Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO COMPEL PRODUCTION OF CEDENT’S DOCUMENTS TO REINSURER WHEN EXTENT OF CEDENT’S OBLIGATION TO PROVIDE DOCUMENTS IS AT CENTER OF THE LITIGATION

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A court has denied a motion to reconsider its decision denying a reinsurer’s (Century Indemnity Co.) motion to compel an insurer (Travelers Casualty and Surety Company) to produce certain documents in a case in which Travelers is specifically seeking a declaratory judgment that Century’s obligation to pay claims is not preconditioned on its access to Travelers’ documents.

Travelers filed the lawsuit alleging that Century had breached two reinsurance contracts, seeking reimbursement for underlying asbestos-related claims paid by Travelers, and requesting declarations that Travelers is not obligated to provide Century with privileged documents and that Century’s obligation to pay under the contracts is not preconditioned on Traveler’s providing documents to Century. After Travelers refused to produce certain documents requested in discovery, Century moved for leave to file a motion to compel production. The court denied the motion for two reasons. First, it found that the motion was untimely, as it was not filed until four months after Travelers completed its production. Second, the court found “that the documents that Century seeks to obtain by compelling production are effectively what the underlying dispute in this case is about”. On reconsideration, the court found that Century had provided no basis sufficient for the court to alter its earlier decision. Travelers Casualty and Surety Company v. Century Indemnity Co., 3:16-cv-170 (JCH) (D. Conn. Jan. 19, 2017)

This post written by Jason Brost.

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HAWAII BILL PROPOSES PARAMETRIC DISASTER INSURANCE PILOT PROGRAM

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On January 23, 2017, Hawaii lawmakers introduced a bill to establish a pilot parametric disaster insurance program aimed at preventing potential liquidity gaps between federal assistance and total economic losses in the event of a serious natural disaster. Parametric or index-based insurance programs peg claims to specific characteristics of natural disasters rather than the usual insurance arrangement basing payouts on actual losses sustained. The bill lists one example of a metric to determine whether coverage under a parametric disaster program would be triggered—if the maximum wind speed of a hurricane as it passes through a specific part of the islands reaches a certain threshold, coverage attaches.

If passed, H.B. 791 would establish a three-year parametric disaster insurance pilot program and empower the state to research and purchase parametric disaster insurance. A parametric disaster insurance special fund would be financed with interest earned on the principal in the currently existing hurricane reserve trust fund, any money paid out under parametric disaster insurance policies, and any appropriations made by the state legislature. The bill further requires a report to the legislature on the pilot program due by December 1, 2019, and calls for the repeal of the program on June 30, 2020. A companion bill, S.B. 799, was introduced in the state senate on January 20, 2017.

This post written by Thaddeus Ewald .

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COURT AFFIRMS RULING DENYING MOTION TO COMPEL ARBITRATION ON THE BASIS THAT CONTRACT WAS INVALIDATED BY FRAUD

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The Ninth Circuit, in an unpublished opinion, has found that a contract, and therefore an arbitration clause within it, was unenforceable due to fraud in the inception, despite the fact that both parties had ample opportunity to review the contract in its entirety. This result was required, the court found, because, assuming the allegations of the complaint to be true, the plaintiff did not know that by signing the contract it was agreeing to be a victim of defendants’ scheme.

In the complaint, plaintiff alleged that it was misled into agreeing to a consulting agreement that the defendants used as part of a wide-ranging scheme of fraud, involving forging financial documents, destroying plaintiff’s relationships with clients and creditors, and falsely representing that an employee of one of the defendants had been hired for a non-existent position in order to get plaintiff to issue paychecks for that position. The dissent argued that such fraudulent conduct in the performance of the agreement did not constitute fraud in the inception because plaintiff did not allege that plaintiff signed the contract based on a misunderstanding of its contents or that the arbitration clause was fraudulently induced. The majority disagreed, however, citing a California Court of Appeals decision for the proposition that it was enough that defendants, as the party drafting the contract, drafted the contract “‘in such a way as to not apprise’ the other party of its intentions.” DKS, Inc. v. Corporate Business Solutions, Inc., 15-16589 (9th Cir. Jan. 17, 2017)

This post written by Jason Brost.

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COMMUTATION, SETTLEMENT, AND RELEASE AGREEMENT OF THE HOME INSURANCE COMPANY APPROVED

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A New Hampshire court has approved the commutation, settlement, and release agreement between The Home Insurance Company (in Liquidation) and Providence Washington Insurance Company (PWIC), as successor to Unigard Mutual Insurance Company, which merged with Seaton Insurance Company.

Home entered liquidation in 2003, and the New Hampshire Insurance Commissioner was appointed as Liquidator. Prior to the merger of PWIC with Seaton, the Liquidator entered into a separate commutation agreement effective March of 2015 as to all PWIC business. The instant commutation agreement (approved in December 2016), provides for the commutation of all of Home’s ceded and assumed business to/from Seaton (pre-merger), as well as resolution of all of Seaton’s contribution claims against Home (which related to increased payments Seaton made to insureds common to both parties as the result of Home’s insolvency). A redacted copy of the commutation agreement, with economic terms removed, was filed with Home’s motion for approval. In re Liquidation of The Home Insurance Co., 217-2003-EQ-00106 (N.H. Sup. Ct. Dec. 12, 2016) (order approving commutation); Motion for Approval (Oct. 18, 2016).

This post written by Brooke L. French.

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COURT APPLIES THE “LOOK THROUGH” APPROACH TO FAA SECTION 10 PETITIONS IN DETERMINING SUBJECT MATTER JURISDICTION

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Plaintiffs, members of the Harman family, sold their family farm and sought investment advice from defendant Wilson-Davis. The Harmans claimed they were damaged after making certain investments due to forged financial statements by Wilson-Davis, and that Wilson-Davis spoliated evidence pertaining to those investments. At arbitration, the panel found no liability against Wilson-Davis. The Harmans then sought to vacate the panel’s award.

The court considered whether it had subject matter jurisdiction, and whether there were sufficient grounds to vacate the award under either public policy grounds or section 10 of the FAA. Regarding subject matter jurisdiction, the court analyzed whether it could “look through” the face of the petition to vacate the award, and find jurisdiction based on whether federal-law claims were raised in the underlying arbitration. (There is a split among the federal circuits as to whether a court may look through a section 10 petition to vacate an award in order to find federal question jurisdiction; the Supreme Court previously applied “look through” only under section 4.) The Tenth Circuit, in which the district court in this matter is located, has not yet addressed the issue. The court here sided with the Second Circuit, and not the opposing view of the Third and Seventh Circuits, holding that applying the “look through” approach to the entire FAA was the only logical construction of the law, notwithstanding differences in statutory language between sections 4 and 10. The court, however, denied the Harmans’ petition because it found no public policy or statutory grounds supporting vacatur. Harman v. Wilson-Davis & Co., Case No. 2:2016-cv-00229-CW (USDC D. Utah Jan. 6, 2017).

This post written by Gail Jankowski.

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