC Accounting Practices and Procedures Manual as of March 2010, except as provided in 11 NYCRR 83.4. The Manual includes a body of accounting guidelines referred to as Statements of Statutory Accounting Principles (“SSAPs”). Section 83.4 sets out “Conflicts and Exceptions” to the Manual, and makes clear that in instances of conflict or deviation, New York statutes and regulations control. Section 83.4 is amended, as it relates to reinsurance, to adopt paragraph 25 of SSAP No. 61, “Life, Deposit-Type and Accident and Health Reinsurance,” with the following addition:

If a ceding insurer that receives credit for reinsurance by way of deduction from its reserve liability remits the associated reinsurance premiums for coverage beyond the paid-to-date of the policy, the ceding insurer may record an asset for the portion of the gross reinsurance premium that provides reinsurance coverage for the period from the next policy premium due date to the earlier of: (1) the end of the policy year or (2) the next reinsurance premium due date. The asset shall be admitted as a write-in asset to the extent that the reinsurer must refund premiums to the ceding insurer in the event of either the termination of the ceded policy or the termination of the reinsurance agreement.

This post written by Karen Benson.

COURT ISSUES PROTECTIVE ORDER OVER DIRECT INSURER’S REINSURANCE CLAIM AND RESERVE INFORMATION

January 17, 2011 by Carlton Fields

Teck Metals Ltd. sued London Market Insurance in a direct insurance coverage action arising from alleged environmental pollution claims asserted by Federal, State, and Tribal authorities against Teck. London Market declined coverage for the claims under certain umbrella liability policies. Among a morass of various discovery issues in the case (some of which are the subject of a pending interlocutory appeal to the Ninth Circuit), Teck sought information from London Market pertaining to its notification of the claims to its reinsurers, as well as certain reinsurance claims and reserve information. A Magistrate recommended that the date, method of transmittal, and author of London Market’s first communication to its reinsurers is relevant to late notice issues and should be provided, but that reinsurance reserves and claim information was not relevant. The district court adopted the magistrate’s recommendations with some agreed-upon compromises, including a protective order regarding the reinsurance information. Teck also made a request under the Hague Convention to obtain the depositions of three London Market-affiliated foreign nationals, including two claims administrators and an underwriter. Teck Metals, Ltd. v. London Market Insurance, Case No. 05-411 (USDC E.D. Wash. Nov. 19, 2010).

This post written by John Pitblado.