Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Colorado Federal Court Adopts Report & Recommendation to Compel Arbitration Despite Challenge

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Plaintiff sought to compel arbitration and enjoin defendant from pursuing claims of negligence and violations of the Colorado Consumer Protection Act (“CCPA”) in state court. Defendant argued the Court should abstain from ruling and allow the state court to address the arbitration issue or dismiss the complaint since the arbitration agreement is unenforceable under state law. As to the abstention argument, the Court applied the Colorado River factors.  It found the state and federal actions to be parallel, but there were no exceptional “factors supporting Defendant’s position in favor of abstention, and since there are several factors that are neutral (or point the other way), the court has little choice but to exercise jurisdiction.” The arbitration agreement’s enforceability was largely dictated by whether Colorado’s Health Care Availability Act (“HCAA”) is preempted by the Federal Arbitration Act (“FAA”). Finding the HCAA was preempted by the FAA, the arbitration agreement was found to be valid and enforceable.

The District Court adopted the Magistrate’s Report & Recommendation, granting the motion to compel and staying the state court proceeding.

Watermark Harvard Square, LLC, et al. v. Willie Lee Calvin, Case No. 1:17-cv-00446 (USDC D. Colo. Mar. 29, 2018).

This post written by Nora A. Valenza-Frost.

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Missouri Federal Court Remands Action To State Court Because Missouri Law “Reverse Preempts” The New York Convention Based On The McCarran-Ferguson Act

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Foresight Energy, LLC (“Foresight”) brought an action in Missouri state court against various domestic and Bermuda and London market insurers for declaratory judgment, breach of contract and statutory vexatious refusal to pay a claim related to an event at a coal mine in Hillsboro, Illinois. The policies at issue provided for an arbitration in London and that the policies were to be governed by Missouri law. One of the insurers removed the action to Missouri federal court, asserting that federal subject matter jurisdiction existed under Chapter 2 of the Federal Arbitration Act (the “New York Convention”) because the agreement did not arise out of a relationship “entirely between citizens of the United States,” given the involvement of the non-U.S. insurers/defendants. Foresight then moved in Missouri federal court to remand the action back to state court because the federal court lacked subject matter jurisdiction, arguing that Missouri law, the law governing the policies, prohibits mandatory arbitration clauses in insurance policies and that Missouri law “reverse preempts” the New York Convention in light of the McCarran-Ferguson Act.

The Missouri federal court noted that McCarran-Ferguson states that “[n]o act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance.” The court then found that the New York Convention, an act of Congress, was not a self-executing treaty and could not itself provide the rule of decision, and that the Missouri anti-arbitration statute was a state law regulating the business of insurance. The court also found that application of the New York Convention to enforce the arbitration agreement in the policies at issue would “invalidate, impair or supersede” the Missouri anti-arbitration statute. The court then held that because the New York Convention was an act of Congress and was not self-executing, McCarran-Ferguson “reverse preempted” the New York Convention, which thus eliminated the basis for federal subject matter jurisdiction. Thus, the Missouri federal court granted Foresight’s motion to remand the action to state court.

Foresight Energy, LLC. v. Certain London Market Ins. Cos., No. 17-CV-2266 (USDC E.D. Mo. Apr. 25, 2018).

This post written by Jeanne Kohler.
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Texas Federal Court Enforces Arbitration Award Under the New York Convention Despite Jurisdictional Challenge

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Respondent argued against the confirmation of the arbitral award as it was based upon the consent of the parties, rather than a disputed hearing, which it contended made the award not subject to the New York Convention, resulting in a lack of jurisdiction.  The Court disagreed that it lacked subject matter jurisdiction, citing to Albtelecom SH.A. v. UNIFI Commc’ns, Inc., 2017 WL 2364365 (S.D.N.Y. May 30, 2017). The court noted that “[w]hile the tribunal did not make findings or reach legal conclusions, it made an award that bound parties, with its power.  No binding or persuasive statutory language or case law requires a court to hold that a tribunal must reach its own conclusions, separate from the parties’ agreement, to make a valid binding award subject to the Convention.”

As Respondent did not argue that the award should not be confirmed on any ground but lack of subject-matter jurisdiction, the Court found the award must be confirmed.

Transocean Offshore Gulf of Guinea VII Ltd., et al. v. Erin Energy Corp., No. H-17-2623 (USDC S.D. Tex. Mar. 12, 2018)

This post written by Nora A. Valenza-Frost.
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Kentucky Adopts 2016 Amendments to NAIC Credit for Reinsurance Model Law

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On April 26, 2018, Governor Matt Bevin of Kentucky signed House Bill No. 464, adding Kentucky to a growing list of states to have amended their Insurance Codes to conform with the 2016 amendments to the NAIC Credit for Reinsurance Model Law. These changes to Kentucky law include, among others:

  • allowing the commissioner to authorize reductions in the required surplus for single assuming insurers who have discontinued underwriting new business for three years;
  • making numerous changes to the trusts and surpluses required;
  • providing criteria by which the commissioner may certify reinsurers, including allowing the commissioner to defer to the certifications of other NAIC-accredited jurisdictions;
  • allowing certified reinsurers to maintain their certifications on inactive status after ceasing to assume new business;
  • requiring the commissioner to assign ratings to each certified reinsurer based on their financial strength and to publish such ratings;
  • specifically granting the commissioner the authority to promulgate regulations regarding reinsurance of certain types of life insurance, variable annuities, long-term care insurance, and other life and health insurance and annuity products for which the NAIC adopts model regulations related to reinsurance.

The amendments will take effect on January 1, 2019.

This post written by Jason Brost.

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Nebraska Adopts Reinsurance Credit Amendments to Insurance Law Based on NAIC Model

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On April 11, 2018 Nebraska Gov. Pete Ricketts (R) signed Legislative Bill 815 into law, joining the surge of states amending their insurance laws regarding when ceding insurers may claim credit for reinsurance. The introducer’s “Statement of Intent” indicates the bill’s intent to “adopt the latest updates to the credit for reinsurance model law” published by the National Association of Insurance Commissioners. The bulk of the amendments provide additional authority to the state Director of Insurance to regulate the circumstances and requirements for authorizing credit for reinsurance. Specifically, the bill authorizes the Director to promulgate rules and regulations relating to the valuation of assets or reserve credits, amount and form of security backing reinsurance agreements, or the circumstances surrounding reduction or elimination of credit. It also grants the Director the authority to promulgate specialized rules and regulations applicable only to reinsurance relating to specialized term and universal life insurance policies, variable annuities, and long-term care policies.

This post written by Thaddeus Ewald .

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