Week's Best Posts

RHODE ISLAND DIVISION OF INSURANCE AMENDS CREDIT FOR REINSURANCE REGULATION

October 7, 2014 by Carlton Fields

Effective September 2, 2014, Insurance Regulation 59 entitled “Credit for Reinsurance” is amended to update the regulation to the current version of the National Association of Insurance Commissioners (NAIC) Model Regulation and to make changes necessitated by amendment of Rhode Island’s Credit for Reinsurance Act, R.I. Gen Laws § 27-1.1-1 et seq.

The amendments to Insurance Regulation 59 also include the adoption of Forms CR-1, entitled “Certificate of Certified Reinsurer,” CR-F parts 1 and 2 entitled “Assumed Reinsurance as of December 31, Current Year” and “Ceded Reinsurance as of December 31, Current Year,” and CR-S entitled “Reinsurance Assumed Life Insurance, Annuities, Deposit Funds and Other Liabilities Without Life or Disability Contingencies, and Related Benefits Listed by Reinsured Company as of December 31, Current Year.”

This post written by Kelly A. Cruz-Brown.

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NEW YORK FEDERAL COURT ALLOWS ATTORNEY DISQUALIFICATION CLAIM TO PROCEED

October 6, 2014 by Carlton Fields

A New York federal court recently denied a motion to dismiss a claim filed by two reinsurers, Employers Insurance Company of Wausau and National Casualty Company. The claim sought a declaration disqualifying Hunton & Williams as counsel for their reinsured, Utica Mutual Insurance Company, in a subsequent arbitration dispute concerning the reinsurers’ obligations for the amounts paid in an underlying settlement. Hunton & Williams had represented Utica in negotiating the underlying settlement and in litigating coverage issues against Utica’s insured. The reinsurers argued that, in the underlying litigation, Utica had a “common interest” with its reinsurers to minimize the liability to Utica’s insured; therefore, the Hunton & Williams attorneys, in effect, represented the reinsurers’ interests in the underlying litigation. The reinsurers argued that the rules of professional conduct prohibit the attorneys from representing Utica in the subsequent arbitration because such representation was adverse to them. The district court concluded that the reinsurers had stated a valid claim to disqualify the attorneys based on the rules governing concurrent and successive representation, noting that even if the reinsurers were not the clients of Hunton & Williams in the “traditional sense,” an inquiry into the potential conflict was still warranted. The court also found that the reinsurers had plausibly alleged that the “witness-advocate” rule may apply in the case because the attorneys may be called as witnesses in the arbitration proceeding to testify concerning the reasonableness of the underlying settlement.

Utica Mutual Ins. Co. v. Employers ins. Co. of Wausau and Nat’l Cas. Co., No. 6:12-CV-1293 (USDC N.D. N.Y. Sep. 22, 2014).

This post written by Catherine Acree.

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REINSURER NOT ALLOWED TO INTERVENE IN ACTION INVOLVING CEDENT’S RISK

September 30, 2014 by Carlton Fields

The United States District Court for the Southern District of New York denied a reinsurer’s motion to intervene in an interpleader action in which Battenkill Insurance Company argued it had an 85% interest in the funds at stake in an action involving a dispute over distribution of funds from a residential mortgage-backed securitization trust. Battenkill reinsured 85% of the risk under certain policies issued by one of the defendants in the interpleader action, Assured Guaranty Municipal Corp. Wales, LLC, one of the other defendants, counterclaimed against Wells Fargo, an interpleading plaintiff, arguing Wells Fargo misinterpreted the trust provisions and argued that Assured should be ordered to repay $47.7 million, plus interest, of the disputed distributions which Wells Fargo had held in escrow as a result of the dispute and then interplead. Because Battenkill would be required to reinsure 85% of the amounts which Assured would have to repay, Battenkill sought to intervene.

