Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Rejects Defendant’s Objections to Subpoenas as Untimely and Baseless in Fraudulent Transfer Default Judgment Spat

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In a dispute previously reported on this blog, the Southern District of California overruled a defendant’s objections to subpoenas served on a former expert witness in defendant’s unrelated divorce case and to a bank for account information for a non-party corporate entity.

Regarding the former expert’s subpoenas, the court held that defendant waived her challenges. Plaintiff had served the subpoenas duces tecum to the defendant’s former expert witness in February 2018, with which the witness complied and produced hundreds of thousands of documents in March 2018. Defendant filed her objections in April 2018.

First, the court noted the difference under the Federal Rules between objections permitted by the non-party subject of the subpoena and motions to quash by parties who are not the subject of the subpoena. The defendant was not the subject of the subpoenas and thus could move to quash the subpoena. However, even interpreting defendant’s objections as a motion to quash, the court held they were untimely because they were filed a month after the subpoenas’ compliance date and the date on which the subject produced the documents. Additionally, the court held that even if defendant was technically able to object to the subpoenas, such objections were untimely filed after the statutory 14-day objection period.

The court next found there were no unusual circumstances or good cause to justify the untimeliness of defendant’s objections. Although defendant asserted a work product privilege regarding her former expert’s documents, that privilege was waived because the former expert was a testifying expert in her divorce case whose work is not protected by the privilege (compared to a consulting expert’s work). Defendant also failed to provide any explanation for her significant delay in filing objections.

Lastly, the court concluded that defendant lacked standing to quash a third-party subpoena for the former expert’s deposition testimony. Because it had already rejected defendant’s privilege claim, it found only the non-party witness could move to quash the subpoena prior to the deposition and defendant thus lacked standing to challenge the deposition.

Regarding the bank subpoena, the court overruled defendant’s objection to the subpoena pertaining to the non-party corporate entity’s account on relevance grounds. Although the corporate entity was an “uninvolved corporation,” newly-discovered emails indicated defendant created the corporate entity specifically to shield money from judgment creditors, making them highly relevant.

Odyssey Reinsurance Co. v. Nagby, Case No. 16-3038 (S.D. Cal. Apr. 26, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

Eleventh Circuit Finds Defendant Can’t Use Unsigned Consent to Receive Text Messages to Compel Arbitration Of TCPA Claim

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Hope Gamble sued New England Auto Finance, Inc. (NEAF) in federal court under the Telephone Consumer Protection Act (TCPA). Ms. Gamble alleged that NEAF, from which she had previously borrowed money to buy a car, sent her text messages without her consent. NEAF moved to compel arbitration under an arbitration agreement contained within her loan agreement. That loan agreement also contained a Text Consent Provision that would have granted NEAF the right to send Ms. Gamble text messages, but this provision required a separate signature, and Ms. Gamble did not sign it. The district court found that the TCPA claim was not covered by the arbitration agreement and denied NEAF’s motion.

On appeal, the NEAF argued that the arbitration agreement, which required arbitration of any “claim, dispute or controversy . . . whether preexisting, present or future, that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement,” was broad enough to encompass the TCPA claim. The Eleventh Circuit rejected this argument, however, as the text messages in question did not involve her auto loan, which Ms. Gamble had paid off before the relevant text messages were sent. The NEAF further argued that the Text Consent Provision governed the issue of Ms. Gamble’s consent to receive text messages, even though she had not signed that provision. Again, the Court disagreed, finding that Ms. Gamble’s right not to receive text messages was created by Congress through the TCPA, not by any agreement with NEAF, and certainly not by the unsigned Text Consent Provision that, because it was unsigned, created no rights or obligations for anyone. Thus, the Court affirmed the denial of NEAF’s motion to compel arbitration.

Gamble v. New England Auto Finance, Inc., No. 17-15343 (11th Cir. May 31, 2018)

This post written by Jason Brost.

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California Appeals Court Upholds Summary Judgment Against Insured’s Attempt To Pierce Insurer’s Corporate Veil

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A California state appellate court recently upheld summary judgment in favor of an insurer in a dispute about the value of fine art paintings over the insured’s attempts to pierce the insurer’s corporate veil. In the course of litigation against XL Specialty and related entities, the Hollanders alleged that XL Capital, the insurer’s parent company, operated as the alter ego of the other entities and operated as a single enterprise. The trial court had previously denied several defendants’ motion for summary judgment on the alter ego, agency, and related liability theories, but those defendants renewed their motion on the grounds that new facts had arisen. Specifically, there was new information concerning XL Specialty’s assets which allegedly doomed the Hollanders’ ability to prove the insurer was incapable of paying a judgment; proof which would satisfy the “inequitable result” element required to pierce the corporate. After the trial court’s initial grant of the renewed motion was appealed and remanded on other grounds, the trial court again granted the motion and this appeal followed.

In its second review of the case, the appellate court affirmed the grant of summary judgment. First, the court found the Hollanders failed to present sufficient evidence (through proper expert witness testimony) that XL Specialty’s assets were inadequate to satisfy a potential judgment or to support their claims for emotional distress and punitive damages. It concluded the expert testimony proffered was “only unsupported and unexplained conjecture” about XL Specialty’s solvency. Even less sufficient were the Hollanders’ claims for emotional distress, supported by “absolutely no evidence,” and punitive damages, a discretionary award for which the lack of evidence fell far short of the clear and convincing evidence required.

Second, the court upheld the decision regarding the agency theory because the Hollanders failed to prove that XL Capital dominated and controlled the activity of its subsidiaries. The Hollanders showed the various defendants shared an employee, but that showing alone was insufficient to prove agency of XL Capital where there was no evidence about other employees, the senior leadership of the companies, or the shared employee inappropriately mixing roles for the respective companies. The Hollanders attempted to demonstrate shared profits and losses by highlighting reinsurance agreements, but failed to show any of the defendants were members or parties to the reinsurance pooling and quota share agreements. Finally, the fact that the defendants shared administrative service agreements did not show agency where there was no right to control or any demonstrated impact by the agreements on day-to-day management of the companies.

Thus, the court affirmed the summary judgment as to the alter ego/single enterprise and agency theories of liability because the Hollanders failed to present triable issues of fact on the legal elements of those theories.

Hollander v. XL Capital, Ltd., Case No. B276621 (Cal. App. Ct. May 1, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

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.
See our disclaimer.

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.

See our disclaimer.