Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

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Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.

Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”

The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.

This post written by Benjamin E. Stearns.

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LESS THAN TWO WEEKS BEFORE TRIAL, DISTRICT COURT JUDGE IN UTICA V. FIREMAN’S FUND RULES ON MOTIONS IN LIMINE

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This case concerns an action filed by Utica Mutual Insurance Company (Utica) against its reinsurer, Fireman’s Fund Insurance Company (FFIC) seeking to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims from the 1990s. Presently at issue were (1) Utica’s motion to preclude FFIC’s expert Garrett Redmond, (2) FFIC’s motion to preclude five specific evidentiary matters, and (3) Utica’s omnibus motion in limine regarding various evidentiary issues it anticipated to arise at trial.

Utica sought to preclude Redmond from offering testimony that Utica misrepresented or omitted facts to Fireman’s Fund in 1966 through 1972 relating to whether the primary policies it issued to Goulds had aggregate limits and that the primary policies Utica issued to Goulds did not have aggregate limits. The Court ultimately granted Utica’s motion to the extent that it precluded Redmond from testifying that Utica did in fact make misrepresentations to Fireman’s Fund in obtaining the reinsurance policies and that the primary policies in question did in fact lack aggregate limits. The Court noted, however, that “[d]ue to how much time has passed since these policies were issued, there are no witnesses who were personally involved with negotiating or writing the policies [and] [a]s a result, both sides will attempt to offer circumstantial evidence and testimony regarding the usual practices at that time in order to support their positions on the existence of aggregate limits.”

The Court denied FFIC’s motion to preclude Utica’s argument that FFIC had constructive notice of the loss, reasoning that “[w]hile the law in New York requires actual notice and not constructive notice, any facts showing that Fireman’s Fund had prior knowledge of the Goulds loss are relevant to Fireman’s Fund’s claimed prejudice.” However, the court granted, among other requests, FFIC’s motion to preclude Utica from introducing judicial decisions or settlements involving other insurer’s challenges to Utica’s aggregate limit position. In the same light, the Court granted Utica’s motion to preclude evidence of other disputes, holding that “disputes with other reinsurers under different facts are irrelevant and inadmissible.” Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Nov. 16, 2017).

This post written by Gail Jankowski.

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DISTRICT COURT DISCHARGES PHOENIX FIRE AND MARINE INSURANCE COMPANY CONSERVATOR

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After 14 years, the Commissioner of Insurance of the Virgin Islands has been discharged as conservator of Phoenix Fire and Marine Insurance Company (“Phoenix”).  The Commissioner reported that: $15,936,228.13 had been paid to claims under Phoenix policies; $298,452.38 in unearned premiums disbursed to policy holders; $1,819,449.76 held in trust; and there is a balance of $3,819,449.76 in outstanding claims and unearned premiums.

In addition to discharging the Commissioner, the Court awarded $400,000 in administrative fees and deposited $1,396,169.10 in unclaimed funds with the Commission of Finance to be designated as the Phoenix Fire Trust Fund, into which any unclaimed funds shall be deposited.  Potter v Phoenix Fire and Marine Ins. Co. Ltd., et al., Civil No. 1991-271 (USDC D.V.I. Nov. 3, 2017).

This post written by Nora A. Valenza-Frost.
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WISCONSIN ADOPTS NEW CREDIT FOR REINSURANCE RULE BASED ON CERTIFIED REINSURERS

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On November 7, 2017, the Commissioner of Insurance for the State of Wisconsin issued an order approving a new rule to be added to Section Ins. Ch. 52, Wis. Adm. Code. The rule is intended to modernize Wisconsin’s credit for reinsurance provisions by aligning them with the Nonadmitted and Reinsurance Reform Act of 2010 and amendments to the NAIC Credit for Reinsurance Model Law.

As currently written, reinsurers are required to post collateral equal to their total liability for ceding insurers in order for the insurers to take full credits for reinsurance. The new rule allows for the use of certified reinsurers. Certifications will be made at different levels based on financial strength ratings and will allow certified reinsurers to post less than 100 percent collateral on the risk they assume. Reinsurers with the three highest financial ratings will have lower collateral requirements of 0-10-20 percent, respectively. Reinsurers with the three lowest financial ratings will have collateral requirements of 50-75-100 percent, respectively. By making these revisions, Wisconsin’s reinsurance provisions will be consistent with changes made in other states. The new rule becomes effective on January 1, 2018.

This post written by Alex Silverman.
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NORTHERN DISTRICT OF GEORGIA ORDERS CEDENT TO PRODUCE INFORMATION ON ITS PAYMENT OF CLAIMS

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Defendant Golden Isles Reinsurance Company, Limited (“Golden Isles”) sought detailed information regarding individual claims Canal Insurance Company (“Canal”) submitted for reimbursement under the parties’ reinsurance agreement, as outlined in the court’s hearing notes. The Court ordered production of the following:

  1. Check register information (purportedly to enable Golden Isles to verify the amount Canal paid on the claim, in lieu of settlement agreements which would be more burdensome to produce);
  2. Documents showing the date Canal first had notice of each individual claim for which Canal has the claim date within 6 months of either the start or end of the parties’ agreement; and
  3. A 30(b)(6) witness who can address questions Golden Isles has concerning claims data and how certain numbers were entered and calculated, as the Court found “Golden Isles is entitled to answers to these questions,” but also found that “producing large quantities of documents is not the most efficient manner in which to address this.”

The Court will address the parties’ additional discovery disputes by a separate order.  This is not the first discovery issue addressed by the court in this case.  Further background is available in the amended initial disclosures of Canal Insurance. Canal Ins. Co. v. Golden Isles Reinsurance Co., Ltd., Case No. 1:15-cv-03331 (USDC N.D. Ga. Oct 6, 2017).

This post written by Nora A. Valenza-Frost.
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