Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

ON REMAND FROM SECOND CIRCUIT, FEDERAL COURT DECLINES TO COMPEL ARBITRATION

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As reported in our December 3, 2009 post, the Second Circuit recently reversed and remanded a $40 million jury verdict against New Hampshire Insurance Company on claims made by AXA Versicherung AG. The remand instructed the trial court to determine whether the claims should have been arbitrated. In a thorough opinion, the lower court ruled on remand that (1) the claims were not arbitrable; and (2) even if the claims were arbitrable, New Hampshire waived its right to arbitrate them. The basis for the court’s first conclusion was that each of AXA’s claims generally sounded in fraud, rather than a dispute over interpretation of the parties’ reinsurance agreement. Because the agreement only required arbitration over disputes pertaining to the interpretation of the agreement, the fraud claims were non-arbitrable. The court also held that, even assuming any of the claims were arbitrable, New Hampshire waived its right to arbitration by (1) failing to seek arbitration of similar claims in separate litigation involving a different plaintiff; and (2) delaying any attempt to compel arbitration in the AXA litigation of non-fraud claims until after discovery and summary judgment briefing. AXA Versicherung AG v. New Hampshire Ins. Co., 05-10180 (USDC S.D.N.Y. April 29, 2010).

This post written by John Pitblado.

REINSURANCE FOCUS REACHES 1,000 POSTS

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Last week, we posted the 1,000th post to Reinsurance Focus. For any blog to reach that status, two factors must be present: (1) content that appeals to a sufficient number of readers; and (2) a dedicated staff of writers. This blog has drawn a good deal of interest from a broad range of readers from a number of countries, from insurance and reinsurance companies, brokers, law firms, academics, hedge fund personnel, editors of other blogs, on-line and print media and others. Frankly, I have been somewhat surprised but gratified by the number of readers that read our blog posts every month. We hope that we can continue to provide our readers with content of interest. I encourage you to use the e-mail link below to share with me your comments and suggestions for how we can make the next 1,000 posts of even greater interest to you. Obviously, this blogmaster has not written 1,000 posts. Thanks to Lynn (a writer from nearly the beginning and our every other week editor-in-chief) and writers, Karen, John, Dan (who is leaving us this week to take an in-house position), Brian and John. We could not have done this without each one of you. Thanks again, and I hope to hear from you, our readers.

Rollie Goss, blogmaster.

Self-Funded Employee Benefit Plans Can Be Insurers Under Texas Law, so Stop-Loss Insurance Policies Sold to Them Are Reinsurance

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A Texas court has ruled that stop-loss insurance policies sold to self-funded employee benefits plans constitute reinsurance, such that the Texas Department of Insurance cannot regulate them. The Department has no authority to regulate reinsurance (although it can and does regulate direct insurance). Two insurance companies therefore sought a declaratory judgment that they acted correctly by reporting stop-loss policies sold to self-funded plans as reinsurance instead of direct insurance. The parties stipulated to the facts and filed cross-motions for summary judgment. The trial court granted the Department’s motion for summary judgment, agreeing with the Department that self-funded plans are not insurers under Texas law. This judgment was reversed on appeal. Because self-funded plans do many of the acts that constitute doing the business of insurance, the appellate court held that self-funded plans are insurers. Among other things, the plans make insurance contracts with the employees of the employer sponsors; collect premiums for their service from the plan sponsor or the employees or both; deliver insurance contracts to the employees; and provide expense indemnification, reimbursement, or direct payment of medical expenses to individuals. American National Insurance Co. v. Texas Department of Insurance, Case No. 03-08-00535-CV (Tex. Ct. App. Apr. 22, 2010).

This post written by Brian Perryman.

Southern District of New York Confirms FINRA Arbitration Award

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Following an initial FINRA arbitration award holding Steven Singer liable to Hartford Financial Holdings for compensatory damages, Mr. Singer filed Chapter 7 bankruptcy. After a complicated procedural history, the Bankruptcy Court granted relief from the automatic stay and allowed Hartford to proceed with this action in US District Court for the Southern District of New York. In its petition, Hartford asked the District Court to confirm the arbitration award, and for a determination that the award is nondischargeable under § 523(a) of the Bankruptcy Code, or alternatively for a remand to the FINRA arbitration panel so that it may clarify the award. As an additional alternative, Hartford asked the Court to review FINRA arbitration hearings to determine whether the award is dischargeable.

The District Court confirmed the initial arbitration award but denied all of Hartford’s other requests for relief. In particular, the Court determined that a determination of whether the award was nondischargeable would violate the automatic stay. Further, the Court denied modification or remand finding that the award was not an evident miscalculation nor was it indefinite or ambiguous. Pursuant to New York statute and FINRA, 9% interest per annum was set on the award. Hartford Financial Holdings, Inc. v. Singer, Case No. 08-2459 (S.D.N.Y. May 4, 2010).

This post written by John Black.

Eleventh Circuit Rejects Manifest Disregard

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The Eleventh Circuit has joined the First and Fifth Circuits in holding that the manifest disregard of law doctrine is not a valid basis for vacating arbitral awards after the Supreme Court’s Hall Street Associates opinion. In Frazier v. Citifinancial Corp., No. 08-15188 (11th Cir. Apr. 30, 2010), the losing party in an arbitration sought to vacate an arbitral award on statutory grounds and on three non-statutory grounds: (1) that the award was arbitrary and capricious; (2) that the award was in violation of public policy; and (3) that the award was in manifest disregard of law. The Court concluded that Hall Street “compels” the conclusion that judicially-created bases for vacature are no longer valid. The Court rejected the Second and Ninth Circuit’s characterization of the doctrine as a judicial interpretation of the statutory ground that an award may be vacated if the arbitrators exceeded their powers. Manifest disregard is now no longer a viable basis for vacating arbitral awards in three Circuits.

This post written by Rollie Goss.