The liquidator of Legion Insurance Company and Villanova Insurance Company sued three companies to recover premiums owed for insurance provided in a rent-a-captive workers compensation insurance program. A defendant sought to move to dismiss based upon a Bermuda forum selection clause contained in a shareholder agreement it had entered into with an affiliate of the controlling shareholder of the insurance companies. The shareholder agreement was part of the overall rent-a-captive insurance program, and the insurance policies at issue were also part of that program. The district court held that the forum selection provision did not apply to the dispute over policy premiums for two reasons: (1) the forum provision was not part of the insurance policies, and hence the insurance companies were not bound by it; and (2) the forum clause, by its terms, applied only to disputes concerning the shareholder agreement, and hence did not cover disputes concerning the insurance policies. Rohrbaugh v. U.S. Management, Inc., Case No. 05-3486 (USDC E.D.N.Y. July 2, 2007).
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Travelers granted judgment on the pleadings in finite reinsurance case
In October 2004, New York Attorney General Elliot Spitzer announced the filing of a civil Complaint against Marsh & McLennan Companies, alleging fraud and antitrust violations and implicating major insurance companies. The next day, an analyst reported that the St. Paul Travelers Companies (“Travelers”) could expect to be involved in the investigation and be subject to a subpoena. Travelers' stock price dropped $2.06 per share. About one month later, Travelers disclosed the receipt of a second subpoena, relating to finite reinsuracne issue. A class action securities fraud suit was filed against Travelers. The Complaint did not allege a drop in stock price following the disclosure of the finite reinsurance subpoena. Travelers moved for judgment on the pleadings with respect to claims relating to finite reinsurance issues, contending that the Complaint filed to adequately allege loss causation with respect to those issues. The court agreed, and granted the motion, but provided the Plaintiffs leave to file an amended Complaint. In re St.Paul Travelers Secutieis Litigation II, Case No. 04-4697 (USDC D Minn. June 1, 2007).
Judge dismisses claims against former KPMG personnel
In a stern rebuke to federal prosecutors, a US District Judge has dismissed criminal tax-fraud claims against 13 former KPMG executives based upon the government's “intolerable” prosecutorial abuses. The Court had previously found that the government's pressuring KPMG not to pay the executives attorneys' fees violated their constitutional rights. The Court has now decided that dismissal of the charges is the appropriate remedy for such conduct. The government conceded that if the Court's constitutional analysis was correct, that dismissal was appropriate, presumably to clear the way for an appeal of the issue. The case will proceed to trial against other defendants. Prior posts on this case on this blog cover the arbitrability of attorneys' fee issues (post date September 26, 2006) and an appellate brief filed by the US District judge on that issue (post date January 22, 2007). United States v. Stein, Case No. 05-crim-0888 (USDC SD NY July 16, 2007).
Court Refuses to Apply Follow-the-Fortunes Doctrine Due to Inconsistent Positions Taken by Reinsured
American Home Assurance issued insurance covering environmental pollution at multiple sites, and contended throughout its dispute with its insured that the insured had suffered multiple occurrences at multiple sites, in order to maximize the number of deductibles that would apply. After settling with its insured, American Home filed reinsurance claims based upon the theory that there had been only one occurrence per year at each site, in order to minimize the deductibles on its own reinsurance. Although it prevailed against its reinsurers on that theory at the trial court level, an appellate panel has held that such inconsistent conduct, which it termed “manifest manipulation,” resulted in the follow-the-fortunes provision of the reinsurance agreements not applying, apparently resulting in the complete loss of reinsurance coverage since the losses, as allocated consistently with the position taken with the insureds, were all within the deductibles of the reinsurance agreements. Allstate Insurance Co. v. American Home Assurance Co., No. 602594/03 (NY Sup. Ct. App. Div. June 12, 2007).
Congress Considers Renewal of Terrorism Risk Insurance Act
The Terrorism Risk Insurance Act, which is implemented through the Terrorism Insurance Program of the Department of the Treasury, expires at the end of 2007. A bill had been filed to extend the program for 10 years and add coverage for group life insurance and nuclear, chemical, biological and radiological risks. A Treasury official has stated that the program must be temporary and short-term, should provide for increased participation by the private sector in the covered risks, and rejected the proposal for inclusion of group life insurance. During a prior renewal of the program, the Treasury Department opposed adding group life insurance to the coverage of the program. The proposed renewal bill is H.R. 2761.