Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Idaho, South Carolina, and Tennessee Update Credit for Reinsurance Laws

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South Carolina and Tennessee updated their respective credit for reinsurance statutes consistent with NAIC Credit for Reinsurance Model Law 785. Idaho and Tennessee adopted the NAIC Credit for Reinsurance Model Regulation 786. Among other changes, the updated model law and regulation set incremental collateral requirements for reinsurance ceded to alien reinsurers in order for a cedent to recognize a reduction in its liabilities for the amount ceded. Previously, the reinsurance ceded to alien reinsurers was required to be secured by 100% collateral. Idaho Credit for Reinsurance Rules no. 18-01-75 issued Mar. 28, 2018 (rules) (redline of proposed rules); South Carolina H.B. 4656 eff. May 3, 2018 (bill) (redline); Tennessee H.B. 1808 eff. Jan. 1, 2019 (bill) (summary); Tennessee Regs. Chapter 0780-01-63 eff. May 31, 2018 (regulation and redline).

This post written by Michael Wolgin.
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Update On Amendments To State Captive Insurance Laws

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South Carolina

South Carolina passed new legislation making numerous and streamlining changes to its captive insurance law. Included in the changes are: modified capital and surplus requirements, a new definition of a captive’s principal place of business, and new oversight, reporting, and examination rules and requirements. (S.C. H.B. 4675 eff. May 18, 2018).

Vermont

Last year Vermont passed House Bill 85, authorizing the formation of agency captive insurers owned by insurance agencies, among other changes. Effective March 8, 2018, Vermont enacted House Bill 694, making various amendments to the captive insurance laws, including standardizing the due dates for annual reporting and premium taxes, designating the Commissioner of Financial Regulation as the agent for service of process for branch captive insurers, and further amending the governance standards for risk retention groups. (VT H.B. 85 eff. May 1, 2017) & (VT H.B. 694 eff. March 8, 2018).

Connecticut

Connecticut passed Senate Bill 377 joining Vermont in authorizing the formation of agency captive insurers owned or controlled by licensed insurance agents or producers. (CT S.B. 377 eff. July 1, 2018).

This post written by Michael Wolgin.

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Multi-Million Russian Mall Investment Dispute Remains In Limbo As Ninth Circuit Vacates Turnover Order Requiring Release Of Assets Held In Lichtenstein Trust

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In a matter between Petitioner Vitaly Smagin and Respondent Ashot Yegiazaryan, the London Court of International Arbitration awarded Smagin about $72 million in damages plus about $20 million in interest and fees. A U.S. district court then confirmed the award. Yegiazaryan then appealed to the Ninth Circuit, taking issue with (1) an order of attorneys’ fees against him; (2) a post-judgment injunction against him, freezing some $115 million in assets; and (3) a turnover order against him regarding a Liechtenstein trust that is now the subject of ongoing proceedings in Liechtenstein courts.

With respect to the grant of attorney’s fees, the Ninth Circuit vacated the award as an abuse of discretion, finding that the district court granted Smagin’s request for attorney’s fees without entering any finding on bad faith. With regard to the injunction resulting in the freezing of Yegiazaryan’s assets, however, the Ninth Circuit upheld the decision, reasoning that the district court identified a clear, case-specific risk that Yegiazaryan might evade the court’s jurisdiction or contravene its judgment by funneling assets through a “reshuffled deck of shell companies and bank accounts across the Caribbean, Cyprus, Monaco, Liechtenstein, or whatever other amicable havens he finds.” Regarding the turnover order, which commanded Yegiazaryan to turn over assets of a Liechtenstein trust, the Ninth Circuit vacated the order as premature. The Ninth Circuit reasoned that its decision was guided by the principles of “adjudicatory comity,” that is, “discretion of a national court to decline to exercise jurisdiction over a case before it when that case is pending in a foreign court with proper jurisdiction.” Smagin v. Yegiazaryan, Case No. 17-56467 (9th Cir. May 18, 2018).

This post written by Gail Jankowski.

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Court Applies Arbitration And Continued Performance Provisions Of One Contract To A Separate Performance Guaranty Agreement

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This lawsuit centered around a contract providing a guaranty of performance in connection with an underlying broadband network access contract. The underlying contract called for binding arbitration of any disputes and required the parties “to continue performing their respective obligations under the Agreement … while the dispute is being resolved.” The guaranty did not contain the same “continuing performance” clause, but it did include a clause incorporating “all other provisions [of the underlying agreement] relating to dispute resolution or arbitration.” The guarantor argued that the “continued performance” clause of the underlying contract only imposed an obligation on its subsidiary, the party to the underlying contract. But, according to the court, “this argument makes no sense.” “[W]hen the parties to the Guaranty agree that they incorporate a clause saying that the ‘Parties agree to perform their respective obligations under the Agreement … while a dispute is being resolved,’ then that incorporation plainly means that the parties to the incorporating contract (i.e., the Guaranty) agree to perform their obligations under that contract pending resolution of any dispute. Otherwise, the incorporation would do no work.” As such, the guaranty’s incorporation of “all other provisions relating to dispute resolution or arbitration” subjected the guarantor to the underlying contract’s continuing performance obligations pending resolution of the dispute. Axia Netmedia Corp. v. Massachusetts Tech. Park Corp., Case No. 17-1607 (1st Cir. Apr. 25, 2018)

This post written by Benjamin E. Stearns.

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California Court of Appeals Affirms Decision that Arbitration Provision and Its Delegation Clause Were Unlawful and Void

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The California Court of Appeals rejected defendants’ appeal seeking to enforce an arbitration provision in a reinsurance participation agreement (“RPA”). Several months prior, the California Insurance Commissioner issued an administrative decision which challenged the same insurance program offered by the same defendants, finding the RPA to be unlawful and void for various reasons, including for the carrier’s failure to file with and obtain approval from the Commissioner.

In its motion to compel arbitration, defendant argued that the language in the arbitration provision of the RPA which stated that “all disputes between the parties relating in any way to (1) the execution and deliver, construction or enforceability of this Agreement… shall be finally determined exclusively by binding arbitration in accordance with the procedures provided herein” required arbitration of disputes concerning the enforceability of the RPA, and “was a delegation clause that gave the arbitrator the sole and exclusive authority to rule on challenges to the enforceability of the arbitration agreement.” However, the trial court determined that the plaintiff was asserting both the arbitration clauses and the delegation clauses themselves are illegal and unenforceable because they were not filed and approved by the Commissioner.

On appeal, the Court determined the trial court properly found plaintiff’s challenge to the delegation clause was sufficient to require the court to rule on the question of enforceability, as courts are to resolve this question when the challenge is directed specifically to the delegation clause. In a similar matter, the Fourth Circuit recently held the court was the proper entity to resolve challenges to a delegation clause in a similar RPA.

Finding “that the arbitration and delegation provisions were prohibited because they were not properly filed with the Insurance Commissioner,” the Court affirmed the trial court’s decision that the arbitration and delegation clauses were unenforceable, as “a contract made in violation of a regulatory statute is void.”

Nielsen Contracting, Inc. v. Applied Underwriters, Inc., D072393 (Cal. Ct. App. May 3, 2018).

This post written by Nora A. Valenza-Frost.

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