Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

West Virginia Amends Credit For Reinsurance Statute To Conform To NAIC Model, Effective January 1, 2019

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West Virginia House Bill 4230, approved by Governor Justice on March 27, amends the statutory requirements relating to when an insurer may claim credit for reinsurance to conform to the NAIC model law. The bill establishes requirements for:

  • Domestic insurers to be allowed credit;
  • Reinsurers to meet in order for credit to be granted to ceding insurers;
  • The location where assets that provide security to fund United States obligations must be maintained by a non-United States insurer or reinsurer;
  • The filing and valuation of claims; and
  • Provision of an asset or reduction from liability for reinsurance ceded by a domestic insurer.

The bill also provides for the distribution of assets of an insolvent non-United States insurer or reinsurer, in addition to providing the Insurance Commissioner with authority to promulgate related legislative and emergency rules.

The bill takes effect January 1, 2019 and applies to all cessions under reinsurance agreements that have an inception, anniversary, or renewal date on or after that date.

This post written by Benjamin E. Stearns.
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Fourth Circuit Dismisses Appeal Of Order Compelling Arbitration In Voluntarily Dismissed Class Action

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This case arose from a putative class action alleging claims against Groupon on the basis of its reimbursement policies. After the trial court ordered the parties to arbitrate pursuant to an arbitration clause in the parties’ agreement, the plaintiff moved to amend the arbitration order, requesting that the district court dismiss her complaint with prejudice, advising the court that she would not pursue arbitration due to its costs outweighing her potential recovery. After the court dismissed the case, the plaintiff appealed the arbitration ruling, contending that the Fourth Circuit had jurisdiction over her appeal under 28 U.S.C. § 1291, which gives appellate courts jurisdiction of appeals from “final decisions” of district courts.

The plaintiff’s appeal was stayed pending a decision by the U.S. Supreme Court in Microsoft Corp. v. Baker as to whether a voluntarily dismissed action is final for purposes of 28 U.S.C. § 1291. Following the Supreme Court’s ruling that a voluntary dismissal does not qualify as a final decision, the Fourth Circuit followed the high court’s precedent and dismissed the appeal. Keena v. Groupon, Inc., Case No. 16-1973 (4th Cir. Mar. 27, 2018).

This post written by Gail Jankowski.

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Court Applies The “Intertwined-Ness Test” To Find That A Non-Signatory Could Invoke Equitable Estoppel To Compel Arbitration

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The court applied a two-part “intertwined-ness test” to determine whether an arbitration agreement allowed a non-signatory to invoke equitable estoppel to compel arbitration. The first prong of the test examines whether the claims advanced by the signatory to the arbitration agreement arise under the same subject matter of the agreement. The second prong asks whether the non-signatory has a “close relationship” to a signatory of the agreement.

The first prong is heavily fact dependent. Here, the court held it was met because the “bulk of Plaintiffs’ claims … [arose] from the formation, execution, and existence of the Reinsurance Agreements,” which contained the arbitration agreement. The court was also influenced by the fact that the plaintiffs simultaneously filed a complaint in court and a demand for arbitration, both of which provided nearly identical factual allegations, alleged injuries, and theories of the case.

The second prong “is centered on the role of the non-signatory defendants when the misconduct occurred.” The court noted that an agency relationship between the non-signatory and a signatory may be sufficient to permit the non-signatory to compel arbitration. The fact that the plaintiffs also connected the non-signatory defendants to a signatory through conspiracy allegations clinched the matter for the court. The defendants had the requisite “close relationship” with a signatory to allow them to compel arbitration. Bankers Conseco Life Insurance Company v. Feuer, Case No. 16-Civ-7646 (USDC S.D.N.Y. Mar. 15, 2018).

This post written by Benjamin E. Stearns.

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California Federal Court Remands Fraud Claims in Workers’ Compensation Reinsurance Action To State Court

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In a March 15, 2018 order, noting that only state law claims remained in the case, a California federal court remanded to state court a lawsuit against an insurance company and its affiliates, which alleged that they fraudulently marketed and sold a workers’ compensation program.

