Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Florida Federal Court Dismisses Reinsurer’s Agent From Breach of Contract Lawsuit

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In this case, the ceding company, VIP Universal Medical Insurance Group Ltd. (“VIP”), brought an action in Florida federal court against its reinsurer, BF&M Life Insurance Company Ltd. (“BF&M”), and International Reinsurance Managers LLC (“IRM”), BF&M’s agent, alleging breach of a reinsurance contract, in which BF&M reinsured VIP for medical claims in excess of $200,000. It was alleged that BF&M refused to pay a claim for $139,000 and that IRM had “directed the non-payment” of such claim. IRM moved to dismiss, arguing that it cannot be held liable for breach of contract, where it is not party to a contract.

The Florida federal court agreed with IRM, noting that under Florida law, “an agent for a disclosed insurer is not liable to the insured on the insurance contract.” The court noted that even taking the allegations — that IRM acted as agent and “directed” the non-payment of the claim — as true, they do not state a claim for breach of contract against IRM. The court then held that IRM, as agent to the reinsurer, was not a proper party in VIP’s breach of contract claim because IRM was not a party to the reinsurance contract at issue. Thus, IRM’s motion to dismiss was granted.

VIP Universal Medical Insurance Group Ltd. v. BF&M Life Insurance Company Ltd., et al., No. 17-24633 (USDC S.D. Fla. July 18, 2018).

This post written by Jeanne Kohler.

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California Court Grants § 1782(a) Application Seeking Subscriber Identity for Facebook Page Following Amendment of Application

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Hoteles City Express sought an order granting it permission to issue a subpoena to obtain documents from non-party Facebook, Inc. to show the subscriber identity for a Facebook page allegedly containing defamatory statements regarding Hoteles to be used in a lawsuit in Mexico.

The Northern District of California initially denied Hoteles request absent “additional information regarding the nature of the defamatory statements made and contained on the Facebook account for which Hoteles seeks identifying information.” Furthermore, it concluded that “Hoteles has provided insufficient information for the Court to determine whether it could actually state a claim for defamation under Mexican law.”

Hoteles was directed to, and subsequently did, amend its application. The Court granted the amended application, finding Hoteles had cured its prior defects and finding good cause to grant the requested discovery.

In re Hoteles City Express, Case No. 18-mc-80112 (N.D. Cal. July 13, 2018 & August 8, 2018)

This post written by Nora A. Valenza-Frost.

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New Jersey Tax Court Finds That Companies for Which New Jersey is the Home State Must Pay Taxes on All Premiums Paid to Captive Insurers for U.S. Based Risks.

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A tax court judge in New Jersey has handed Johnson & Johnson (J&J), and likely other New Jersey-based businesses that operate captive insurers, a significant loss in an opinion interpreting the federal Nonadmitted and Reinsurance Reform Act (NRRA) and related changes to New Jersey law regarding taxes on insurance premiums.

For the last 10 years, New Jersey has imposed what the court called a self-procurement tax on insurance premiums paid to captive insurers, and J&J, which has its headquarters in New Jersey and pays significant premiums to a captive insurer, pays such taxes. Initially, those taxes were based only on the premiums paid for risks located in New Jersey. After the passage of the NRRA and certain related changes to New Jersey law, the New Jersey Department of Banking and Insurance took the position that J&J must pay taxes to New Jersey on all the premiums it paid its captive insurer for U.S. risks. J&J filed a claim challenging this interpretation and seeking a refund of almost $56 million, alleging that both the NRRA and the changes to New Jersey law applied only to surplus lines business, and not to self-procured insurance.

