A putative class action case has been filed in United States District Court in Miami against a number of Lloyd's syndicates, three Marsh entities, two Aon entities and two Willis entities, alleging wrongful conduct in the payment of undisclosed contingent commissions and undisclosed conflicts of interest in the placement of insurance. The Complaint alleges federal and state antitrust, federal RICO, fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, civil conspiracy, and unjust enrichment claims. The case was filed by a group of law firms, some of which have significant experience as class counsel in insurance sales practice cases. Although reinsurance is not specifically mentioned, and the coverages at issue are direct writings, this may be of interest since it challenges practices in placements with Lloyd's syndicates. Lincoln Adventures, LLC v. Those Certain Underwriters at Lloyd's, London, Case No. 07-60991 (USDC S.D. Fla. July 13, 2007).
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INSURER NOT PERMITTED TO CHALLENGE ENGLISH ARBITRATION AWARD IN U.S. COURT
A dispute arose between “C” and its insurer “D,” both U.S. corporations. The insurance policy was governed by New York state law, but provided for disputed to be settled in England under the provisions of the English Arbitration Act. The parties agreed to arbitrate in England, and the panel issued a partial award in favor of “C.” “D” threatened to apply to a U.S. court to set aside the award on the basis that it was based on a “manifest disregard of the law.” “C” obtained an interim anti-suit injunction restraining “D” from commencing proceedings in a U.S. court. At the final hearing, Justice Cooke held that because the parties chose England as the seat of arbitration, they must submit any challenge to the eventual award to an English court under English law, regardless of the governing law of the contract. C and D, [2007] EWHC 1541, [Comm], Eng. Comm., QBD (June 28, 2007).
MASSACHUSETTS HIGH COURT HOLDS THAT CLAIMS UNDER FOLLOWING FORM EXCESS POLICIES ARE NOT COVERED BY FOLLOW-THE-FORTUNES
Massachusett's Supreme Judicial Court recently held, in a case of first impression, that a following form excess insurer is not bound by claims payment decisions made by a primary insurer, in an analysis that is akin to the reinsurance follow-the-fortunes doctrine. The Court held that although such an excess policy borrows language from the underlying primary policy, it is a separate insurance policy, and that the excess insurer retains the right to make its own claims decisions absent a provision in its policy to the contrary. This is similar to opinions holding that courts will not imply the follow-the-fortunes doctrine into a reinsurance agreement if it is not explicitly a part of the reinsurance agreement's written terms. Allmerica Financial Corp. v. Certain Underwriters at Lloyd's, London, No. SJC-09834 (Aug. 6, 2007).
LEGISLATIVE UPDATE
Many state legislatures have ended their session, and following is an update on a number of reinsurance-related bills previously reported in this blog:
- captives: There has been a good deal of activity on the captive front, and there have been a number of articles in the trade press about domestic jurisdictions attempting to become more competitive with each other and with off-shore locations. Hawaii has enacted general changes in HB 272 (effective July 1, 2007), allowing captives to be licensed as limited liability companies and changing tax, capital and surplus rules. Delaware has amended its statutes (HB 214, signed July 18, 2007) to allow special purpose financial captives, with new minimum capital requirements for such entities. Missouri has enacted legislation (SB 215, effective August 28, 2007) which provides for the formation of captive insurance companies.
- alternative financing: Maine has allowed the edtablishment of special purpose reinsurance vehicles to facilitate the securitization of insurance risks. LD 1390, effective June 21, 2007.
- reinsurance placement: New Hampshire has adopted rules (HB 782, effective January 1, 2008) clarifying its law with respect to reinsurance intermediaries, brokers and managers. Texas has proposed modifying its provisions relating to the placement of reinsurance with an unauthorized reinsurer. SB 1136, pending – see page 247 of 409.
- credit for reinsurance: Connecticut has amended its regulations relating to credit for reinsurance with respect to the assets of a single beneficiary trust, effective May 30, 2007.
- health reinsurance: Oregon has enacted provisions, effective June 25, 20007 (SB 183) making emergency provisions for a reinsurance program for medical progessional liability insurance policies provided by the state's Accident Insurance Fund.
- voluntary restructuring: Rhode Island continues to legislate in the area of voluntary restrcturing of solvent insurers, expanding the definition of commercial run-off insurer effective July 6, 2007 to include a Rhode Island domestic insurer formed or re-activated for the purpose of entering into a voluntary restructuring.
INSURED’S “FOLLOW-THE-FORTUNES” ARGUMENT FALLS SHORT
This breach of contract case arose out of a dispute between insurer-plaintiff National Union Fire Insurance Company of Pittsburg (“NU”) and its reinsurer-defendant, Clearwater Insurance Company (“Clearwater”). NU alleged that Clearwater breached its reinsurance agreement by failing to fully indemnify it for losses incurred from the settlement of an underlying dispute. While Clearwater paid for roughly ¼ of the $1.9 million dollars sought by NU, Clearwater claimed it was not responsible for the remaining amount since some portion of the settlement payment was to settle consequential damages claims not covered by the reinsurance certificates. In response, NU asserted the “follow-the-fortunes” doctrine and moved for summary judgment. Clearwater moved to compel additional discovery.
The Court denied NU’s motion for summary judgment, reasoning that “a genuine issue of material fact exists as to whether the settlement did indeed involve payment in some substantial amount of the consequential damages claims. . ..” The Court appear to accept that if it could be proven that a portion of the payment was for losses not covered by the reinsurance agreement, that the follow-the-fortunes doctrine would not apply to those amounts. The Court granted in part and denied in part Clearwater’s request for additional discovery. National Union Fire Ins. Co. v. Clearwater Ins. Co., Case No. 04-CV-5032 (S.D.N.Y., July 19, 2007).