Week's Best Posts

CAPTIVE REINSURANCE ARRANGEMENT LAWSUIT REINSTATED BY THIRD CIRCUIT

December 28, 2009 by Carlton Fields

In a putative class action by homebuyers seeking to recover treble damages under section 8(d)(2) of the Federal Real Estate Settlement Procedures Act, the Third Circuit held that the statute’s plain language permits private litigants to sue if their real estate settlement transaction involve unlawful settlement service referrals or fee splitting. Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful captive reinsurance arrangement operated by their mortgage lender and its affiliated reinsurer. Plaintiffs further alleged they had a statutory right to a real estate settlement free from unlawful kickbacks and unearned fees, and the lender’s invasion of that right gave them standing to sue. The district court dismissed the case for lack of subject matter jurisdiction (see our December 27, 2008 post), but the Third Circuit reversed, and also rejected the lender’s argument that the lawsuit was barred by the filed rate doctrine. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Brian Perryman.

FEDERAL LEGISLATIVE UPDATE – IRAN SANCTIONS

December 22, 2009 by Carlton Fields

A recent bill passed by the U.S. House of Representatives that expands U.S. economic sanctions targeted at Iran’s refined petroleum resources could have significant implications for the insurance and reinsurance industry. H.R. 2194, the Iran Refine Petroleum Sanctions Act (bill text and bill summary), which was passed on December 15, 2009 by a vote of 412-12, amends the Iran Sanctions Act of 1996 to expand sanctions against persons and entities who, with actual knowledge, provide Iran with refined petroleum resources or engage in activities that contribute to Iran’s ability to import such resources. The expanded sanctions include underwriting, insuring, reinsuring, financing or brokering any such activity. Because U.S. trade sanctions already prohibit U.S. persons and entities, including insurers and reinsurers, from doing business with Iran, the legislation appears to be targeted at foreign individuals and entities.

The Act establishes additional sanctions prohibiting specified foreign exchange, banking, and property transactions. Among other things, the Act grants the President waiver authority, and directs the President to report to the appropriate Congressional committees every six months regarding any person or entity that has violated the Act. After passing the House, the Act was referred on December 16, 2009 to the Senate Committee on Banking, Housing, and Urban Affairs.

This post written by Karen Benson.

NINTH CIRCUIT FINDS REVISED CLASS ACTION BAN IN ARBITRATION AGREEMENT UNCONSCIONABLE

December 21, 2009 by Carlton Fields

The Ninth Circuit Court of Appeals held that a “new twist” on the previously addressed issue of when an arbitration provision barring aggregation of individual claims is unconscionable did not command a new result. Plaintiffs brought a class action suit in California federal court against AT&T Mobility, LLC, alleging that they were unfairly charged sales tax on the retail price of a new phone that had been offered as “free” with the sign-up of new service. AT&T demanded that the claims be submitted to individual arbitration, as per the arbitration provision of the provider agreement. The plaintiffs pointed to a previous Ninth Circuit decision, Shoyer v. Cingular Wireless Services, Inc., (9th Cir. 2007), which held that a similar arbitration provision was unconscionable in part because it tended to prevent plaintiffs from suing on individual claims due to the disproportionate legal expense of doing so vis-à-vis the small amount of damages at issue. The class action procedure, the Court held in Shoyer, is designed to avoid this problem. However, AT&T’s arbitration clause contained a provision requiring the company to pay $7,500 to any claimant who won an arbitration award in excess of AT&T’s last offer, in order to provide financial incentive for claimants to bring individual claims and to address the inequity identified by the Court in Shoyer. Nevertheless, the Ninth Circuit was not convinced that this new language cured the defect of tending to prevent individual claims from being vindicated, due to the small amount of damages. The Court additionally held that the FAA does not trump California contract law on unconscionability. Laster v. AT&T Mobility, LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).

This post written by John Pitblado.

FEDERAL LEGISLATIVE UPDATE

December 14, 2009 by Carlton Fields

The following are selected bills in the reinsurance area that were either recently introduced or adopted in the U.S. House of Representatives.

Global Reinsurance Report. Representative Barney Frank (D-Mass.) introduced H.R. 4173 on December 2, 2009. A key purpose of the bill is to enhance Federal understanding of insurance issues. The bill, as it relates to reinsurance, mandates that the Director of the Federal Insurance Office (to be established under another section of the bill) submit a report on the global reinsurance market and the critical role such market plays in supporting insurance in the United States to the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs by September 30, 2011. On the same day, the bill was referred to the Committee on Financial Services, and in addition to other Committees to the extent such provision fell within the jurisdiction of the Committee concerned.

Temporary Health Reinsurance Program. On November 7, 2009, the U.S. House of Representatives passed H.R. 3962, the Affordable Health Care for America Act by a vote of 220-215. On the same day, during House Floor consideration of H.R. 3962, Representative John A. Boehner (R-Ohio) had proposed an amendment (bill text and bill summary) in the nature of a substitute to H.R. 3962, which sought, among other things, to create Universal Access Programs that expand and reform high-risk pools and reinsurance programs to guarantee that all Americans, regardless of pre-existing conditions or past illnesses, have access to affordable care while lowering costs for all Americans. This amendment failed by a vote of 176-258.

The Act, as it relates to reinsurance, requires the Secretary of Health and Human Services (“HHS”) to establish a temporary reinsurance program to assist participating employment-based plans with the cost of providing health benefits to retirees and to eligible spouses, surviving spouses and dependents of such retirees. This provision would take effect 90-days after enactment of the Act. Among other things, the Act requires the Secretary of HHS to establish a temporary national high risk pool program to provide health benefits to certain uninsured individuals who have a medical condition. This program would begin on January 1, 2010 and would end when the Health Insurance Exchange is established pursuant to the Act.

H.R. 3962 was received by the Senate on November 9, 2009. It was placed on the Senate Legislative Calendar under general orders on November 16, 2009.

This post written by Karen Benson.

DISTRICT COURT FINDS THAT SERVICE OF SUIT CLAUSE WAIVES RIGHT OF REMOVAL

December 8, 2009 by Carlton Fields

In his capacity as Liquidator of Midland Insurance Company, the Superintendent of Insurance of the State of New York brought suit in New York Supreme Court against Dunav Re, a Serbian reinsurance company, seeking reinsurance monies owed. Dunav Re removed the action to federal court based on diversity jurisdiction, and the Superintendent subsequently moved to remand based on the ground that Dunav Re had consented to the jurisdiction of any competent court pursuant to the service of suit clause in the reinsurance agreements. Dunav Re argued that removal was proper because the service of suit clause’s language was ambiguous and the waiver of the right to removal had to be clear and unequivocal. The court found no ambiguity, citing a New York Court of Appeals decision stating the reinsurance industry has known since a 1949 decision that a service of suit clause waived removal, and granted the motion to remand. Dinallo v. Dunav Ins. Co., Case No. 09-5575 (USDC S.D.N.Y. Nov. 19, 2009).

This post written by Dan Crisp.