Week's Best Posts

SECOND ARBITRATION COMPELLED ON REINSURANCE CLAIMS MADE UNDER TREATY PREVIOUSLY CONSTRUED IN PRIOR ARBITRATION AWARD

January 5, 2015 by Carlton Fields

In a complicated web of proceedings, the initial dispute involved whether the reinsurer, Nationwide Mutual Insurance Co., was permitted to condition payment of reinsurance claims on receiving access to the claim records of the cedent, Liberty Mutual Insurance Co. The arbitration award construed the treaty’s payment provisions as independent of the access to records provision, and ruled that Nationwide must take a coverage position within 60 days of submission of a claim. An additional dispute then arose when Nationwide disputed enforcement of the award against certain reinsurance claims subsequently re-submitted by Liberty Mutual. Various filings were made in state and federal court and with the arbitration panel, including Liberty’s motion to enforce the arbitration award (in state court), and Nationwide’s motion to compel another arbitration (in federal court). The federal district court stayed Nationwide’s motion, pending a ruling by the state court on Liberty’s motion (see our March 13, 2014 post). Ultimately, the panel issued a ruling purporting to “clarify” the initial award, and the state court entered a ruling enforcing the initial award to the extent it had prospective application.

The federal court has now lifted its stay, and compelled arbitration on the meaning of “future claims” under the treaty and whether Liberty Mutual’s resubmitted claims would qualify as such. The federal court declined, however, to compel arbitration again on the issue of access to records under the treaty, which the court deemed barred by the doctrine of issue preclusion. The court also vacated the arbitration panel’s interim ruling purporting to clarify the initial award. The court held that the panel’s clarification was untimely, having been sought more than six months after the original award was entered and after the award had been confirmed. Nationwide Mutual Insurance Co. v. Liberty Mutual Insurance Co., Case Nos. 13-cv-12910, 14-cv-12046 (USDC D. Mass. Nov. 6, 2014).

This post written by Michael Wolgin.

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EXPENSES ONCE AGAIN FOUND TO BE PART OF COVERAGE LIMIT IN BATTLE AGAINST REINSURER

December 30, 2014 by Carlton Fields

In November, an Illinois appellate court affirmed an order granting defendant MidStates Reinsurance Corporation’s (“MidStates”) motion for judgment on the pleadings because the reinsurer had fulfilled its obligation to pay up to the policy limits of various unambiguous facultative contracts.

Continental Casualty Company (“Continental”) sought reinsurance coverage for excess third-party liability and commercial casualty policies issued for RSR Corporation and Borg-Warner Corporation. In the 1990s and early 2000s, environmental claims arose from injuries linked to asbestos and hazardous waste at these insured facilities. MidStates alleged that subsequent remittances to Continental were in line with the limits provided in the reinsurance certificates. Continental alleged that MidStates breached their contract as the reinsurance certificates did not include limits on expenses.

Relying on Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and its progeny, the court found that the reinsurance certificates placed a limit on indemnity costs and expenses. Looking at the four corners of the contracts, the court found no indication that expenses were removed from the liability limit. The court found that even though only two of the five certificates included the language “inclusive of expenses,” this did not create an ambiguity. Instead, “this inclusion clearly appears to be an abundance of caution rather than an intention to exclude expenses from the liability cap.” Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Nov. 4, 2014).

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

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SPECIAL FOCUS: DISCLOSURE OF REINSURANCE AGREEMENTS UNDER FEDERAL RULE OF CIVIL PROCEDURE 26

December 29, 2014 by Carlton Fields

Federal Rule of Civil Procedure 26(a)(1)(A)(iv) requires the disclosure of certain insurance agreements as part of the obligations of a party to make required initial disclosures. Under what circumstances might that provision require the disclosure of reinsurance agreements? John Camp discusses that issue in a Special Focus feature.

This post written by Rollie Goss.

