Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ODYSSEY REINSURANCE OBTAINS $3.2 MILLION DEFAULT JUDGMENT AND INJUNCTIONS STEMMING FROM FRAUDULENT TRANSFERS MADE BY UNDERWRITER

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Odyssey Reinsurance Company obtained a $3.2 million default judgment on October 4, 2017, against Cal-Regent Insurance Services Corporation and Pacific Brokers Insurance Services (“PBIS”) as a result of fraudulent transfers made between the two companies and the owner/officers of both companies, Richard and Diane Nagby. Cal-Regent underwrote a number of insurance risks which were subsequently reinsured by Odyssey. The two companies entered into a series of reinsurance agreements that required an annual “provisional commission” to be paid to Cal-Regent. The provisional commission was “adjusted” at year-end depending on the profitability of the business underwritten by Cal-Regent. After settlement of a lawsuit by another company involved in the transactions, it became clear that the amount of “return commissions” Cal-Regent would owe Odyssey due to the annual adjustments were likely to substantially increase. Recognizing this possibility, the Nagbys “embarked on a plan to strip Cal-Regent of assets.”

Odyssey obtained a judgment against Cal-Regent in 2015 for $3.2 million to recover the amount of return commissions it was owed. The Nagbys, however, had previously formed PBIS and “caused Cal-Regent to transfer substantially all of its assets to PBIS.” Three months after oral argument in Odyssey’s initial action against Cal-Regent and three months before judgment was entered, the Nagby’s “caused PBIS to sell substantially all of its assets to AmTrust for $5 million.” AmTrust made an initial payment of $3 million which was distributed to the Nagbys. Odyssey filed the present action on March 21, 2017, alleging liability under California’s Uniform Voidable Transactions Act and alter ego and successor liability law.

The court granted default judgments as well as preliminary injunctions against the Nagbys enjoining them from disposing of the AmTrust proceeds despite recognizing that such an injunction was an “extraordinary and drastic remedy.” Because the Defendants defaulted on Odyssey’s 2017 complaint, the “well-pleaded factual allegations of the complaint, except those relating to the amount of damages, [were] taken as true.” The Court found that Odyssey had sufficiently pled facts to support each of its causes of action as well as sufficient evidence to support an award of the full amount prayed for, plus post-judgment interest running from the 2015 judgment. Odyssey Reinsurance Co. v. Nagby, Case No. 16-cv-03038 (S.D. Cal. Oct. 4, 2017).

This post written by Benjamin E. Stearns.

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COURT AFFIRMS DISMISSAL OF CLAIM FOR COMMISSIONS FOR PLACEMENT OF PUERTO RICAN PUBLIC LIABILITY INSURANCE

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Plaintiffs Berkley Risk Solutions LLC, an insurance and reinsurance management services provider, and Admiral Insurance Co., an excess and surplus lines insurer, sued Industrial Re-International Inc., a New York reinsurance intermediary, and its founder, concerning certain commissions for public liability insurance placed with municipalities in Puerto Rico through American Foreign Underwriters Corp. (AFU), a licensed general agency. The dispute began when AFU filed a lawsuit against Industrial Re and Plaintiffs in Puerto Rico alleging that Industrial Re had agreed to split the commissions on policies written for 2006-2007 equally with AFU. Industrial Re and AFU resolved their dispute and executed a settlement agreement in which they agreed that the commission on any future policies with the municipalities would be split 60 percent to Industrial Re and 40 percent to AFU. Industrial Re obtained a judgment against AFU for the payment of its portion of the commissions that AFU received on subsequent policies according to the settlement; however, Industrial Re’s attempts to collect against AFU were unsuccessful. Industrial Re then claimed that Plaintiffs owed it for the judgment obtained against AFU. Plaintiffs filed the lawsuit underlying this appeal, seeking a declaration that they were not obligated to Industrial Re for the 2008-2009 and 2009-2010 policy commissions. Industrial Re responded by asserting counterclaims based on promissory estoppel, unjust enrichment and tortious interference.

Plaintiffs prevailed in the trial court, and the appellate court has now affirmed the trial court’s ruling. Regarding promissory estoppel, the court held that Industrial Re did “not dispute that plaintiffs were not parties to the Settlement Agreement [with AFU] and have produced no evidence that plaintiffs agreed to be bound by the Settlement Agreement at any time.” Moreover, it found that “[a]lthough plaintiffs acknowledged in an August 2008 email they ‘were previously advised’ to distribute the commission in accordance with the Settlement Agreement, their willingness to do so […] was explicitly dependent upon receiving a written stipulation from both defendants and AFU to that effect,” which never occurred, and thus, never became binding. The court also affirmed the dismissal of Industrial Re’s claim based on the expiration of the statute of limitations of the State of New Jersey; New Jersey had a “substantial interest” in resolving disputes arising out of business dealings between two of its own corporations and no “exceptional circumstances” justified the application of the law of Puerto Rico. Berkley Risk Solutions LLC v. Indus. Re-Int’l Inc., Case No. A-2366-15T1 (N.J. Super. Ct. App. Div. Sept. 20, 2017).

This post written by Gail Jankowski.

