Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

FDIC ENGAGED IN DODD-FRANK RULEMAKING THAT MAY AFFECT INSURERS AND REINSURERS

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The FDIC has published a Notice of Proposed Rulemaking proposing rules for the implementation of the Dodd-Frank Act provisions providing that the FDIC may, as a receiver, “resolve” (i.e., liquidate) covered financial companies. The proposed rules address very limited topics, encompass six sections, are only one and one-half pages of the Federal Register in length, and obviously are not the only rules that the FDIC will propose to implement its resolution authority under DFA. Dodd-Frank provides that while the liquidation of any insurance company could be initiated by the Secretary of the Treasury, “if an insurance company is a covered financial company or a subsidiary or affiliate of a covered financial company, the liquidation or rehabilitation of such insurance company, and any subsidiary or affiliate of such company that is not excepted under paragraph (2), shall be conducted as provided under such State law.” Dodd-Frank Act, section 203(e)(1). The proposed rules do not contain any provisions recognizing or implementing this subsection, but do contain a provision providing for a lien on the assets of an insurance company if the FDIC “makes funds available to” the insurance company. The comment period for the proposed rules expires November 18, 2010.

This post written by Rollie Goss.

NINTH CIRCUIT AFFIRMS ATTORNEY’S FEE AWARD FOR ARBITRATION, CONFIRMATION, AND COLLECTION, BUT NOT FOR LITIGATION WITH REINSURERS

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In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).

This post written by Michael Wolgin.

NO MANIFEST DISREGARD OF LAW FOUND IN EMPLOYMENT ARBITRATION DISPUTE

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An order denying a petition to vacate arbitration awards arising out of an oral employment contract dispute, mentioned in our January 20, 2010 post, was affirmed on appeal to the Second Circuit. The arbitrator dismissed the claim as barred by the Statute of Frauds. The appellant-employee sought to establish that the arbitrator manifestly disregarded the law by failing to give any weight to the employer’s oral representations. The Second Circuit found no such manifest disregard, and affirmed the district court’s denial of vacatur. Matthew v. Papua New Guinea, No. 10-0074-CV (2d Cir. Sept. 30, 2010).

This post written by Brian Perryman.

REINSURANCE CLAIM BARRED BY AGREEMENT’S EXPRESS TIME LIMITATIONS

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A reinsured lost its case for reinsurance benefits because the reinsured’s settlement of an underlying claim fell outside the time limits imposed on the reinsurer’s potential liability. Arrowood Surplus Lines Insurance Company filed suit against Westport Insurance Company for amounts purportedly owed under a liability reinsurance agreement and arising from Arrowood’s settlement of a claim under an insurance policy it issued to Equity Residential. The trial court dismissed the complaint for failure to state a claim. Arrowood appealed to the Second Circuit. The appellate court held that, by its terms, the reinsurance agreement provided reinsurance coverage for policies that become effective after the agreement’s inception date of February 1, 1999 with respect to occurrences taking place before the agreement’s termination date of August 18, 2000. Insurance policies issued for multiple years “become effective” on the anniversary of their inception. An optional run-off provision provided further coverage for policies that became effective before the termination date through the anniversary of their inception. The Equity policy was issued on December 15, 1999, and Arrowood elected to maintain run-off coverage thereon through December 15, 2000. The Equity policy dispute involved coverage periods beyond December 15, 2000, so those periods were not covered by the agreement because they fell outside its time limitations. The Second Circuit declined to accept Arrowood’s argument that the agreement’s “follow the fortunes” provision expanded coverage beyond the agreement’s express time limitations. Arrowood Surplus Lines Insurance Co. v. Westport Insurance Co., No. 10-0397-CV (2d Cir. Oct. 8, 2010).

This post written by Brian Perryman.

ARBITRATION COMPELLED FOR COMMUTATION COMPUTATION DISPUTE

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Greenlight Reinsurance, Ltd. reinsured Medicus Ins. Co. under a stop-loss reinsurance contract covering a certain portion of Medicus’s medical professional liability insurance risks. Medicus terminated the contract according to its termination provisions. Greenlight asserted, and Medicus disputed, that those provisions require a commutation payment or “break up fee,” which Medicus refused to pay. Greenlight demanded arbitration and Medicus thereafter filed suit. After failing to respond to Greenlight’s motion to compel arbitration, which was granted, Medicus sought reconsideration. The Court upheld its decision compelling arbitration, noting that the dispute inarguably arose under the contract, and that the FAA required a broad rendering of the arbitration provision as covering all such disputes. Medicus Ins. Co. v. Greenlight Reinsurance, Ltd., Case No. 10-00277 (USDC W.D. Tex Je. 24, 2010). Reconsideration has been denied.

This post written by John Pitblado.