Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT REFUSES TO MODIFY CONFIDENTIALITY ORDER PROTECTING INSURER’S AND REINSURER’S TRADE SECRETS FROM DISCLOSURE

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Pursuant to a confidentiality order entered by the federal district court, Everest National Insurance Company and Everest Reinsurance Company produced trade secrets, claims data, and other confidential information to Centrix Consolidated LLC and other parties to the litigation. Centrix, concurrently involved in liquidation proceedings in bankruptcy court, was served with a document request by the liquidating trustee for all documents produced in the Everest case, including all documents designated as confidential under the court’s protective order. Centrix looked to the court that had issued the confidentiality order for guidance on how to proceed. The court refused to modify its confidentiality order, finding that Everest had a legitimate business interest in maintaining the confidentiality of the requested documents. Everest Nat’l Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J. Oct. 28, 2010).

This post written by Ben Seessel.

YOU SNOOZE YOU LOSE: “ACCOUNT STATED” DOCTRINE BARS RECOUPMENT OF PAST AMOUNTS PAID UNDER VOIDED FACULTATIVE AGREEMENT

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Seaton Insurance Company sued its reinsurer, Yosemite Insurance Company, for breach of contract. Seaton alleged that Yosemite breached two facultative reinsurance agreements the parties entered into in the 1970s. Yosemite paid claims under the agreements until 2008, when it notified Seaton of its belief that the agreements were void because Seaton had violated the agreements’ retention warranties. When Seaton sued, Yosemite counterclaimed, seeking repayment of funds paid since inception. Both parties moved for summary judgment. The court agreed with Yosemite as to one of the facultative agreements, finding that Seaton breached the retention warranty, voiding that agreement and precluding any future payments due. Disputed factual questions, however, impacted proper interpretation of the other agreement, so summary judgment was improper. However, citing California’s “account stated” doctrine – a waiver principle applied to certain contractual arrangements – the court denied that aspect of Yosemite’s counterclaim seeking repayment of past amounts paid under both agreements, noting that “acquiescence to the debt arises from a failure to object within a reasonable time such that the law implies an agreement that the account is correct as rendered.” Yosemite did not identify any issue with its liability until 2007, and thus could not recoup payments made under either agreement before that time. Seaton Ins. Co. v. Yosemite Ins. Co., No. 08-542-S (USDC D.R.I. Nov. 4, 2010).

This post written by John Pitblado.

SHOULD REINSURERS BE SUBJECT TO SYSTEM RISK REGULATION UNDER THE DODD-FRANK ACT?

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The Financial Stability Oversight Council has been receiving comments on the implementation of the systemic risk provisions of the Dodd-Frank Act. Many property and casualty companies and trade associations for both property and casualty and life insurers (e.g., the Property Casualty Insurers Association of America and the American Council of Life Insurers) have submitted comments contending that companies in that industry should not be subject to such regulation. The Reinsurance Association of America has submitted a comment supporting those submissions, and arguing that the reinsurance industry does not present a potential for systemic risk to the economy, and hence should be exempted from such regulation. The RAA bases its argument, in part, on analyses from the Group of 30 and the International Association of Insurance Supervisors, which have been the subject of posts to this blog. The popular wisdom seems to be that the regulators, being concerned of being under inclusive, are erring on the side of being over inclusive in this definition effort, which will make any industry-wide exemption difficult to obtain.

This post written by Rollie Goss.

THIRD CIRCUIT AFFIRMS VACATUR OF REINSURANCE CLAIM ARBITRATION AWARD

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Platinum Underwriters appealed to the Third Circuit the vacatur of an arbitration award in Platinum’s dispute against PMA Capital over a “deficit carry forward” provision in a reinsurance agreement. The Third Circuit affirmed the District Court’s decision, finding that the arbitrators had exceeded their powers under the Federal Arbitration Act in awarding Platinum $6 million, which effectively eliminated the “deficit carry forward” provision, in violation of the standard that an award must be “rationally derived from the agreement between the parties or from the parties’ submissions to the arbitrators.” The Court found that “this relief exceeded the arbitrators’ powers because it was not sought by either party, and was completely irrational because it wrote material terms of the contract out of existence.” The Court agreed with the District Court that the “honorable engagement” language in the contract did not justify the elimination of the agreed upon contractual provision. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-3963 (3d Cir. Nov. 8, 2010).

This post written by John Black.

SUPREME COURT HEARS ORAL ARGUMENT ON THE RELATIONSHIP BETWEEN THE FAA AND STATE LAW REGARDING UNCONSCIONABILITY OF CLASS ARBITRATION WAIVERS

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On November 9, the Supreme Court heard oral argument in AT&T Mobility LLC v. Concepcion, an appeal from an opinion of the Ninth Circuit. The issue, as framed in the briefs, is whether the Federal Arbitration Act (“FAA”) preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. The Supreme Court’s docket reflects the filing of 25 amicus briefs. It is hoped that this case will clarify the relationship between the Federal Arbitration Act and state laws and opinions holding certain arbitration provisions to be unenforceable as unconscionable. The transcript and audio recording of the oral argument are both available. Some vote counters at the oral argument suggested that the questioning by the Justices indicated deference to state law as opposed to the FAA. AT&T Mobility v. Concepcion, No. 09-893 (U.S.).

This post written by Rollie Goss.