Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT REFUSES SUBJCT MATTER JURISDICTION TO REVIEW ARBITRATION AWARD, SINCE THE VALUE OF THE AWARD WAS LESS THAN THE COURT’S JURISDICTIONAL AMOUNT

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A dispute arose between Hansen Beverage Company and DSD Distributors over a distribution agreement. The agreement included an arbitration clause providing that all disputes were to be arbitrated in California. The parties submitted to arbitration in San Diego where the arbitrator found that defendant had not breached the contract and Hansen did not constructively terminate the contract. Thus, no monetary damages or attorneys’ fees were awarded to either party.

On the day the arbitration award was handed down, DSD filed a motion in Wisconsin state court (the company’s state of domicile) to vacate or modify the award. That court declined jurisdiction holding that the arbitration should be finalized in California Federal Court. On the same day, Hansen filed a motion in the Southern Dist. of California to confirm the arbitration award, while DSD moved to stay or dismiss the award.

DSD contends that the action must be dismissed for lack of subject matter jurisdiction because the arbitration award fell below the $75,000 minimum for diversity jurisdiction. The court, noting a circuit split on this issue, held that where a petition seeks confirmation or vacatur of an award, without seeking remand for further arbitration proceedings, the amount in controversy is the value of the arbitration award itself. The court additionally stated that although the arbitrator’s judgment was essentially equivalent to a declaratory judgment, that aspect of the arbitration award was merely a collateral consequence of the arbitrator’s decision. Thus, the Motion to Dismiss or Stay was granted. The court did note specifically, however, that its decision may have been different if DSD was seeking to reopen arbitration in the California court rather than Wisconsin. Hansen Beverage Co. v. DSD Distributors, Inc., Case No. 08-0619 (USDC S.D. Cal. Dec. 12, 2008).

This post written by John Black.

TEXAS COURT OF APPEALS REMANDS REINSURANCE-RELATED DISPUTE WITHOUT OPINION ON THE MERITS DUE TO PERCEIVED ABUSE OF INTERLOCUTORY APPEAL PROCESS

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Clark & Co. was a managing general agent for high risk automobile policies, and serviced the policies pursuant to a General Agency Agreement. A St. Paul affiliate reinsured the risks. Disputes arose with respect to the policies and the GA Agreement, and Clark’s withdrawal of almost a million dollars from a premium trust account. There were a series of amendments to claims and counterclaims, and changes to which affiliates of the parties were named in the lawsuit. In the latest round of these disputes, the trial court struck Clark’s amended claims and severed St. Paul’s counterclaims, for prosecution in a separate case. The Court of Appeal reversed the severance order and remanded with instructions to consolidate the claims once again. The Court found that the severance was in violation of the Texas Rules of Civil Procedure, and was ordered by the trial court for the improper purpose of obtaining an advisory opinion from the Court of Appeals, essentially doing an end run around the Texas requirements for an interlocutory appeal. Clark & Co. v. St. Paul Fire & Marine Ins. Co., No. 05-07-1097 (Tex. Ct. App. Oct. 21, 2008).

This post written by Rollie Goss.

SENATE COMMITTEE CONSIDERING BILL TO DENY DEDUCTIONS FOR CERTAIN REINSURANCE PREMIUMS

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The Committee on Finance of the United States Senate has made available for public comment a draft bill which would amend the Internal Revenue Code to disallow the deduction of excess non-taxed reinsurance premiums paid to affiliates with respect to United States risks. There is no published comment period. The Committee’s staff has prepared a “technical explanation” of the draft, which includes an analysis of the present tax rules for insurance companies and reinsurance as well as an analysis of the proposed changes to the tax code. In an October 8, 2008 post, we profiled a similar bill introduced in the House, H.R. 6969. Opposition to the proposed tax changes has been submitted by the CEA, the European insurance and reinsurance federation.

This post written by Rollie Goss.

CONVICTED FORMER EXECUTIVE OF GEN RE SENTENCED TO TWO YEARS IN PRISON IN FINITE REINSURANCE PROSECUTION

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The Court hearing the criminal finite reinsurance case reported on previously has sentenced a former Gen Re executive to 2 years in prison, followed by 2 years of supervised probation, and a $200,000 fine. This sentence is substantially below federal sentencing guidelines. The Court had entered a ruling on loss calculation, victim enhancement and restitution, finding that 36 levels of enhancement are appropriate under federal sentencing guidelines, but not ordering restitution, despite finding that more than 250 investors had sustained losses aggregating $544-597 million. A sentence imposed in accordance with such a finding might be a life sentence for many, if not all, of the convicted executives. The convicted executives have submitted Supplemental Sentencing memoranda. The supplemental sentencing memorandum submitted by the recently sentenced defendant may be read here.

This post written by Rollie Goss.

SEC SETTLES FINITE REINSURANCE ALLEGATIONS WITH ZURICH AND CONVERIUM

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Continuing a series of consent agreements, the Securities and Exchange Commission has resolved claims relating to the writing of finite reinsurance, entering into agreed Cease-and-Desist Orders with Zurich Financial Services and SCOR Holding (Switzerland) Ltd., f/k/a Converium Holding AG. The Orders detail the reinsurance transactions and side agreements that underlie the SEC’s allegations. The SEC released information about the agreements in a press release and a Litigation Release. In remediation, Zurich has agreed to pay a $25 million penalty and $1 in disgorgement. In re Zurich Financial Services, Admin. Pro. File no. 3-13306 (Dec. 11, 2008); In re SCOR Holding (Switzerland) Ltd., f/k/a Converium Holding AG, Admin. Pro. File no. 3-13307 (Dec. 11, 2008).

This post written by Rollie Goss.