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LONG-TIME REINSURANCE ATTORNEY RULED NOT QUALIFIED TO ARBITRATE 9/11 WORLD TRADE CENTER REINSURANCE DISPUTE

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An attorney with “considerably more than ten years’ experience of insurance and reinsurance law” has been deemed unqualified to arbitrate a reinsurance dispute stemming from the September 11, 2001 terrorist attack on the World Trade Center. The arbitration agreement called for an arbitration tribunal consisting of “persons with not less than ten years’ experience of insurance or reinsurance.” The High Court of Justice, Business and Property Courts of England and Wales, determined that this language required appointment of an individual with more than ten years’ experience in the business of insurance or reinsurance, rather than the law of insurance or reinsurance.

The court’s determination was largely dictated by a 2000 decision in which the judge held that the parties to an arbitration agreement utilizing the same language intended a “trade arbitration” meaning “the tribunal was to consist of persons from the trade or business of insurance or reinsurance.” Although the court acknowledged the strength of the argument that the “ordinary and natural meaning” of “experience of insurance or reinsurance included experience acquired not only from working within the insurance and reinsurance industry but also from working with or on behalf of that industry,” the court nevertheless held that the previous decision was not so “obviously wrong” that the precedential decision (Company X v. Company Y date July 17, 2000), should be departed from.

The court relied in part on the fact that the 2000 decision was “mentioned in Butler & Merkin’s Reinsurance Law … at paragraph C-0729.” This was accepted as evidence that the decision was “fairly well known in the legal/reinsurance claims community.” Therefore, in light of “the importance of precedent,” if the parties had intended a different meaning than that adopted in the “fairly well known” prior case, they would have used different language. As such, the court ruled that legal insurance or reinsurance experience was not sufficient under the clause and the attorney could not be appointed as an arbitrator. Tonicstar Ltd. v. Allianz Ins. PLC, [2017] EWHC (Comm) 2753.

This post written by Benjamin E. Stearns.

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SECOND CIRCUIT HOLDS SECTION 1782 DISCOVERY IS AVAILABLE FOR USE IN A FOREIGN OR INTERNATIONAL PROCEEDING EVEN WHERE APPLICANT MAKES NO CLAIM FOR MONETARY DAMAGES

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This case arose out of a dispute between Intervenors-Appellants Yves Bouvier and MEI Invest Ltd. (collectively, “Bouvier”) and Petitioners-Appellees Accent Delight International Ltd. and Xitrans Finance Ltd. (collectively, “Petitioners”) over the sales to Petitioners of thirty-eight works of art, including paintings by Picasso and van Gogh, for a total of approximately $2 billion. Petitioners ultimately initiated criminal and civil proceedings against Bouvier in Monaco, France and Singapore on the grounds of fraud. Petitioners filed a 28 U.S.C. § 1782 application in the District Court for the Southern District of New York claiming that Sotheby’s was involved in relevant acquisitions by Bouvier. Petitioners requested discovery of documents relevant to all thirty-eight artworks involved in the alleged fraud. The district court granted the discovery application with respect to the French proceedings and denied Bouvier’s request for a protective order limiting the discovery to be used in the Monaco proceeding.

On appeal, the first issue was whether discovery was “for use in a proceeding in a foreign or international tribunal” for the purposes Section 1782, where the applicant is a crime victim authorized to submit the discovery to the foreign tribunal, but where the applicant is not making a claim for damages. On this issue, the Court held in the affirmative. The Court rejected Bouvier’s argument that the statute’s “for use” clause was limited to cases where monetary relief was sought. Specifically, the Court reasoned that “Section 1782 explicitly permits district courts to grant discovery in aid of ‘criminal investigations conducted before formal accusation,’ which are among the cases least likely to feature claims by private litigants for money damages notwithstanding the considerable variation in procedural rules across countries (including those involved in this appeal).” As to the second issue on appeal, whether an applicant that lawfully has obtained discovery under Section 1782 as to one foreign proceeding may use that discovery in another foreign proceeding, the Court held that Section 1782 permits such use, absent an order to the contrary by the district court. In so finding, the Court “s[aw] no reason why the number or identity of the foreign proceedings in which a successful applicant may use discovery produced pursuant to the statute would fall outside that discretionary grant” and reasoned that “Section 1782 leaves to the district courts’ discretion both the decision to grant discovery and to ‘prescribe the practice and procedure’ for its production.”

In a related summary order, the Court addressed the remaining issues on appeal. It found that the district court did not abuse its discretion in dismissing Bouvier’s argument that the district court failed to properly consider the third Intel factor, whether the Section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions. In addition, the Court declined to resolved a district court split as to whether Section 1782 permits discovery of documents located outside the United States. The Court affirmed the lower court’s decision in its entirety. Bouvier v. Adelson, Case No. 16-3655 (2d Cir. Aug. 28, 2017) (Opinion at Dkt. 131 & Summary Order at Dkt. 132).

This post written by Gail Jankowski.

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NATIONAL FLOOD INSURANCE PROGRAM IS RELIEVED OF $16 BILLION OF DEBT

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On October 26, 2017, President Donald Trump signed H.R. 2266, a disaster relief bill. Pursuant to section 308 of the bill, the Department of the Treasury will forgive $16 billion in debt owed by FEMA under the National Flood Insurance Program. The forgiven debt is designated as an emergency requirement under the Statutory Pay-As-You-Go Act of 2010 and the Balanced Budget and Emergency Deficit Control Act of 1985. See the full text H.R. 2266 here.

This post written by Jeanne Kohler.
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