Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT CONFIRMS ARBITRATOR’S ENTRY OF INTERIM PRELIMINARY INJUNCTION, HOLDING THAT THE AWARD WAS SUFFICIENTLY “FINAL”

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This case concerns a 10-year agreement by which plaintiff, an endodontist, contracted to perform consulting services for defendant Dentsply, a business that manufactured and sold endodontic products for the dental industry. The agreement prohibited plaintiff from disclosing any confidential information about Dentsply’s business affairs or from competing with Dentsply for three years after the termination of the agreement. But immediately prior to the end of the 10-year term of the agreement, plaintiff brought suit contending that the confidentially and non-compete provisions of the agreement were unenforceable, and seeking declaratory and injunctive relief. The case proceeded to arbitration during which the arbitrator sided with Dentsply and enjoined plaintiff from breaching the confidentiality and non-compete provisions. Dentsply then filed a motion to confirm the arbitrator’s preliminary injunction award.

Plaintiff opposed Dentsply’s motion, asserting a number of arguments based on the notion that the preliminary injunction was not sufficiently final to be confirmed by the court. The court rejected each of plaintiff’s arguments and then considered “whether, in the absence of binding Supreme Court or Tenth Circuit precedent, the Court should join the district and circuit courts that have considered interim arbitral awards final for the purposes of judicial review and confirm the Ruling.” The court decided to join those courts and confirmed the arbitrator’s preliminary injunction. The court reasoned that the interim arbitration ruling “finally and definitively enjoin[ed] plaintiff from breaching the 2007 agreement’s confidentiality and non-compete provisions during the pendency of the arbitration, and if the Ruling [was] not enforced, a subsequent award of injunctive relief to defendant may be rendered meaningless.” Moreover, the Court reasoned that the Ruling was “not a preliminary or procedural trifle, and expending the judicial resources to confirm it does not frustrate our arbitration system’s goal of expediency.” Instead, the Court found, “confirming the Ruling [gave] teeth to the arbitrator’s interim award of equitable relief, thereby promoting arbitration as an efficacious and reliable alternative to the litigation process.” Johnson v. Dentsply Sirona Inc., Case No. 16-CV-0520-CVE-PJC (USDC N.D. Okla. Sept. 27, 2017).

This post written by Gail Jankowski.

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U.S. COVERED AGREEMENT POLICY STATEMENT AFFIRMS U.S. STATE-BASED REGULATION OF INSURANCE

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We have posted several times on the negotiation and finalization of the Covered Agreement (“the Agreement”) negotiated by the Obama Administration and approved by the Trump Administration with the European Union. The agreed text of the Agreement was released in January of this year, and the House Financial Services Committee held a hearing on the Agreement the following month. The Trump Administration’s decision to sign the Agreement was announced in July, and included a statement that the U.S. would issue a “U.S. policy statement on implementation.” That statement intrigued many, prompting speculation as to the positions that would be taken in that policy statement. We posted an analysis of the complicated timeline for the implementation of the Agreement later that month.

In conjunction with the signing of the Agreement on September 22, the U.S. released the anticipated policy statement. The policy statement is not remarkable, and is based upon a theme that the Agreement affirms, preserves, and builds upon the U.S. state-based structure for the regulation of the business of insurance. The policy statement summarizes various provisions of the Agreement, stating in part that the Agreement:

  • with respect to the collateral requirement, “does not prevent a state insurance regulator from imposing non-collateral requirements that do not have substantially the same regulatory impact as collateral requirements as conditions for ceding companies to enter into reinsurance agreements with EU reinsurers or to allow credit for such reinsurance, if the state insurance regulator applies the same requirements in the case of reinsurance agreements with U.S. reinsurers domiciled in that state;”
  • does not prevent parties to reinsurance agreements to contractually require collateral for reinsurance;
  • excludes the US parent of US-domiciled reinsurers from the need to comply with the requirements of Solvency II just because it has an affiliate doing business in the EU; and
  • preserves the authority of the states (in conjunction with the NAIC) to set capital requirements for US insurance groups.

The principal text of the Conclusion section of the policy statement provides:

The Agreement supports the principles specified in the Presidential Executive Order on Core Principles for Regulating the United States Financial System (Feb. 3, 2017) by enabling U.S. companies to be competitive with foreign firmshttps://www.reinsurancefocus.com/wp-admin/edit.php in domestic and foreign markets; advancing U.S. interests in international financial regulatory negotiations and meetings; and making regulation efficient, effective, and appropriately tailored. The United States looks forward to promoting the interests of U.S. stakeholders, U.S. insurance regulators, and the U.S. economy as the Agreement is implemented. The United States also shares with the EU the goal of protecting insurance and reinsurance consumers while respecting one another’s system for supervision and regulation.