The court rejected the motion to intervene, reasoning that Assured would also lose a significant amount of money if it did not prevail, despite holding a smaller interest in the amount at stake, such that Battenkill and Assured had identical interests in the litigation. Assured would therefore adequately protect Battenkill’s interest and Battenkill thus did not have a right to intervene in the litigation. The court also rejected Battenkill’s argument that it should be allowed to intervene so that it could litigate the interpretation of the reinsurance agreement between it and Assured. Because the reinsurance agreement was not at issue in the in the interpleader action, Battenkill’s intervention would unnecessarily complicate the litigation and introduce immaterial issues to the trust’s interpretation. Wells Fargo Bank, NA v. Wales, LLC, et. al., 13 Civ. 6781 (PPG) (USDC S.D.N.Y. Sept. 19, 2014).

This post written by Leonor Lagomasino.

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PENNSYLVANIA COURT AFFIRMS LIQUIDATOR’S DECISION THAT A CLAIM ARISING FROM A REINSURANCE POLICY IS ENTITLED TO A LOWER PAYMENT PRIORITY

September 29, 2014 by Carlton Fields

A Pennsylvania appellate court has affirmed the liquidator’s determination that a group excess insurance policy issued by Reliance is a reinsurance policy and thereby entitled to a low level of priority of payment from the now insolvent Reliance estate. At issue was a claim by the Alabama Insurance Guaranty Association for reimbursement from the estate for a claim it had paid to a general contractors fund. The Association argued that the Reliance policy was a direct insurance policy, thereby entitled to a high priority for re-payment, and that the liquidator was obligated to follow an Alabama Supreme Court ruling that the claim arose under a policy of direct insurance.

The Pennsylvania court rejected all of the Association’s claims that the liquidator was bound by the Alabama Supreme Court ruling, including the application of the Full Faith and Credit doctrine and principles of collateral estoppel. The court also rejected any choice of law analysis favoring Alabama over Pennsylvania and concluded that the policy at issue was one of reinsurance under Pennsylvania’s governing law. The material characteristics the court looked to in order to determine that the policy was one of reinsurance included the language of the policy itself referring to a “reinsurance premium” and the obligations of Reliance to “reinsure” the Alabama Reinsurance Trust. The opinion generated a strong and lengthy dissent that criticized the majority for rejecting the Alabama Supreme Court’s holding and for otherwise finding that the policy was a contract of reinsurance and not a group insurance policy that covered catastrophic workers’ compensation claims of the self-insurers that were members of the group. Alabama Insurance Guaranty Association v. Reliance Insurance Co. in Liquidation, No. 6 REL 2012 (Pa. Commw. Ct. Sept. 12, 2014).

This post written by Renee Schimkat.

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HAWAII ENACTS NAIC-RECOMMENDED REVISIONS TO CREDIT FOR REINSURANCE LAW

September 23, 2014 by Carlton Fields

Hawaii’s House/Senate conference committee cleared the way for passage by the full houses of NAIC’s Model Act on Credit for Reinsurance, to address NAIC’s recommended updates pursuant to its Solvency Modernization Initiative. The bill was adopted and became law July 8, 2014. The Committee amended prior drafts of HI SB 2821 “A Bill for an Act Relating to Insurance,” and recommended final passage of the amended version to the respective Houses. According to the Conference Committee Report, the purpose of the bill is to (1) adopt revisions to NAIC’s model laws on Credit for Reinsurance, Standard Valuation, Standard Non-Forfeiture Law for Life Insurance, and Insurance Company Holding System Act; and (2) maintain accreditation with NAIC. The Committee’s amendments included:

Adding a definition for “domestic insurance holding company system;”
Deleting a definition for “domestic single-state insurer;”
Clarifications regarding the filing of financial statements;
Specifying exemptions regarding the annual enterprise risk report;
Permitting certain Insurance Commissioner examinations;
Specifying obligations regarding subpoenas; and
Creating effective dates for various parts of the measure.

This post written by John Pitblado.
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