Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT GRANTS MOTION TO DISMISS IN ROW BETWEEN INSURED, INSURER, AND THIRD-PARTY CLAIM ADMINISTRATORS

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A district court in Ohio granted defendants National Indemnity Company (“National”) and Resolute Management, Inc.’s (“Resolute”) motion to dismiss in an asbestos coverage dispute. Plaintiff, industrial manufacturer the William Powell Company (“Powell”), bought 60 million dollars in primary and excess product and liability coverage, eventually assumed by OneBeacon Insurance Company (OneBeacon), with additional coverage for claim defense. OneBeacon procured reinsurance protection through National. National subsequently delegated its claim responsibilities to various companies including Resolute. In 2001, Powell became embroiled in asbestos injury claims to which it sought defense. Powell alleged that National and Resolute “combined to form a racketeering enterprise for the purpose of depriving Powell of its insurance coverage and to profit at Powell’s expense” by rejecting claims and improperly intervening in the defense of those claims. National, OneBeacon, and Resolute sought dismissal of Powell’s various federal and state law claims. The court first rejected plaintiff’s federal RICO claim as it would impede Ohio insurance law to contravene McCarran-Ferguson. In particular, the court noted that an insured my not sue a third-party claims administrator for bad faith nor unfair claims handling. Additionally, a RICO claim “would upset and impair [Ohio’s] regulatory scheme and impede its ability to detect insurance fraud.” Considering next state specific claims, the court found that, without privity, Ohio does not recognize a bad faith claim for the handling of insurance claims. For these and other reasons the court granted defendants’ motion to dismiss. The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-807 (USDC S.D. Ohio Sept. 30, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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COURT APPROVES REPLACEMENT ARBITRATOR IN REINSURANCE DISPUTE DESPITE TECHNICAL VIOLATION OF ARBITRATION AGREEMENT

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In a short handwritten ruling, a court recently denied Odyssey Reinsurance Company’s challenge to a replacement arbitrator appointed by its opponents, Certain Underwriters at Lloyds London Syndicate 53 and Reliastar Reinsurance Group. The parties had selected their arbitrators and were beginning the process of selecting an umpire, when Lloyd’s and Reliastar informed Odyssey that they had replaced their appointed arbitrator. Odyssey objected to the replacement arbitrator on the ground that the individual did not satisfy the requirements of the underlying arbitration agreements, which provided: “The arbitrators and umpire shall be officials of Insurance and or Reinsurance companies authorized to transact business in one or more states of the United States of America and writing the kind of business about which the difference has arisen.” Odyssey Re contended that, while the replacement arbitrator was an officer of a broker that had corporate affiliates that wrote the type of insurance business at issue in the arbitration, the arbitrator was not an officer of an actual insurance or reinsurance company. The court rejected Odyssey’s objection, ruling simply that the arbitrator “meets the qualifications” of the arbitration agreement. Odyssey Re v. Certain Underwriters at Lloyds London Syndicate 53 et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Barry Weissman.

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COURT VACATES ARBITRATION DECISION THAT ALLOWED CLASS MEMBERS TO OPT-OUT OF INJUNCTIVE RELIEF CLASS, FINDING ARBITRATOR EXCEEDED HER AUTHORITY AND MANIFESTLY DISREGARDED LAW

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Reviewing a previously conferred arbitration award, a district court in New York granted defendant Sterling Jewelers’ motion to vacate the decision to the extent that it would have allowed class members the opportunity to opt-out. In 2008, plaintiff Laryssa Jock and others sued defendant for sex discrimination. After significant motion practice and discovery that extended multiple years, an arbitrator certified a class for declaratory and injunctive relief claims. The arbitrator subsequently allowed class members the opportunity to opt-out.

On review, defendant first alleged that the arbitrator exceeded its authority to certify a class by binding over 40,000 absent class members, and not just those class members whom had affirmatively opted-in to the class or whom were represented by counsel in the arbitration. The court did not find this argument persuasive noting that all class members agreed to arbitration in prior employment agreements thereby granting an arbitrator the power over absent class members. The court did find, however, that the arbitrator exceeded her authority and manifestly disregarded the law by permitting class members to opt-out of injunctive and declaratory relief based on Rule 23(b)(2). The court found that under Rule 23, “the relief sought must perforce affect the entire class at once.” Instead, the arbitrator failed to consider the U.S. Supreme Court’s Wal-Mart v. Dukes decision, whereby “opt-out classes may not be certified for the purposes of seeking classwide injunctive relief.” For these reasons the court vacated the class determination award’s opt-out provision for injunctive and declaratory relief but upheld the rest of the award. Jock v. Sterling Jewelers, Inc., Case No: 08 Civ. 2875 (JSR) (USDC S.D.N.Y. Nov. 16, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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ALASKA’S DIRECTOR OF INSURANCE LISTS ELIGIBLE SURPLUS LINES INSURERS

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On July 13, 2015, the director of Alaska’s Division of Insurance published a list of surplus lines insurers that are eligible to write non-admitted business within the state. The Non-admitted and Reinsurance Reform Act (“NRRA”) identified the eligibility requirements that Alaska may impose on a company to be an eligible surplus lines insurer. An insurer is deemed ineligible and removed from the list if it does not meet all of the NRRA and domestic state requirements. All alien insurers that are on the NAIC’s Quarterly Listing of Alien Insurers are eligible to write non-admitted business in Alaska.

Three statuses were assigned to the various insurers included on the director’s list. Those companies that are “white listed” are foreign companies that meet the NRRA and domestic state requirements. “IID listed” insurers are alien companies that are on the NAIC’s Quarterly Listing of Alien Insurers. Finally, “listing approved” insurers are alien companies that are not on the NAIC’s Quarterly Listing of Alien Insurers but are approved by Alaska.

Alaska Bulletin B 15-06, effective July 13, 2015.

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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NEW YORK APPELLATE COURT AFFIRMS EVIDENTIARY RULING IN FAVOR OF CEDENT

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In a dispute regarding reinsurance coverage for the settlement of asbestos-related claims for nearly a billion dollars, on October 29, 2015, a New York appeals panel affirmed a New York state trial court decision, which denied the reinsurers’ motion for a ruling that the reasonableness of the cedent’s allocation of all settlement dollars to asbestos-insurance claims is properly the subject of evidence at trial. The court noted that in a prior appeal in the case, the Court of Appeals, New York’s high court, denied the cedent’s motion for summary judgment, in part, finding issues of fact as to 1) whether the cedent, “in allocating the settlement amount, reasonably attributed nothing to so-called ‘bad faith’ claims against it”, and 2) whether “certain claims were given unreasonable values for settlement purposes”. (We reported on the Court of Appeals decision on April 1, 2013.) Thus, the court held that the trial court correctly found that the reinsurers’ motion for a ruling allowing evidence on the reasonableness of the cedent’s allocation of the entire settlement to asbestos-insurance claims was contrary to the Court of Appeals decision, which limited the triable issues to two issues.

United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604517/02 (N.Y. App. Div. Oct. 29, 2015).

This post written by Jeanne Kohler.

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