This post written by Rollie Goss.
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CONGRESS DISAPPROVES THE CFPB’S ANTI-CLASS ACTION ARBITRATION WAIVER RULE

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Congress has adopted a joint resolution of disapproval of the CFPB’s arbitration rule under the Congressional Review Act, 5 U.S.C. Section 801 et seq.  President Trump’s approval of the joint resolution will prevent the implementation of the rule.    With the disapproval of the rule, the CFPB’s rule “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”  5 U.S.C. Section 801(b)(2).  While it seems highly unlikely that the present Congress would approve the same or similar rule, it is not known whether the CFPB will attempt to find another way to implement a prohibition of class action arbitration waivers.

This post written by Rollie Goss.
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U.K. COURT APPROVES MULTI-BILLION POUND PLAN TO TRANSFER ANNUITY LIABILITIES UNDER REINSURANCE AND BUSINESS TRANSFER AGREEMENTS

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The Queen’s Bench Division of the U.K.’s High Court of Justice recently approved a scheme proposed by Scottish Equitable Plc to transfer its liabilities as to over 185,000 insurance policies to Rothesay Life Plc. The scheme was backed by roughly £7 billion in assets paid to Rothesay under a series of annuity reinsurance and business transfer agreements executed in April 2016.

The court’s approval was guided by eight principles used by British courts in assessing long-term business transfer plans. While the primary factor is whether the scheme would adversely impact policyholders, the court held that a scheme will not be rejected simply because it may adversely affect certain policyholders. Instead, viewed as a whole, the scheme must be objectively “fair.” The court also noted that a proposal will not be rejected solely because it is not the “best possible scheme,” stating that deference should be given to the company’s choice of schemes, provided that choice is objectively fair. The court rejected policyholders’ objections, finding the proposed scheme was sufficient to protect policyholders’ interests. The court also rejected the argument that the scheme was not the “transfer of a business” under the FSMA simply because the policies were being reinsured, finding that the transaction did not need to expose Scottish Equitable to “risk or reward” to qualify as the transfer of its “business.” See In the Matter of Scottish Equitable Plc and In the matter of Rothesay Life Plc, [2017] EWHC 1439 (Ch).

This post written by Alex Silverman.

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DISTRICT OF SOUTH CAROLINA DENIES MOTION TO DISMISS ACTION INVOLVING FRONTING RELATIONSHIP

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Applying Delaware law, a South Carolina District Court found Plaintiff had properly pled its causes of action for breach of contract, breach of fiduciary duty, negligence/gross negligence and negligent misrepresentation involving allegations that Defendant approved multiple transactions depleting the trust account which protected Plaintiff’s obligations under its fronting agreement.

The Court found Plaintiff adequately pled that Defendant breached its duty under the fronting agreement when it depleted the trust’s legitimate assets and left Plaintiff with a duty to pay claims. While the Court acknowledged that the fronting agreement did not explicitly impose a duty on Defendant to validate and confirm the assets admitted to the trust, nevertheless, at the very least, “the duty to provide an ‘accounting’ required Defendant to submit a ‘rendition of [the] account’ and the assets it contained.”

The Court also found Plaintiff adequately pled that Defendant breached its fiduciary duty owed to Plaintiff, as Defendant was the trustee and Plaintiff the trust’s sole beneficiary. Although Delaware law prohibits fiduciary duty claims that are wholly duplicative of contract claims, the Court found Plaintiff’s allegations of fiduciary duty were based on additional facts which were broader in scope than the parties’ contractual obligations.

The Court further found Plaintiff sufficiently alleged an independent duty of good faith and duty of care, which supports Plaintiff’s claim for negligence/gross negligence.

Finally, while the Court acknowledged Defendant’s argument that under the trust agreement Defendant had “no duty or responsibility with respect to the qualification, character, or valuation of the Assets deposited into the trust account,” in the contract between the parties, Defendant (as trustee) “agreed to maintain assets of the trust. . . to be negotiable at any time.” Being the agreed upon terms, the Court held that “Defendant cannot alter these terms by placing boilerplate disclaimer language as to the value of the funds on the statement to absolve itself of contractual duties. When Plaintiff attempted to withdraw the assets of the trust account, Defendant could not negotiate these assets.”

Accident Insurance Company, Inc. v. U.S. Bank National Association and U.S. Bank Trust N.A., 15-cv-02621-JMC (USDC D.S.C. Sept. 28, 2017)

This post written by Nora A. Valenza-Frost.

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