Week's Best Posts

THIRD CIRCUIT AFFIRMS DECISIONS COMPELLING ARBITRATION AND CONFIRMING RESULT IN RETROCESSION DISPUTE

November 23, 2009 by Carlton Fields

Century Indemnity Company (“Century”) made claim under certain retrocession agreements between it and Certain Underwriters at Lloyd’s, London (“Lloyd’s”) for a portion of the payment Century made to its reinsured, Argonaut Insurance Company (“Argonaut”) in connection with underlying asbestos coverage litigation expenses. Lloyd’s denied the claim, asserting that Century’s payment to Argonaut was not warranted under the reinsurance treaties. Century sued to recover the approximately $2 million in dispute. Lloyd’s moved to compel arbitration. Although it was undisputed that the retrocession agreements did not contain an arbitration clause, the trial court agreed with Lloyd’s that the retrocession agreements incorporated the underlying reinsurance treaties by reference, which treaties did contain arbitration provisions, and therefore granted the motion to compel arbitration. The parties arbitrated, and the three-member panel found in Lloyd’s favor, finding the reinsurance treaties did not obligate Century to pay Argonaut, and therefore Lloyd’s was not obligated to pay Century any portion of the payment to Argonaut. Century moved to vacate the award, contending that the arbitral panel had manifestly disregarded the law and failed to admit evidence which should have been admitted. The district court denied the motion. Century appealed to the Third Circuit Court of Appeals, which affirmed both the decision to compel arbitration, and the decision denying the motion to vacate the award. Century Indemnity Company v. Certain Underwriters at Lloyd’s, London, No. 08-2924 (3d Cir. Oct. 15, 2009).

This post written by John Pitblado.

LEGISLATIVE AND REGULATORY UPDATE

November 17, 2009 by Carlton Fields

FEDERAL LEGISLATIVE UPDATE

Congress has recently introduced two bills relevant to reinsurance or catastrophe funds. These bills are as follows:

On November 4, 2009, the Guaranteed Access to Health Insurance Act of 2009 (H.R. 4020) was introduced in the U.S. House of Representatives. The bill proposes to enable states to establish reinsurance programs or high risk pools to ensure that high risk individuals are able to access health insurance. The bill was referred to the House Committee on Energy and Commerce on the same day.
The same day, the Catastrophe Obligation Guarantee Act of 2009 (H.R. 4014) was introduced in the U.S. House of Representatives. The bill proposes to establish a program to provide guarantees for debt issued by state catastrophe insurance programs to assist in the financial recovery from natural catastrophes. The bill was referred to the House Committee on Financial Services on the same day.

STATE REGULATORY UPDATE

State regulatory developments relevant to reinsurance include the following:

The Office of the General Counsel of the New York Insurance Department issued an opinion dated September 30, 2009, No. 09-09-06, which addressed whether the requirements in New York Insurance Law Section 1401(b) apply to investments of insurance companies deposited under a reinsurance trust pursuant to New York Regulation 114 (11 NYCRR § 126). The OGC responded in the affirmative stating that Section 1401(b) requires any financial requirement (such as the rating of a given security) to be measured as of the date of the acquisition of the security, absent any express legal or regulatory authorization to the contrary. Because nothing in Regulation 114 or elsewhere in New York Insurance Law specifies otherwise, the OGC concluded that any assets contributed to a Regulation 114 trust must meet any applicable statutory rating requirement as of the asset’s acquisition date.
On October 5, 2009, the Washington Office of Insurance Commissioner proposed rulemaking aimed at clarifying when licensed reinsurance intermediaries must report changes to the information contained in their original application for licensing and what changes must be reported. If adopted, proposed rule, WAC 284-13-715, would require a licensed reinsurance intermediary to notify the Commissioner within 15 business days after occurrence of material changes to the information that was included in the application for licensing (such as changes to the reinsurance intermediary’s legal name, registered address, formation documents if it is a business entity, etc.). Also, proposed rules, WAC 284-13-750 and 284-13-760, would require a licensed reinsurance intermediary, or a pending applicant, to notify the Commissioner within 15 business days of disciplinary action taken by another governmental jurisdiction and conviction of certain felonies, respectively. The comment period for the proposed rulemaking expired on November 9, 2009, and a hearing was held on November 10, 2009.

