CIGNA, as the administrator of managed care organizations, became a defendant in a number of federal and state class actions and individual lawsuits, some of which gave rise to a federal MDL action. CIGNA sought coverage and a defense from its insurers, and asserted a bad faith claim against one insurer which refused to provide coverage and which did not settle with CIGNA. A Pennsylvania state court has permitted CIGNA to obtain discovery as to the details of that insurer's reinsurance relationships, on the theory that such information might be relevant or lead to admissible information with respect to CIGNA's bad faith claim. Executive Risk Indemnity, Inc. v. CIGNA Corp., 2006 WL 2439733 (Pa. Ct. Common Pleas Aug. 18, 2006).
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Former Fremont execs sued over alleged reinsurance fraud
The California Insurance Commissioner, as conservator of Fremont Indemnity Company, has sued former executive officers and directors of Fremont in a civil fraud case, alleging that they caused Fremont over $200 million is loss due to fraudulent underwriting and reinsurance placement activities, which caused reinsurers to seek rescission of reinsurance, forcing Fremont to enter into commutation agreements with the reinsurers. Garamendi v. Rampino, Case No. BC357691 (Cal Super. Ct. Aug. 29, 2006). The Complaint alleges that the defendants inappropriately gave pricing discounts, wrote risks in high severity NCCI grades, wrote on a net line underwriting basis, and abused deductible and retrospective rating underwriting principles, in many respects contrary to express representations made to reinsurers.
Court bars run-off administrator from arbitration
National Indemnity Company provided reinsurance to Seaton Insurance Company and Stonewall Insurance Company, both of which were in run-off. Castlewood, Inc. entered into an agreement with Seaton and Stonewall to provide administratrive services for the run-off of their business. When arbitrations commenced between NICO and Seaton and Stonewall on their reinsurance agreements, NICO sought to add Castlewood to the arbitrations, despite the lack of an arbitration agreement in Castlewood's agreements with Seaton and Stonewall. The Court granted Castlewood's request for a preliminary injunction preventing its addition to the arbitrations, subject to a $1 million injunction bond. Castlwood, Inc., v. National Indemnity Co., Case No. 06-6842 (USDC S. D. N.Y. Oct. 24, 2006). NICO sought to compel Castlewood to arbitrate based upon theories of assumption and estoppel, and because Castlewood's agreement provided that its administration of the run-off would not conflict with the reinsurance obligations of Seaton and Stonewall. The Court found this an insufficient basis to compel Castlewood's participation in arbitration.
Colorado revamps reinsurance regulations in response to finite reinsurance concerns and adopts regs for nonadmitted insurers
The Colorado Division of Insurance has adopted a comprehensive revision of its regulations with respect to finite reinsurance transactions. The revisions include the repeal of existing regulations regarding Ceding Reinsurance Agreements, new regulations for Credit for Reinsurance, new regulations for Life and Health Reinsurance Agreements, and new regulations for Property and Casualty Reinsurance Agreements. Separately, the Division also adopted regulations establishing standards regarding the placement of insurance by producers and the qualification of insurers pursuant to the Colorado Nonadmitted Insurance Act.
SEC files civil action against RenRe executives relating to finite reinsurance transactions
The SEC has filed a civil action against three former executives of Renaissance Reinsurance Ltd., alleging that they were involved in fraudulent finite reinsurance transactions to improve the company's financial statements and earnings. The case was filed in the Southern District of New York. SEC v. Stanard, Merritt and Cash, Case No. 06-7736 (Sept. 27, 2006).