Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

MISSISSIPPI FEDERAL COURT DECISION SHOWS DEGREE OF BURDEN TO CHALLENGE ARBITRATION AWARD

by

A decision of a Mississippi federal district court illustrates the weighty burden that a party must carry in order to vacate an arbitration award. The dispute was over an executive terminated from a company and whether his termination was with or without cause. The arbitrator found that it was done without cause and awarded the executive nearly $600,000. The terminating company moved to vacate based on seven arguments, including that the arbitrator shifted the burden from the employee to the company, that the arbitrator awarded a lump-sum damage award not contemplated by the agreement, that the arbitrator erred in awarding pre- and post-judgment interest, and that the arbitrator exceeded his authority by awarding benefits in excess of the amounts sought in the filings. The terminated employee cross-moved for sanctions.

The court suggested that, although the terminating company may have had a point in its argument, the arbitrator miscalculated the damages, “the arbitration provision did not limit the arbitrator’s authority with respect to damages, other than to forbid him from awarding punitive damages.” It may have been that the arbitrator misconstrued the contract or the law, but the terminating company did not meet its burden of showing an unambiguous and undisputed mistake of fact. The court also analyzed whether sanctions were warranted, finding no evidence of bad faith. However, the court cautioned, “the bases for vacating an arbitration award are narrowly prescribed and motions to vacate should therefore be employed sparingly.” U-Save Auto Rental of America, Inc. v. Barton, Case No. 3:15-cv-00348 (USDC S.D. Miss. Feb. 12, 2016).

This post written by Zach Ludens.

See our disclaimer.

FEDERAL COURT FINDS THAT THE MCCARRAN FERGUSON ACT BARS PLAINTIFF’S RICO CLAIMS ARISING FROM CERTAIN REINSURANCE TRANSACTIONS

by

In a putative class action seeking damages for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) arising from certain reinsurance transactions, the United States District Court for the Western District of Missouri held that Plaintiff’s claims were barred by the McCarran-Ferguson Act, granting defendants’ motion to dismiss. Plaintiff Dale Ludwick and others purchased annuities from F&G Life Insurance Company, which was acquired by Harbinger Group, Inc. Plaintiff brought suit alleging that F&G, Harbinger and Harbinger’s chairman and CEO engineered a fraudulent accounting scheme to hide F&G’s liabilities, artificially inflate its reported assets, and create a false appearance of capital adequacy through reinsurance transactions with certain entities, including defendants Raven Reinsurance Company and Front Street Re (Cayman), Ltd, in violation of RICO.

Defendants moved to dismiss the action, arguing that plaintiff’s RICO claims impermissibly interfered with state statutory and regulatory insurance schemes, and were thus barred by the McCarran-Ferguson Act. The court granted defendants’ motion, finding that: (a) RICO does not specifically relate to the business of insurance, thus satisfying this prong of McCarran-Ferguson’s criteria; (b) the states relevant to the transactions at issue – Missouri and Iowa – have statutory schemes which regulate the business of insurance and governed said transactions; and (c) the application of RICO to the subject claims would intrude upon the insurance regulatory schemes in those states, and thus “invalidate, impair or supersede” the schemes in violation of McCarran-Ferguson. Moreover, the court rejected plaintiff’s argument that its common law claims negated the effect of McCarran-Ferguson and that such claims were not barred by the statute, as the transactions at issue were subject to the states’ insurance codes. Ludwick v. Harbinger Group, Inc., No. 15-cv-00011 (USDC W.D.MO. Feb. 12, 2016).

This post written by Rob DiUbaldo.

See our disclaimer.

COURT PROVIDES REFRESHER ON DISCOVERY IN BAD-FAITH LITIGATION WHERE REINSURERS ARE INVOLVED

by

A Nevada federal district court provides a primer on discovery rules relating to bad faith claims and reinsurers. The case involved a bad-faith claim between OOIDA Risk Retention Group, Inc. and an individual insured. When the insured’s counsel made an array of discovery requests, OOIDA claimed attorney-client privilege and work-product doctrine for many of the documents. The dispute involved five different types of documents: 1): documents authored by or received by the liability adjuster; 2) communications between coverage counsel and liability defense counsel; 3) communications between adjusters and re-insurers; 4) communications or documents related to reserves; and 5) documents related to communications with third-party counsel or staff. The court noted that “the presumption against work product doctrine protection applies prior to a final coverage decision,” at which point there is no presumption that the documents are kept in the ordinary course of business. Given this, and that counsel for the individual claimant did not challenge OOIDA’s contention that providing information to a reinsurer does not waive privilege, the court found that emails “which discuss the liability lawsuit, coverage issues, reserves, and the budget from outside coverage counsel,” were protected by the “qualified immunity bestowed by the work product doctrine.” The court also found that withholding information regarding reserves in a bad faith case on the grounds that they are not relevant holds little water. The “bulk of cases” to consider the issue, the court stated, “have concluded that reserve information is relevant to whether an insurer acted in bad faith.” OOIDA Risk Retention Group, Inc. v. Bordeaux, Case No. 3:15-cv-00081-MD-VPC (USDC D. Nev. Feb. 3, 2016).

This post written by Zach Ludens.

See our disclaimer.

FIFTH CIRCUIT UPHOLDS DISTRICT COURT DISMISSAL OF MOTION TO STAY ARBITRATION

by

The appellant disputed the manner in which the arbitrators were selected under the applicable arbitration agreement, as well as the partiality of the arbitrators. The district court refused to stay the arbitration, ruling that it lacked jurisdiction to address these issues before the panel renders a decision. The Fifth Circuit affirmed on this ground, but also noted that the appellant could not show a “lapse” in the selection of arbitrators or another significant breakdown in the arbitration process. The court characterized the appellant’s argument as an attempt to “rewrite” the arbitration agreement “to require that every arbitration among [the] multiple parties comprise only two ‘sides.’” The “plain wording of that provision,” however, showed that three or more “sides” were contemplated. Avic Int’l USA, Inc. v. Tang Energy Group, Ltd., Case No. 15-10190 (5th Cir. Aug. 25, 2015).

This post written by Joshua S. Wirth.

See our disclaimer.

MAINE AMENDS RULE REGARDING CREDIT FOR REINSURANCE

by

Effective January 24, 2016, Maine amended Bureau of Insurance Rule 740, Credit for Reinsurance, in order to implement the newly adopted provision of the Maine Credit-for-Reinsurance Act that allows reduced collateral for reinsurance ceded to “certified” reinsurers. The amendments make other “necessary revisions that have been identified since the Rule’s 1993 adoption in order to address various technical issues and to reflect changes to the controlling Maine law and National Association of Insurance Commissioners (NAIC) accreditation standards.” The amended Rule 740 is attached here, along with a redline of the changes, and the Summary of Comments and Statement of Basis of Adopted Amendments.

This post written by Michael Wolgin.

See our disclaimer.