This post written by Karen Benson.

EN BANC DECISION HOLDS THAT MCCARRAN-FERGUSON ACT DOES NOT REVERSE-PREEMPT THE CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

November 16, 2009 by Carlton Fields

The Fifth Circuit has affirmed en banc a panel decision holding that while the McCarran-Ferguson Act reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. We reported on the panel decision in an October 14, 2008 post. The district court denied a motion to compel arbitration of a contractual dispute among three insurers, finding that a Louisiana statute barring mandatory arbitration provisions in insurance contracts superseded the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On an interlocutory appeal, the Fifth Circuit panel reversed. Rehearing en banc was granted, vacating the panel opinion. Sitting en banc, the Fifth Circuit concluded that because McCarran-Ferguson does not apply to the Convention or its implementing law (the Convention Act), the district court’s order should be vacated and the case should be remanded for further proceedings. The Court indicated that it “was persuaded that state law does not reverse-preempt federal law in the present case for two related but distinct reasons: (1) Congress did not intend to include a treaty within the scope of an ‘Act of Congress’ when it used those words in the McCarran-Ferguson Act, and (2) in this case, it is when we construe a treaty – specifically, the Convention, rather than the Convention Act – to determine the parties’ respective rights and obligations, that the state law at issue is superseded.” Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, No. 06-30262 (5th Cir. Nov. 9, 2009).

This post written by Brian Perryman.

THIRD CIRCUIT RULES THAT HOMEBUYER PLAINTIFFS HAVE STANDING TO CHALLENGE A PRIVATE MORTGAGE REINSURANCE ARRANGEMENT

November 10, 2009 by Carlton Fields

On December 26, 2008, we reported on a putative class action brought by homebuyers alleging that their private mortgage insurance premiums were subject to an unlawful captive reinsurance arrangement in violation of the Real Estate Settlement Procedures Act (“RESPA”). The district court had granted the defendants’ motion to dismiss, construing RESPA as requiring the plaintiffs to allege an overcharge in order to sue for damages. The Third Circuit reversed the order of the district court, finding that RESPA’s plan, unambiguous language did not require the plaintiffs to allege an overcharge and that the plaintiffs had suffered an injury-in-fact sufficient to support Article III standing, with or without an overcharge. The circuit court further found the filed rate doctrine inapplicable as the plaintiffs challenged allegedly unlawful conduct, not the reasonableness of the rate triggering the conduct. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Dan Crisp.

COURT RULES AGAINST CLAIM THAT PARTY-APPOINTED ARBITRATOR IN THREE MEMBER PANEL WAS IMPARTIAL

November 9, 2009 by Carlton Fields

Employers Insurance Co. of Wausau brought a petition in Wisconsin Federal Court, in connection with an arbitration proceeding arising from a reinsurance dispute, seeking to have the Court appoint the neutral third arbitrator as the parties’ chosen arbitrators were unable to do so. The respondents cross-petitioned, alleging that (1) enforcement of the arbitration provision was barred by the statute of limitations, estoppel and laches; and (2) the respondents’ party-appointed arbitrator was not impartial and should be disqualified. The Court granted the petition and appointed a neutral third arbitrator, and denied the cross-petition in its entirety, finding that the questions about statutes of limitations and laches should be arbitrated and that there was no showing that the respondents’ selected arbitrator was biased. The cross-petitioners moved for reconsideration of the Order, which motion was denied by Order dated October 23, 2009. The cross-petitioners thereafter filed Notice of Appeal to the Seventh Circuit Court of Appeals. Employers Insurance Company of Wausau v. Certain Underwriters at Lloyds of London, No. 09-cv-201 (W.D. Wis. Sept. 28, 2009).

This post written by John Pitblado.