Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FEDERAL COURTS LACK JURISDICTION OVER ENFORCEMENT OF FOREIGN JUDGMENTS, EVEN WHERE JUDGMENT IS INCONSISTENT WITH EARLIER ARBITRATION AWARD OR AGREEMENT TO ARBITRATE

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Plaintiff Albaniabeg, power plant operator, sought enforcement of an Albanian judgment in a New York state court against defendant Italian power companies. Section 205 of the FAA permits removal of an action that relates to an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendants sought to remove the case to federal court, claiming that the action related to the original arbitration because the Albanian judgment was obtained in violation of the parties’ arbitration clause and award. Albaniabeg moved to remand to state court due to lack of federal subject matter jurisdiction. The court held that removal was improper because the issue was unrelated to the arbitration agreement or the arbitral award; rather, the issue related to enforcement of a foreign judgment. The court held that, while certain defenses to the award may involve claims relating to the prior arbitration, the Convention does not provide subject matter jurisdiction over actions to enforce a foreign court’s judgment, even where a party contends that the foreign court’s judgment is inconsistent with an earlier arbitration award or agreement to arbitrate. Albaniabeg Ambient Sh.p.k. v. Enel S.P.A., Case No. 15 Civ. 3283 (USDC S.D.N.Y. Mar. 11, 2016).

This post written by Joshua S. Wirth.

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COURT LOOKS TO PRIOR RELATED REINSURANCE LITIGATION IN RULING THAT REINSURER MUST POST PRE-PLEADING SECURITY

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We previously reported on reinsurance litigation in Connecticut federal court between Travelers Indemnity Co. and Excalibur Reinsurance Corp, which the parties settled in May 2014. See prior post dated July 31, 2014. A year later, in May 2015, another reinsurance dispute in Connecticut federal court was filed by Travelers’s subsidiary, Select Insurance Co., against Excalibur. Initially, Excalibur sought to enjoin the Connecticut litigation, arguing that without the injunction, Excalibur would need to post security, which would deplete its corporate assets and seriously affect its liquidity. The injunction was denied, however, because Excalibur would not be “irreparably harmed” by posting security. See prior post dated July 8, 2015.

Just as Excalibur feared, the Connecticut court has now granted Select Insurance Co.’s motion for pre-pleading security pursuant to Conn. Gen. Stat. section 38a-27(a). The court looked to virtually identical rulings previously made in the prior cases involving Travelers, and rejected Excalibur’s opposition to posting a security. The court held that: (1) the statute requires that unauthorized insurers post security; (2) the statute applies, notwithstanding that Select Insurance Co. was not a citizen of Connecticut; (3) the statute applies, notwithstanding that the reinsurance agreements selected New York law, because the statute is procedural in nature; (4) an order of supervision by the Pennsylvania Insurance Commissioner purporting to prohibit Excalibur’s posting of security did not preempt the Connecticut law; and (5) security was necessary because Excalibur was unauthorized at the time of the litigation, notwithstanding that Excalibur was previously, for a limited period of time, authorized in Connecticut. Accordingly, the court ruled that Excalibur was required to post security in an amount to be determined following a hearing. Select Insurance Co. v. Excalibur Reinsurance Corp., Case No. 3:15-cv-00715 (USDC D. Conn. Mar. 24, 2016).

This post written by Michael Wolgin.
See our disclaimer.

NINTH CIRCUIT: ARBITRATION PROVISION CONTAINED IN SHAM AGREEMENT IS NOT ENFORCEABLE

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The Ninth Circuit reversed a district court ruling that had compelled arbitration, holding that a party may not enforce an arbitration agreement where the clause is contained in a nonbinding contract. The parties had entered into two contracts in Italy. The first contract was a commercial franchise agreement containing an arbitration clause. The second contract disclaimed any liability on the parties resulting from the first contract until a new franchise agreement was signed in the United States. The party seeking to avoid arbitration argued that the first contract was signed to allow them to obtain proper visas into the United States and not actually confer any contractual rights. The district court ruled that “the issue of whether the broad arbitration clause contained in the first contract survives after the second contract should be submitted to the arbitrator.” The Ninth Circuit, however, disagreed. Turning to traditional principles of contract interpretation, the appellate court held that the parties did not manifest express or implied consent to be bound to the original contract, because the original contract was a sham. The court concluded: “Because we find that the document the parties described as the Commercial Contract was a sham, the arbitration clause is no more enforceable than any other provision in that document.” Casa Del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, Case No. 13-56091 (9th Cir. Mar. 15, 2016).

This post written by Joshua S. Wirth.

See our disclaimer.

OFFICE OF FINANCIAL RESEARCH ISSUES BRIEF ANALYZING DISCLOSURES BY INSURERS OF 2014 DATA RELATED TO CAPTIVE TRANSACTIONS

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On March 17, 2016, the Office of Financial Research, an agency created by the Dodd-Frank Act of 2010 to analyze risk to the financial system, released a brief discussing “recent policy measures” by the NAIC “and the data that insurers began reporting in 2015 about their captive transactions.” The brief analyzes financial data for the year-end 2014, which revealed that U.S. life insurers’ use of captives totaled $213.4 billion in reserve credit. The brief observes that a “little more than a third of the reserve credit backs higher-risk product lines, such as variable annuities and long-term care.” The brief notes that state regulators have begun to revise reporting standards to improve publicly available data to measure the risks from captives and the impact on insurers’ financial condition, but that certain “gaps” in disclosure remain. For example, the brief notes that insurers have disclosed the quality of assets for only 55% of term and universal life captives, measured by reserve credit, largely due to statutory “exemptions.” The brief also cautions that recent NAIC asset quality requirements for new term life and universal life captives can also be bypassed by exemptions — a concern that the OFR believes should be addressed.

This post written by Michael Wolgin.

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SPECIAL FOCUS: THE METLIFE DECISION AND SIFI DESIGNATIONS FOR REINSURANCE COMPANIES

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The designation of MetLife as a systemically significant nonbank financial institution (SIFI) by the Financial Stability Oversight Council (FSOC) was recently rescinded by the United States District Court for the District of Columbia.  The Treasury Department has indicated that the government will appeal the decision.  In a SPECIAL FOCUS article, Roland Goss profiles the court decision and the prospects for a reinsurance company being designated by FSOC as a SIFI.

This post written by Rollie Goss.
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