The UK's Financial Services Authority (“FSA”) has adopted regulations to implement portions of the European Union's Reinsurance Directive that are designed in part to facilitate the expedited formation and management of special-purpose vehicles, which may be used for securitizations or other forms of alternative risk transfer arrangements. The proposals were described in a Consultation Paper, CP06/12, Implementing the Reinsurance Directive, which was published in June 2006 with a summary and a description of the Consultation Paper in a newsletter publication. A comment period followed. Rules were adopted by the FSA effective December 31, 2006. Special-purpose vehicle Rules and Guidelines may be found in the FSA's Handbook.
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DISTRICT COURT LACKS JURISDICTION TO ENFORCE ARBITRAL SUBPOENA
The District Court of Massachusetts recently granted a Motion to Dismiss a Petition to enforce an arbitration panel’s subpoena duces tecum. Liberty Mutual filed a petition to enforce a subpoena issued by an arbitral panel in an arbitration being conducted in Boston, Massachusetts. The subpoena was served on White Mountains, who was not a party to that arbitration, in New Hampshire. The subpoena required White Mountains to produce certain documents to an attorney in New Hampshire. When White Mountain produced some documents, but not everything that Liberty expected, Liberty filed a petition to enforce the subpoena.
The Plaintiff argued that the district court had subject matter jurisdiction and power to grant the relief requested based on the Federal Arbitration Act, 9 U.S.C. §7. The Court concluded that Liberty’s petition failed to satisfy key requirements of §7. Specifically, the court held that to be judicially enforceable, an arbitral subpoena must be for the attendance of a witness before the arbitration panel to testify rather than for pre-hearing discovery, and must be served within the territorial limitations applicable to trial subpoenas. The Court also concluded that White Mountain did not waive objections to judicial enforcement of the subpoena by volunteering to produce certain non-privileged responsive documents. Liberty Mutual Ins. Co. v. White Mountains Ins. Group, Case No. 06-11901-GAO (D. Mass., Feb. 26, 2007).
Further detail regarding the facts of this matter are available in a Memorandum filed by Liberty Mutual in support of its Petition, a Memorandum filed by White Mountains in support of its Motion to Dismiss, and Liberty Mutual's Memorandum in Opposition to the Motion to Dismiss.
Courts decide issues relating to arbitrability of claims and appointment of arbitrators
Three opinions were issued recently of interest regarding arbitration procedures:
- In Ancon Ins. Co. (U.K.) Limited v. GE Reinsurance Corp., Case No. 06-2106 (USDC D. Kansas Mar. 30, 2007), one party was five days late in appointing an arbitrator due to a mistake by its run-off manager in reporting when an arbitration demand had been received. The party demanding arbitration sought to enforce a provision in the arbitration agreement, which would have allowed it to appoint an arbitrator on behalf of the defaulting party. The Court refused to enforce the provision, allowing the defaulting party to appoint an arbitrator on grounds of fairness and lack of prejudice.
- In International Ins. Agency Services v. Revios Reinsurance U.S., Case No. 04-1190 (USDC N.D. Ill. Mar. 27, 2007), the Court granted the motion of a reinsurer to compel arbitration against an employee benefits firm that developed, marketed, administered and underwrote group life insurance programs on a fronted basis. The reinsurance agreement contained an arbitration provision, but the employee benefits firm was not a party to the agreement. The Court held that the firm was estopped to refuse to arbitrate, since it was asserting claims against the reinsurer based entirely upon alleged damage to its reputation arising out of the reinsurer's attempted repudiation of the reinsurance agreement.
- In Invitrogen Corp. v. Employers Ins. Co. of Wausau, Case No. 06-232 (USDC D. Az. Mar. 9, 2007), the Court granted an injunction prohibiting Wausau from pursuing arbitration against Invitrogen under a reinsurance contract, because it found, as a matter of law, that the claims were barred by a settlement agreement reached in a prior proceeding.
UK Court enjoins depositions in US lawsuit
In the autumn of 2006, facultative reinsurance specialists left Benfield to join Aon. Although the principal individuals involved worked in the UK, there were allegations of conspiracy and other misconduct in both the UK and the US. Benfield filed suit in US District Court in New York in October 2006, and in the UK the following month. The UK proceeding proceeded towards a trial in March 2007, while the US proceeding proceeded into discovery without a trial date being set. When it became apparent that Benfield would seek to depose critical witnesses in the US suit prior to the UK trial, while trial preparations were underway, the UK Court enjoined Benfield from taking the depositions until after the UK trial. Although reluctant to take action that would interfere with the US suit, the UK Court noted the slow pace of progress of the US suit, and articulated nine factors that it took into account in reaching its decision. This is a very interesting opinion dealing with the “coordination” and relationships between a UK and a US proceeding. Benfield Holdings Limited v. Aon Limited, [2007] EWHC 171 (Queen's Bench Feb. 21, 2007).
In mid-March, 2007, Aon announced it reached “a global and comprehensive settlement with Benfield… relating to former Benfield facultative reinsurance employees…who will be joining Aon on April 1.” Under the terms of the settlement, Benfield will receive payments over time totaling more than $18 million dollars.
UK FSA issues Financial Risk and Market Evaluation
The Financial Services Authority, which regulates the UK insurance markets, has issued a report titled Financial Risk Outlook 2007, a 115 page report which evaluates priority risks in the financial markets, economic and financial conditions, developments in the industry, consumer's engagement with the industry, financial crime, and the legal and regulatory framework of the financial markets. While there is not a specific section discussing the reinsurance markets, there is a brief discussion of general insurance markets and life insurance in particular.