Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

FEDERAL APPELLATE COURT AFFIRMS STAY IN CASE INVOLVING PARALLEL STATE PROCEEDING

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Although this case does not directly address reinsurance or arbitration issues, it may be of interest to our readers, as it is a federal appellate opinion covering the relationship between parallel proceedings in federal and state court. Specifically, the Eleventh Circuit affirmed a district court’s decision to grant the defendant’s motion to stay pending a state court action involving the same issues. Plaintiff, Great Lakes Reinsurance (UK) PLC, appealed the ruling arguing that the lower court: (1) failed to apply the proper test governing whether to stay a declaratory judgment action; and (2) failed to give sufficient weight to the fact that the uniquely federal issues of admiralty law were central to the federal case.

The Eleventh Circuit disagreed with both arguments, and affirmed a stay of the case pending the resolution of the state court case. In Ameritas Variable Life Ins. Co. v. Roach, the Eleventh Circuit set forth nine factors that a court should consider in determining whether to accept or decline jurisdiction under the Declaratory Judgment Act when a related state action is pending. Although the district court did not expressly cite to the Ameritas case, the Eleventh Circuit found that the district court did sufficiently address certain prongs of the test. Additionally, the Eleventh Circuit concluded that the fact that the case involved admiralty law issues did not control the district court’s decision whether to stay the case. Great Lakes Reinsurance v. TLU Ltd., No. 08-11588 (11th Cir. Oct. 10, 2008).

This post written by Lynn Hawkins.

EIGHTH CIRCUIT REJECTS CHALLENGE TO ARBITRATOR’S QUALIFICATIONS, DEFERRING TO AAA

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In this case, the Eighth Circuit affirmed a district court decision that an arbitrator was qualified to hear a dispute and did not exceed his powers under the arbitration agreement. In 2000, in an attempt to make itself attractive for public financing, the Crawford Group decided to compensate its senior executives with a package that included awards of stock. William Holekamp retired in 2000 after three decades of working for Crawford and its subsidiary, Enterprise Car Rental. In June of 2004, Crawford attempted to buy back Holekamp’s stock by the terms of the Stock Award and Shareholder Agreement. A Missouri state court ruled that there was an issue with respect to the purchase price of the shares and sent the dispute to arbitration in accordance with the agreement. The arbitrator, chosen by Holekamp but approved by AAA (American Arbitration Association) valued Holekamp’s shares at $20.7 million, rather than the $11.4 million figure at which Crawford had valued them. The Eighth Circuit ruled that the AAA had the final determination as to whether or not the arbitrator was qualified, and the court then applied a deferential standard to the arbitrator’s decision, ruling that the award could not be set aside as long as the arbitrator was “even arguably construing or applying the contract and acting within the scope of his authority.” Crawford Group, Inc. v. Holekamp, No. 07-3454 (8th Cir. Oct. 6, 2008).

This post written by John Black.

MCCARRAN-FERGUSON ACT DOES NOT PERMIT STATE LAW TO INVALIDATE CONTRACTUAL PROVISION FOR ARBITRATION UNDER INTERNATIONAL TREATY

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Plaintiff Louisiana Safety Association of Timbermen – Self Insurers (“LSAT”) filed an action in federal district court in Louisiana seeking to enforce the assignment of a reinsurance contract entered into between its predecessor in interest, Safety National Casualty Corporation (“SNCC”), and SNCC’s reinsurer, Certain Underwriters at Llloyd’s, London (“Lloyd’s”). Lloyd’s refused to recognize the attempted assignment by SNCC to LSAT of SNCC’s rights under the reinsurance contract on the ground that the reinsurance pertained to underlying personal injury claims under workers compensation insurance, and thus were non-assignable rights.

Lloyd’s sought, in response to LSAT’s suit, an order referring the matter to arbitration, as required under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). The Convention, an international treaty, requires that courts of signatory states “shall, at the request of one of the parties, refer the parties to arbitration. . .” LSAT contended that a Louisiana statute barring mandatory arbitration provisions in insurance contracts reverse-preempted the Convention, under the McCarran-Ferguson Act. The district court granted summary judgment to LSAT, finding that the Louisiana statute supersedes the Convention. Lloyd’s appealed. The Fifth Circuit reversed, holding that while McCarran-Ferguson reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. Safety Nat’l. Cas. Corp. v. Certain Underwriters at Lloyd’s, London, et al., No. 06-30262 (5th Cir. Sept. 29, 2008).

This post written by John Pitblado.

TREASURY DEPARTMENT ISSUES PROPOSED TRIA REGULATIONS

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The United States Treasury Department has issued proposed regulations on two topics relating to the Terrorism Risk Insurance Act of 2002 (“TRIA”), both with short comment periods: (1) how the Treasury will determine the amounts to be recouped and the procedures that insurers are to use for collecting Federal Terrorism Policy Surcharges and remitting them to Treasury – comment period expires October 17, 2008; and (2) how the Treasury intends to determine the pro rata share of insured losses under TRIA when insured losses would otherwise exceed the $100 billion cap on annual liability – comment period expires October 30, 2008.

This post written by Rollie Goss.

COURT GRANTS PARTIAL SUMMARY JUDGMENT TO REINSURER ON CLAIMS OF TORTIOUS AND FRAUDULENT CONSPIRACY AND CONCEALMENT

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Plaintiff Mike Robinson and other selling agents of Commonwealth National Life Insurance Company (“Commonwealth”) brought claims against Guarantee Trust Life Insurance Company (“GTL”) arising from an Assumption Reinsurance Agreement entered into between Commonwealth and GTL. Under the reinsurance agreement, GTL assumed certain of Commonwealth’s Medicare supplement policies, as well as Commonwealth’s obligations to its agents who originally placed the policies. The plaintiffs alleged that through its agreements and in conspiracy with Commonwealth, GTL improperly avoided payment of commissions.

The district court granted partial summary judgment to GTL, finding that there was no evidence GTL was obligated to continue paying commissions on inactive or replaced Commonwealth policies, but found that there were genuine issues of fact pertaining to whether the plaintiffs were third party beneficiaries under the reinsurance agreement. GTL later moved again for partial summary judgment on such claims as tortious and fraudulent conspiracy and concealment, and the court found that those claims were unsupported by evidence of any prior knowledge of or conduct by GTL relating to the inactive and replacement Commonwealth policies, and granted partial summary judgment in GTL’s favor. Robinson v. Guarantee Trust Life Ins. Co., Case No. 2:00-CV-243-B-B, et al. (N.D. Miss. Sept. 22, 2008).

This post written by John Pitblado.