Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Enforces Forum Selection And Choice Of Law Clauses In Worker’s Compensation Reinsurance Participation Agreement

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Plaintiff AGL Industries, Inc. (AGL), a steel fabrication and erection business, enrolled in a workers’ compensation insurance policy with Defendant Continental Indemnity Company and a reinsurance participation agreement (RPA) with Defendant Applied Underwriters Captive Risk Assurance Company, Inc. After Continental canceled the workers’ compensation insurance policy, AGL sued in New York for breach of contract and related claims and obtained emergency injunctive relief. Defendants then removed the case to federal court, which then granted a motion by Defendants to transfer venue to Nebraska based on the RPA’s forum selection and choice of law clauses. The federal court rejected AGL’s argument that the RPA was void ab initio because it was “an illegal workers’ compensation policy” in violation of New York insurance law. The court found that AGL did not assert that the forum selection clause was the result of fraud or misrepresentation, and therefore, at worst, the clause was severable from the RPA. Moreover, the Court found unpersuasive AGL’s sole argument against enforcing the forum selection clause that transferring the action to Nebraska would violate New York’s public policy in favor of “granting insureds access to the courts of the State of New York for all disputes regarding policies written in and for residents of the State [of New York].” AGL Industries Inc. v. Continental Indemnity Co., Case No. 17-4179 (USDC E.D.N.Y. July 18, 2018).

This post written by Gail Jankowski.

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New York Federal Court Confirms Arbitration Award

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The background and full procedural history of this case can be found here. In sum, the dispute stems from a 2011 agreement by KT Corporation and KTSAT Corporation (“KT”), a Korean satellite communications provider, to sell the KOREASAT-3 satellite for $500,000 to Asia Broadcast Satellite Global Ltd. and Asia Broadcast Satellite Holdings, Ltd. (“ABS”), a Bermuda satellite communications provider based in Hong Kong. It was also agreed that KT would operate the satellite for ABS for an $800,000 fee and additional technical engineering fees. The parties entered into a Purchase Agreement and Operating Agreement, both of which had arbitration clauses. In 2013, however, the Korean government declared the sale “null and void” because KT had failed to obtain a permit necessary to comply with the Foreign Trade Act. The parties then submitted issues relating to the Purchase Agreement and Operating Agreement to an International Chamber of Commerce (“ICC”) arbitration panel. The ICC panel first issued a partial award, which held that ABS has the title to the satellite and that no Korean mandatory law was violated when title passed. KT then moved to vacate the partial award in New York federal court and sought remand of the case to the ICC. ABS cross-moved to confirm the partial award. In April 2018, the New York federal court confirmed the partial award, finding that the ICC panel had not exceeded its authority and had not manifestly disregarded the law. In the meantime, in March 2018, the ICC panel issued its final award, which held that ABS had properly terminated the Purchase and Operating Agreements in response to KT’s breaches and was owed approximately $1 million in damages. ABS then moved to confirm the final award in New York federal court, and KT cross-moved to vacate the final award.

KT’s petition to vacate was based on two grounds: 1) the ICC panel acted in manifest disregard of New York law by failing to award KT the purchase price or other compensation after awarding ABS the title to the satellite; and 2) the ICC panel exceeded its authority by resting its holding on the invalidity of the Korean government’s order. The New York federal court denied KT’s motion to vacate, finding that the ICC panel did not exceed its authority because it found that KT had breached the Purchase and Operating Agreements. Thus, regardless of whether the ICC panel was correct or not in interpreting the Korean government’s order, the court held that the ICC panel had sufficient basis to find that KT had breached the Agreements, which was “squarely in its authority.” The court also held that the ICC panel did not act in manifest disregard of the law.

The New York federal court also granted ABS’ motion to confirm the final award. In so doing, the court noted that KT’s claim that the final award violated public policy is the same argument it made previously, which was rejected by the court in its previous opinion confirming the partial award. For the same reasons, the court again rejected the argument.

KT Corporation, et al. v. ABS Holdings, Ltd., et al., Case No. 17-Civ-7859 (USDC S.D.N.Y. July 12, 2018).

This post written by Jeanne Kohler.
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Tax Court Rejects Captive Insurance Company Status Under 501(c)(15)

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Petitioner, a captive insurer domiciled in Anguilla, applied to be a tax-exempt small insurance company under IRC section 501(c)(15), and filed returns on this basis, making an election under IRC section 953(d). The Tax Court concluded this characterization was not appropriate, that Petitioner was not a bona fide insurance company, and that Petitioner should instead be treated as a foreign corporation.

The Tax Court found the reinsurance agreements did not allow Petitioner to effectively distribute risk, and in the absence of risk distribution, “a necessary component of insurance” Petitioner’s transactions were not insurance transactions.

Reserve Mechanical Corp. v. Commissioner of Internal Revenue, Docket No. 14545-16 (U.S. Tax Court June 18, 2018)

This post written by Nora A. Valenza-Frost.

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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.

See our disclaimer.