In this Special Focus article, John Pitblado provides an in-depth analysis of Century Indemnity Co. v. Certain Underwriters at Lloyd’s, London. In this decision, the Third Circuit addresses whether an agreement to arbitrate existed, and explores the tension between the presumption favoring arbitration and a party’s right to his/her day in court.
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SHORT TERM ASSISTANCE FOR HAITI
Haiti is one of sixteen members of the Carribean Catastrophe Risk Insurance Facility (CCRIC), which is a regional parametric trigger cat risk insurance pool that is intended to provide member governments with short term cash payments to bridge the gap between hurricanes or earthquakes and the receipt of contributions from other governments, organizations and individuals. The facility makes payments to member governments after a 14 day waiting period after a qualifying event. The CCRIF is scheduled to make a payment to the Government of Haiti of $8 million on January 26, which is more than 20 times the premium of $385,000 paid by Haiti for this coverage. The World Bank sponsored a donor conference when the CCRIF was founded in 2007, seeking international support for this facility, but pledges of support at that time from countries around the world, the World Bank and other organizations totaled only $47 million. This level of support may have been due in part to the fact that this was the first regional cat risk insurance pool of its kind, and there was uncertainty as to how effective it would be in accomplishing its goal. The CCRIF claims that it provides coverage to its members at approximately 40% less than commercially available coverage, when such coverage is available. While the amount of the CCRIF’s payment to Haiti is not impressive in light of the magnitude of this disaster, perhaps this event will prompt a re-evaluation of the level of international support for the CCRIF as a means of providing short term liquidity for immediate relief efforts for such disasters.
News reports have indicated that a large portion of the losses in Haiti are not insured, making the impact of this disaster for one of the historically poorest nations in the Western Hemisphere even more catastrophic. For sobering details about the impact of this disaster, including post-earthquake population movements in Haiti, details on the humanitarian response, and details about relief contributions from many sources around the world, go to the Relief Web, which is administered by the United Nations’ Office for the Coordination of Humanitarian Affairs.
This post written by Rollie Goss.
NEW YORK INSURANCE DEPARTMENT SEEKS COMMENTS ON FIRST SUPPLEMENT TO CIRCULAR LETTER NO. 20
In October 2008, the New York Insurance Department issued Circular Letter No. 20 to address the topic of contract certainty in reinsurance contracts (as noted in our November 11, 2008 post). In its first draft supplement to the circular letter, the Department proposes further guidance on the subject in response to inquiries by interested persons. Initially, the definition of “promptly” in the context of delivering policy documentation would be construed to mean “within 30 business days.” Next, the draft supplement suggests the Department will ensure compliance with the Circular Letter on a case-by-case basis, depending on the “unique nature or size of the risk.” It also clarifies that the Department will employ principles of contract certainty in effect in the United Kingdom and Bermuda as standards for what constitutes adequate “policy documentation.” Finally, the 30-day period for achieving contract certainty would be allocated as follows: where a producer intermediates a transaction, the insurer should deliver policy terms and conditions within 18 business days post-inception. The broker then would have 12 business days to deliver the contract to the policyholder. The deadline for submitting public comments on this draft supplement is January 22, 2010.
This post written by Brian Perryman.
IRS RULES THAT CAPITIVE REINSURANCE IS INSURANCE FOR TAX PURPOSES
Using the definition of insurance for tax purposes promulgated by the Supreme Court in 1941 in Helvering v. LeGierse, 312 U.S. 531 (1941), as explained and implemented by later opinions and IRS Revenue Rulings, the IRS has issued a private letter ruling stating that on the facts presented to it, the reinsurance of various workers’ compensation, property and crime risks by a captive constituted insurance for tax purposes, and that the reinsurer was an insurer for tax purposes. The criteria for this determination have been well established: (1) the arrangement must involve both risk shifting and risk distribution; (2) the risk must contemplate the fortuitous occurrence of a stated contingency; (3) the arrangement must not be merely an investment or business risk; and (4) the arrangement must constitute insurance in the commonly accepted sense. IRS No. 200950017 (12/11/2009).
This post written by Rollie Goss.
SECOND CIRCUIT AFFIRMS DISMISSAL OF SHAREHOLDER DERIVATIVE CLASS ACTION AGAINST REINSURER
The Second Circuit Court of Appeals recently affirmed a district court decision (reported on this blog March 10, 2009), which dismissed a putative shareholder derivative class action against PXRE Group, Ltd., a publicly traded Bermuda reinsurer, and certain of its directors and officers. The plaintiff shareholders alleged that PXRE intentionally or recklessly understated loss projections in the immediate aftermath of Hurricanes Katrina, Rita and Wilma in 2005, in order to preserve its credit rating. Specifically, the plaintiffs claimed that PXRE failed to take river flooding into account in its loss modeling, and that its loss modeling software was inadequate for much-larger-than-typical hurricane loss modeling, and was based only on typical hurricane loss modeling. The plaintiffs alleged specific misleading statements in press releases that it argued were intended to deceive in advance of public offerings. In an effort to establish scienter, the plaintiffs’ Complaint included allegations purportedly obtained from “confidential informants” from PXRE, including actuaries, a Vice President in charge of loss modeling, and the Chief Actuary of a “peer company.” Citing heightened pleading requirements for securities/fraud type claims, the district court dismissed the case, as plaintiffs had failed to sufficiently allege the bases for its allegations. The Second Circuit court affirmed by short summary order, citing the district court’s “thorough, well-reasoned opinion.” In re PXRE Group, Ltd., No. 09-1370 (2d Cir. Dec. 21, 2009).
This post written by John Pitblado.