Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT TOSSES TIME-BARRED RICO CLAIMS ALLEGING CAPTIVE REINSURANCE KICKBACK SCHEME

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Plaintiffs asserted class claims for RICO violations based on allegations that Bank of America referred borrowers to private mortgage insurance providers in exchange for kickbacks, funneled through a captive reinsurance company. Bank of America argued that plaintiffs’ lack of due diligence precluded them from tolling the four-year statute of limitations under the “injury discovery rule.” The Court found that Bank of America met its initial burden to establish the existence of “storm warnings” of the alleged wrongs, shifting the burden to plaintiffs to show that they exercised reasonable due diligence but were nevertheless unable to discover their injuries. The Court noted that before closing on their loans, plaintiffs received a disclosure explaining that their reinsurance could be placed with a lender-affiliated company, and plaintiffs were given the opportunity to opt out of reinsurance. However, the plaintiffs took no steps to investigate the reinsurance. Since plaintiffs did not exercise reasonable due diligence, the Court held that they had constructive notice of all facts that could have been learned through diligent investigation during the limitations period.

Plaintiffs also attempted to delay the accrual of the limitations period based on the “separate accrual rule.” Plaintiffs argued that each transmission of a periodic account statement was in furtherance of the RICO scheme and constituted a new predicate act of mail and wire fraud, which in turn, resulted in the payment of illegal kickbacks. The Court disagreed, concluding that the present account statements – even if each prompted and caused plaintiffs to make a payment – arose from obligations and facts already known and acknowledged at the time of the parties’ mortgage agreements and thus were not “new and separate.” As such, the Court granted summary judgment in Bank of America’s favor, holding the RICO claims were time-barred.

Weiss v. Bank of America Corp., Case No. 15-62 (USDC W.D. Pa. Nov. 22, 2016).

This post written by Gail Jankowski.

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CONNECTICUT ISSUES BULLETINS REGARDING FINANCIAL REPORTING REQUIREMENTS FOR SURPLUS LINES INSURERS AND ACCREDITED REINSURERS

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The Connecticut Insurance Department has issued two bulletins addressing 2016 and 2017 financial reporting requirements for foreign eligible surplus lines insurers and accredited reinsurers. Regarding surplus lines insurers, the department advised that each insurer, before March 1st, must submit a signed report of its financial condition for 2016, and must report their financial condition on a quarterly basis in 2017, including a breakdown of the company’s Connecticut business showing premiums and losses by line. Regarding accredited reinsurers, the department provided that each Connecticut reinsurer: (1) must, before March 1st, submit a signed report of its financial condition for 2016; (2) must file, in addition to the Annual Statement, an actuarial opinion and management discussion and analysis on March 1st and April 1st respectively; (3) need not file quarterly statements unless specifically requested; (4) must file before June 1st, a copy of the company’s independent audit report for 2016; and (5) must file a list of Connecticut insurers ceding business to the accredited reinsurer in 2016. The bulletin also included the March 1st deadline for reinsurance trusts to file documents detailing the balance in the trust and a listing of the trust’s 2016 investments. Finally, managers of non-affiliated reinsurance pools were advised to direct participating companies that are not licensed in Connecticut to file a copy of their Annual Statement with the Connecticut Department. Connecticut Insurance Department Bulletin Numbers FS-4SL-16 & CT Bulletin FS-4AR-16 reinsurer reports 11.28.16 FS-4SL-16 (Nov. 28, 2016).

This post written by Michael Wolgin.

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TENTH CIRCUIT AFFIRMS REFUSAL TO COMPEL ARBITRATION WHERE AGREEMENTS CONTAINED CONFLICTING ARBITRATION PROVISIONS

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Mr. Ragab sued two financial companies and a corporate officer for misrepresentation and for violating several consumer credit repair statutes. There were six agreements between the parties, including, for example, a consulting agreement, a purchase agreement, and an operating agreement. Each agreement contained arbitration provisions, but they varied in material ways, including: (1) which rules governed, (2) how the arbitrator would be selected, (3) the notice required to arbitrate, and (4) entitlement to attorney’s fees. The district court refused to compel arbitration, concluding that there was no meeting of the minds on essential terms, and therefore no actual agreement to arbitrate. On appeal, a divided panel of the Tenth Circuit affirmed, distinguishing cases where the contracts provided for a solution to resolve conflicting provisions, or where contracts failed to spell out the requirements for arbitration; where, as here, there are multiple, specific, conflicting arbitration provisions with no agreed way to resolve them, “there was no meeting of the minds with respect to arbitration.” The court also rejected the defendants’ argument that the district court should have granted a summary trial to decide whether the parties agreed to arbitrate. The court held that in this case there were no material factual disputes, leaving only an issue of law for the court to resolve. Ragab v. Howard, Case No. 15-1444 (10th Cir. Nov. 21, 2016).

This post written by Michael Wolgin.

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EIGHTH CIRCUIT UPHOLDS ARBITRAL IMMUNITY IN CHALLENGE TO AAA’S REMOVAL OF ARBITRATOR

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Owens, a terminated CEO, engaged in a AAA arbitration with his former company before a three-member panel. In the course of the proceeding, the company sought to remove an arbitrator for making an incomplete disclosure regarding conflicts of interest. The AAA removed the conflicted arbitrator without holding a hearing or consulting the panel, and the remaining two arbitrators ultimately awarded Owens $3 million. The company then successfully moved for dismissal of the award in the district court. Following dismissal, Owens sued the AAA for breach of contract, unjust enrichment, and tortious interference, but his claims were dismissed by the court based on arbitral immunity. On appeal, the Eighth Circuit affirmed, explaining that the reason courts extend immunity to arbitrators is to protect them and the arbitration process from undue influence and attacks from dissatisfied litigants. The Court concluded that “the removal of arbitrators is similarly protected by arbitral immunity because it is just as much a part of the arbitration process as the appointment of arbitrators.” Owens v. American Arbitration Association, Inc., Case No. 16-1055 (8th Cir. Nov. 18, 2016).

This post written by Gail Jankowski.

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SDNY CONFIRMS ARBITRATION AWARD UNDER FAA AND THE NEW YORK CONVENTION DESPITE AWARD BEING SILENT ON TAX LIABILITY

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An arbitration award required respondent to pay a series of royalty payments, audit costs and interest, but did not address either party’s tax obligations. Respondent made several payments to petitioner, but withheld 20% from some of the payments citing its obligation under Taiwanese tax laws and regulations. The arbitration panel declined to amend the award in regards to the tax law issue, stating it was without power or jurisdiction, and further, no claims regarding these deductions was ever made or determined in the arbitration.

Respondent argued against enforcement of the final award for three reasons. The first reason, that enforcement of the award would violate Taiwanese tax law and therefore public policy, was rejected because the award said nothing about obligations to pay taxes, and thus did not prevent respondent from paying taxes directly rather than withholding taxes from its payment of the award. The second reason, that due process was violated under the New York Convention, was rejected, as respondent never “attempted to make a ‘case’ regarding tax withholding, much less that it was ‘unable to present’ one” during the arbitration. The third reason, that respondent had satisfied its obligation through prior payments net of tax withholding, was also rejected because respondent “provided no basis from which to infer that the tribunal implicitly authorized [respondent[ to deduct taxes,” as expressly stated by the arbitration panel when asked to amend the award. The Court confirmed the award.

Mondis Technology Ltd. v. Wistron Corp., No. 15-CV-02340 (USDC SDNY Nov. 3, 2016)

This post written by Nora A. Valenza-Frost.

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