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CALIFORNIA FEDERAL DISTRICT COURT COMPELS ARBITRATION IN REINSURANCE DISPUTE

December 23, 2014 by Carlton Fields

Randazzo Enterprises sued its reinsurer, Applied Underwriters Captive Risk Assurance Company, Inc. in California federal court over Applied’s calculation of premiums of the reinsurance agreement entered between them. Invoking the arbitration clause set forth in the reinsurance agreement, Applied filed a demand for arbitration and, in the pending federal case, moved to compel arbitration and to dismiss Randazzo’s complaint. The court determined it must first consider whether a valid arbitration clause exists and, if so, whether the arbitration encompasses the dispute at issue. To do so, the court found it must apply ordinary state law principles governing the formation and construction of contracts. Applying these principles to the facts before it, the court first rejected Randazo’s argument that the arbitration clause was unenforceable under Nebraska law which the parties agreed would govern. Nebraska law only applied to issues of substantive law and not to arbitration. Moreover, even if Nebraska law were to apply, it was preempted by the Federal Arbitration Act.

The court then turned to Randazzo’s argument that the arbitration agreement was unconscionable. Under California law, a contract must be unconscionable both procedurally and substantively in order to be rendered invalid. Here, because Randazzo had no opportunity to negotiate the arbitration provision, the agreement was an adhesion contract and therefore procedurally unconscionable. The Court then analyzed whether two specific provisions were substantively unconscionable. Under California law, a contract is substantively unconscionable when it is so one-sided that “it shocks the conscience.” The provision regarding the choice of arbitrator, requiring the arbitrators to be active or retired disinterested officials of insurance or reinsurance companies, was not substantively unconscionable. However, the provision which allowed only Applied to seek injunctive relief in Court was found substantively unconscionable, since it exceeded the rights afforded parties in an arbitration under California law and was so one-sided that it could not be justified as a legitimate commercial need. However, because California law permits a court to sever an unconscionable provision from an agreement, the parties’ agreement was not invalid because that one clause could easily be stricken without the need to reform the agreement. Finally, the court concluded that Randazzo’s claims related to the execution, delivery, construction or enforceability of the reinsurance contract, such that all of Randazzo’s claims were subject to arbitration. Randazzo Enterprises, Inc. v. Applied Underwriters Captive Risk Assurance Company, Case No. 5:14-CV-02374-EJD (USDC N.D. Cal. Dec. 11, 2014).

This post written by Leonor Lagomasino.

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NAIC APPROVES SEVEN FOREIGN COUNTRIES AS QUALIFIED JURISDICTIONS FOR REINSURANCE COLLATERAL REDUCTION REQUIREMENTS AND ANNOUNCES ACTION ON INSURANCE PRIORITIES

December 22, 2014 by Carlton Fields

At its December 11, 2014 meeting, the National Association of Insurance Commissioners (NAIC) approved seven foreign countries as Qualified Jurisdictions so that reinsurers licensed and domiciled in those jurisdictions will be eligible for reinsurance collateral reduction requirements under NAIC’s Credit for Reinsurance Model Law. Four of those jurisdictions – Bermuda, Germany, Switzerland, and the United Kingdom, were previously on NAIC’s list of Conditional Qualified Jurisdictions. Effective January 1, 2015, these four, along with Japan, Ireland and France, will be full Qualified Jurisdictions subject to a 5-year term, after which they will be re-evaluated under the provisions of the Qualified Jurisdiction Process.

NAIC also adopted the Revised Insurance Holding System Regulatory Act and Actuarial Guideline 48. The Act, in part, updates the model to clarify the group-wide supervisor for a defined class of internationally active insurance groups. AG 48 establishes national standards regarding certain captive reinsurance transactions and includes regulation of the types of assets held in a backing insurer’s statutory reserve. AG 48 takes effect in 2015. NAIC issued a news release on its actions, which can be found here.

This post written by Renee Schimkat.

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