Week's Best Posts

Court Grants Reinsurer’s Motion To Compel Arbitration

July 11, 2007 by Carlton Fields

Century Indemnity Company (“Century”) sued Clearwater Insurance Company (“Clearwater”) seeking payment under a facultative reinsurance certificate which contained an arbitration clause. Clearwater moved to stay the litigation and compel arbitration.

A New York district court granted Clearwater’s motion finding that the parties’ dispute, which involved differences of opinion with respect to the interpretation of the contract provisions, clearly fell within the purview of the arbitration clause. Additionally, the court concluded that Clearwater did not waive its right to arbitrate its dispute by waiting five months after the commencement of the litigation to demand arbitration. To the contrary, the court considered the five month period a “relatively short period of time.” Century Indemnity Company v. Clearwater Insurance Company, Case No. 06-0424 (S.D.N.Y. June 4, 2007).

Court Rejects Argument That Custom Implies “Follow The Fortunes” Clause Into Reinsurance Contract

July 9, 2007 by Carlton Fields

This controversy involved a reinsurance dispute between ERC, a reinsurer, and Laurier, an insurer incorporated in Bermuda. ERC declined to indemnify Laurier for the settlement costs of a wrongful death suit. The present matter came before the court on the parties’ motions for reconsideration of a magistrate’s rulings on the parties’ cross-motions for summary judgment.

ERC moved for summary judgment based on Laurier’s failure to provide prompt notice of the claim, and contended that the delay was unreasonable as a matter of law and that it suffered prejudice as a result. ERC also claimed entitlement to partial summary judgment because “follow the fortunes” clauses are not implied in reinsurance contracts.

The reinsurance contracts at issue did not contain a “follow-the fortunes” clause. Laurier argued that the absence of the clause constituted an ambiguity in the contract and that the Court should allow custom to imply the clause into the reinsurance contract. The court disagreed, concluding that it could not “go outside the laws of contract construction and outside the four corners of an unambiguous contract to add a clause that was not bargained for.” As such, the court granted partial summary judgment for ERC on the issue of the “follow the fortunes” clause.

The court denied summary judgment on the remaining issues, including allocation of loss, waiver of the late notice defense, and the timeliness of the notice, finding that genuine issues of material fact existed as to those issues. ERC v. Laurier Indemnity Co., Case No. 8:03-cv-1650 (M.D. Fla. June 25, 2007). [The choice of law dispute in this case was addressed in an earlier posting on this blog on June 16, 2006.]

Legislative update

July 4, 2007 by Carlton Fields

In celebration of our nation's birthday (no, the blogmaster is not actually making this post on the 4th), here is a review of what our various legislators are doing with respect to reinsurance. With respect to pending legislation:

The Governor of Nebraska signed LB 117 into law on May 30, 2007, which contains amendments to the Suprlus Lines Insurance Act and a new Captive Insurers Act (sections 35-53). The terms of this new act may vary from a different captive bill introduced that was profiled in a January 29 post to this blog.
The Governor of South Carolina, on June 14, signed S. 589, which makes amendments to the captive provisions of the South Carolina Code.
On June 11, the Governor of South Carolina signed H. 3820, the Omnibus Coastal Property insurance Reform Act of 2007, which provides credits to property owners and insurers, establishes various associations and damage mitigation programs and provides for the formation of Coastal Captive Insurance Companies.
The Governor of Vermont, on May 25, signed S. 91 into law, which makes amendments to the captive provisions of the Vermont Code, adding provisions relating to special purpose financial captive companies.

With respect to pending legislation:

Delaware HB 214 passed the state House on June 26, providing amendments to Delaware's captive insurance provisions.
A potentially interesting risk pool concept was introduced in Louisiana House Concurrent Resolution No. 175, which seeks an investigation of the feasibility of establishing a regional cat fund that would allow Gulf Coast states to pool property insurance risks and other resources as a method of reducing insurance premiums.
LD 1390 was introduced into the Maine legislature, providing for the establishment and regulation of special purpose reinsurance vehicles by insurers domiciled in Maine.
H 6503 was introduced into the Rhode Island General Assembly, providing for the establishment of a state commission on hurricane loss projection methodology.
In the US Congress, this term's version of the Nonadmitted and Reinsurance Reform Act (see the March 7, 2007 post to this blog) passed the House on a voice vote on June 26, and was sent to the Senate. The companion Senate bill has made no progress in committee. Last year, this bill passed the House late in the fall and was not considered by the full Senate before the end of the term.

Seventh Circuit Finds Illinois’ ‘Insurance Producers Limitations Act’ Does Not Apply to Reinsurance Intermediaries

July 2, 2007 by Carlton Fields

This case arose out of reinsurance agreements between BCS and a third party, Insurance Specialists. The agreements were negotiated by BCS’ former reinsurance intermediary, Guy Carpenter & Company Inc. (“Guy Carpenter”). BCS alleged that Guy Carpenter failed to obtain adequate reinsurance for BCS and that Guy Carpenter’s actions resulted in an arbitration award against BCS in favor of its London reinsurers, exceeding $4.8 million dollars.

The district court granted summary judgment for Guy Carpenter, finding that five of the six claims asserted by BCS fell within the purview of the Illinois Insurance Producers Limitations Act (IPLA) and were barred by IPLA’s two-year statute of limitations. The district court also granted summary judgment for Guy Carpenter on the sixth claim, for implied indemnity, because BCS was unable to show it was derivatively liable in the arbitration for Guy Carpenter’s actions.

In a de novo review, the Seventh Circuit reversed the district court’s finding that five of BCS’ claims were governed by IPLA. Relying on briefing from the Illinois Attorney General, the Court concluded that “IPLA does not apply to reinsurance intermediaries and therefore does not govern the disputed agreements between BCS and Guy Carpenter.” The Seventh Circuit affirmed the district court’s finding that BCS failed to state a claim for implied indemnity because BCS failed to demonstrate that its liability resulted solely from the actions of Guy Carpenter. BCS Ins. Co. v. Guy Carpenter & Co. Inc., No. 06-1050 (7th Cir. June 18, 2007).

Benfield sues Aon over unpaid commissions for reinsurance placements

June 26, 2007 by Carlton Fields

Benfield, a reinsurance broker/intermediary, has sued Aon Re, seeking over $2.4 million in damages for unpaid commissions for the placement of five reinsurance treaties for St. Paul Companies. The Complaint alleges that St. Paul moved its brokerage business from Benfield to Aon during the term of the reinsurance placed by Benfield, and that after the move, Benfield did not receive any further commission payments, even though Aon collected premiums under the treates that Benfield had placed. The Complaint alleges that regardless of how premiums are paid, the commission is earned upon the placement of the treaties. Benfield v. Aon Re, Case No. 07-2218 (USDC D. Minn. May 8, 2007).