Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

U.K. COURT DENIES REINSURER’S SUIT TO AVOID REINSURANCE AGREEMENTS

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The Commercial Court (a subdivision of the Queen’s Bench Division of the U.K.’s High Court of Justice), recently held that an underwriter could not avoid the reinsurance contracts it had underwritten because it failed to convince the court that it would not have underwritten those contracts. In a case involving nondisclosure of loss statistics, the court determined that plaintiff reinsurer, Axa, could not avoid two reinsurance agreements that it had entered into with defendant insured, Arab Insurance Group (ARIG). The court made this finding even though ARIG failed to disclose – and perhaps even misrepresented – the loss statistics associated with its existing book of internal risk that was subject to the reinsurance. The court agreed with Axa that the misrepresentation of ARIG’s loss statistics was a material fact that should have been disclosed. However, even if ARIG had disclosed this information prior to the completion of the underwriting process, Axa would still have entered into the reinsurance agreements. Axa failed to prove they were induced by ARIG’s misrepresentation into the reinsurance contracts; they were therefore bound to those contracts. Axa Versicherung AG v. Arab Insurance Group [2015] EWHC 1939 (Comm).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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CENTURY INDEMNITY ENTERS STIPULATED JUDGMENT PRESERVING RIGHT TO APPEAL DECLARATORY JUDGMENT IN FAVOR OF REINSURER

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A New York federal court entered a stipulated judgment in favor of the plaintiff reinsurer that prevailed on its declaratory claim in a summary judgment previously ordered, which judgment capped its exposure to the dollar amount stated in the “Reinsurance Accepted” portion of the reinsurance contracts at issue.  The litigation had remained ongoing due to the cedant’s remaining counterclaims, but it agreed to forego pursuing those claims in favor of a strategy allowing it to pursue appeal of the prior summary judgment order.

Global Reinsurance Corporation of America v. Century Indemnity Company, No. 1:13-cv-6577, (USDC S.D.N.Y. June 3, 2015).

This post written by Zach Ludens.

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LOUISIANA AND NORTH DAKOTA ADOPT AMENDMENTS RELATED TO NONADMITTED AND REINSURANCE REFORM ACT OF 2010

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Louisiana and North Dakota amended their surplus lines statutes in line with the Nonadmitted and Reinsurance Reform Act of 2010 (the “NRRA”), which was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”), signed into law in July 2010. Under the North Dakota amendment (HB 1146), definitions of “reciprocal state” were removed from the statute, and portions of the statute applying to taxes on out-of-state surplus lines insurance were removed. Under the Louisiana amendment (HB 259), portions of its statute were removed that dealt with collecting premiums based on risks located in Louisiana but insured by out of state surplus lines insurers.  The Louisiana bill repeals the authority for the Louisiana Insurance Commissioner to enter into NIMA, the Nonadmitted Insurance Multi-state Agreement compact, as to which we have posted, reducing the efficacy of the compact in achieving the premium tax provisions of the DFA.

This post written by Zach Ludens.

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COURT REVERSES DISMISSAL OF INSURED’S CLAIM AGAINST REINSURER ASSERTING TORTIOUS INTERFERENCE WITH INSURANCE SETTLEMENT AGREEMENT

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Gardner Denver, Inc. (“Gardner”), had entered into a settlement agreement with its liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“NUF”) to resolve a dispute over Gardner’s coverage under various indemnity agreements. NUF honored the settlement agreement for several years, paying Gardner’s claims. However, once NUF entered into a “retroactive reinsurance” agreement with National Indemnity Company (“NICO”), in which NICO assumed NUF’s obligations and liabilities, NICO delegated the claims handling to another entity, which asserted a coverage defense and ceased paying Gardner’s claims under the settlement agreement. Gardner sued NICO and the claims administrator for tortious interference with a contract, and NICO countered with a motion to dismiss. NICO contended that the tortious interference claim failed because NICO had a qualified privilege as NUF’s agent (similar to the protection afforded to corporate officers under the “business judgment” rule) to handle claims on behalf of NUF. The trial court agreed with NICO and found that the complaint failed to overcome the privilege by sufficiently alleging that NICO acted without justification and with malice, and dismissed the case.

The appellate court, however, reversed the dismissal, holding that it was a factual question whether NICO’s actions were in fact unjustified or malicious, based on interpretation of the underlying insurance and settlement agreements and other evidence not before court, and thus it was not a decision for the court to resolve on a motion to dismiss. “Until the court answers whether NICO’s defense was frivolous, it could not determine whether NICO acted in good faith or, alternatively, acted without justification or malice, in its failure to pay claims pursuant to the settlement agreement.” Gardner Denver, Inc. v. National Indemnity Co., et al., Case No. 4-14-0713 (Ill. App. Ct. May 21, 2015).

This post written by Barry Weissman.

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NLRB FINDS MANDATORY ARBITRATION CLAUSE UNENFORCEABLE

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An administrative law judge for the National Labor Relations Board (“Board”) found in favor of Talina Torres (“Torres”) against Employers Resource (“Employers”) after determining that an arbitration clause within an employment contract was unenforceable. From September 2009 until June 2011, Torres was employed by Beth’s Kitchen, Inc., which was staffed by Employers. Torres filed a wage and hour putative class action lawsuit in California state court after being laid-off. Employers was named as a co-defendant. Employers then successfully moved to compel individual arbitration arguing that, under Stolt-Nielsen, class arbitration may not be inferred when a contract is silent on the issue. Following this ruling, Torres filed a complaint with the Board contending that Employers restricted her rights to engage in “protected concerted activities” as an employee under the National Labor Relations Act, citing recent Board decisions Murphy Oil and D.R. Horton.

In response to the Board complaint, Employers made various arguments, including that the Board lacked standing to hear the case as Torres was not an employee of Employers. Employers further contended that, contrary to the facts in Murphy Oil and D.R. Horton, the employment agreement in this case was not mandatory as a condition of employment with Beth’s Kitchen. The Board, however, found that while Torres did not interact with Employers, Employers did prepare the employment agreement for Beth’s Kitchen, Employers made itself a party to the agreement, and Employers then relied on the agreement in the litigation. Therefore, Employers was sufficiently implicated as violating Torres’s rights under the NLRA. The Board also noted that based on various representations made by Employers and Beth’s Kitchen, Torres was led to believe that the employment agreement was mandatory as a condition of employment. The Board ordered that Employers rescind or revise the mandatory arbitration provision and also that they not oppose Torres’ class action wage and hour suit on the basis of the employment agreement. Employers Resource and Talina Torres, Case 31-CA-097189 (N.L.R.B. May 18, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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