This case involves a matter that plaintiff BSA Framing Inc. (“BSA”) filed against defendants Applied Underwriters, Inc. (“AUW”), Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”), California Insurance Company (“CIC”), and Applied Risk Services, Inc. (“ARS”) (collectively, the “Applied Defendants”). BSA entered into the Applied Defendants’ EquityComp workers’ compensation package, which consists of three consecutive one-year workers’ compensation policies issued by defendant CIC, an affiliate of AUW, and a “Reinsurance Participation Agreement” with defendant AUCRA (the “RPA”). According to the complaint, over the course of its three-year participation in the EquityComp program, BSA paid the Applied Defendants a total of $2,133,345 in premiums and defendants paid $352,623 in BSA-related workers’ compensation claims pursuant to the terms of the workers compensation policies and the RPA. BSA also alleges that defendants made misrepresentations or omissions that led it to believe that its participation in the EquityComp program would be more financially favorable to BSA than it was. Specifically, BSA alleges that it expected to pay “at least $868,583” less than it actually paid in premiums over the course of its participation in the EquityComp program. BSA also alleges that the RPA was “purposefully written to be as vague as possible and to obfuscate and hide the manner in which an insured’s payment obligations are to be determined.”

BSA first filed its suit against the Applied Defendants in California state court, asserting several California state law claims and federal RICO claims. The Applied Defendants removed the case, invoking the district court’s federal-question jurisdiction on the basis of BSA’s RICO claims. In a November 28, 2017 order, the California district court granted the Applied Defendants’ motion to dismiss the RICO claims, but allowed BSA to file an amended complaint. BSA then filed an amended complaint, in which it again asserted RICO claims against the Applied Defendants, which again moved to dismiss the RICO claims. On February 27, 2018, the California district court granted the Applied Defendants’ motion without leave to amend and also ordered the Applied Defendants to show cause why the action, which now involves only state claims, should not be remanded to state court. The Applied Defendants did not file a response, and thus, the California district court remanded the case to state court.

BSA Framing, Inc. v. Applied Underwriters, Inc. et al., No. CV-17-1836 (USDC C.D. Cal. Feb. 27 and Mar. 15, 2018)

This post written by Jeanne Kohler.
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Minnesota Court of Appeals Affirms Dismissal of Claims Against Reinsurer Under Filed-Rate Doctrine

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The filed-rate doctrine precluded recovery of deficiency assessments the Workers’ Compensation Reinsurance Association (WCRA) levied against employers which were alleged to have been wrongfully collected in 2013 and 2014 when the WCRA no longer had a deficit.

The employers argued that the filed-rate doctrine “does not apply to deficient-premiums assessments and deficiency assessments, and that the doctrine does not bar their claims because they seek only to enforce the WCRA statutes and the commissioner’s orders imposing those assessments.” A Minnesota trial court disagreed, and its dismissal of the claims was affirmed by Minnesota’s Court of Appeals, which noted:

  1. the separation-of-powers concerns favor application of the filed-rate doctrine as the challenged assessments were recommended by a legislatively created nonprofit entity;
  2. justiciability concerns favor application of the filed-rate doctrine because “a court order requiring WCRA to refund millions of assessments dollars would substantially reduce the funding base that WCRA uses to pay claims” potentially triggering the need for future assessments and the “courts are ill-equipped to fashion relief that appropriately contextualizes deficient-premiums assessments and deficiency assessments within this complex and evolving scheme; and
  3. non-discrimination concerns favor application of the filed-rate doctrine, because a “retroactive judicial damages award that effectively adjusts a rate for some ratepayers but not others would create discrimination in the rate schedule.”

Ambassador Press, Inc., et al. v. Trifac Workers’ Compensation Fund, et al., 62-CV-16-1713 (Minn. Ct. App. Dec. 11, 2017).

This post written by Nora A. Valenza-Frost.
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