The court disagreed. The NRRA provides that “no state other than the home state of an insured may require any premium tax payment for nonadmitted insurance.” This meant that New Jersey, which was previously able to tax premiums paid by out of state companies to nonadmitted insurers for risks located in New Jersey, could now only tax such premiums paid by businesses which New Jersey was their home state. The court rejected J&J’s argument, which was largely based on legislative history, that “nonadmitted insurance” as used in the NRRA does not include captive insurers. The court agreed with J&J, however, that the language of the changes to New Jersey law made it appear that only surplus lines insurance was covered by New Jersey’s adoption of the home state rule. And yet, after balancing what it called “the precise language” of the statute “against its true legislative intent,” the court found itself “convinced that the New Jersey Legislature intended to include self-procured insurance in the adoption of the Home State Rule because it intended to include all nonadmitted insurers, and not to limit it to only surplus lines.” This legislative intent thus trumped the “precise language,” and the court found that J&J must pay the tax on all premiums for risks located in the United States.

Johnson & Johnson v. Dir., Div. of Taxation & Comm’r, Docket No. 13502-2016 (June 15, 2018)

This post written by Jason Brost.

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Alaska Follows Other States in Adopting Law Based on Updates to NAIC Credit for Reinsurance Model Law

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On July 13, 2018 Alaska became the last state to incorporate amendments to the NAIC Credit for Reinsurance Model Law into its insurance code when Governor Bill Walker (I) signed House Bill 401 into law. As explained by the state Department of Commerce, Community, and Economic Development’s legislative analysis, the bill allows domestic ceding insurers to receive credit for reinsurance either as an asset or liability deduction based on the reinsured ceded so long as the assuming insurer satisfies certain requirements. The requirements provide alternate ways to qualify ceding insurers to receive such credit, including when the assuming insurers: are licensed to transact insurance or reinsurance business in Alaska; are accredited as reinsurers; are domiciled in states accredited by the NAIC; maintain trust funds in qualified U.S. financial institutions and satisfy related requirements; are certified as reinsurers in Alaska and secure obligations subject to additional requirements; and more. Furthermore, the law implements principle based reserving for policies and contracts issued on or after the valuation manual’s operative date. Pursuant to Alaska law the bill took effect immediately upon the Governor’s signature.

This post written by Thaddeus Ewald .

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Court Finds That Apparently Inconsistent Forum Selection Provisions Do Not Render Arbitration Agreement Unenforceable

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Plaintiff Fintech Fund, FLP filed an action in federal court in the Southern District of Texas asserting claims under the federal Defend Trade Secrets Act and the Computer Fraud and Abuse Act against Ralph Horne, a citizen of the United Kingdom and CEO of a company to which Fintech had licensed certain financial technology. Fintech claimed that Horne used that relationship to access Fintech’s confidential and proprietary information illegally. Horne moved to dismiss the action (1) for lack of personal jurisdiction and (2) for lack of subject matter jurisdiction and improper venue because the matter was subject to an arbitration agreement.

The court rejected Horne’s personal and subject matter jurisdiction arguments, finding that the court had specific jurisdiction over him based on telephone calls he made and emails he sent as part of his allegedly wrongful conduct to a Fintech partner in Texas, and that it had subject matter jurisdiction because Fintech’s claims were for federal statutory violations. Fintech was less successful on the question of venue, however.

Fintech argued that the dispute was not arbitrable because the arbitration agreement was unenforceable and the claims at issue were not covered by it. Fintech said there was no meeting of the minds as to arbitration, as the relevant contract contained an irreconcilable internal inconsistency; the arbitration provision said that all claims against Horne and his company would be resolved by “arbitration under the London Court of International Arbitration (‘LCIA’) Rules,” while a choice of law provision in the same contract said that the courts of England and Wales would have exclusive jurisdiction over such claims. The court found that this apparent inconsistency could be resolved by interpreting them to require that any non-arbitrable claims and disputes regarding arbitrability be brought before courts in England or Wales, while any arbitrable claims must be submitted for arbitration in London. In either case, the agreed upon forum was in the United Kingdom, not the Southern District of Texas. Finding no justification for refusing to enforce the parties agreed upon forum, the court dismissed the action, leaving the question of arbitrability to be decided, if necessary, by a court in England or Wales. Fintech filed its notice of appeal on the same day that the district court entered its order.

Fintech Fund, FLP v. Horne, Civil Action No. H-18-1125 (S.D. Tex. July 6, 2018)

This post written by Jason Brost.

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