Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT COMPELS ARBITRATION BUT REFUSES TO STAY PARALLEL STATE ACTION

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The district court of South Carolina granted National Home Insurance Company’s (“National”) motion to compel arbitration in a dispute over new home defects. Home Buyers Warranty Corporation (“HBW”) manages a program for home warranties. National provides warranties to home builders associated with this program. Respondent, Ruth Bridges (“Bridges”), obtained a home warranty through HBW. Prior to the expiration of the warranty, Bridges contacted National over alleged structural defects in her home. National originally denied the claim and Bridges subsequently sued. National sought arbitration under the agreement which mandated arbitration for “any claim, dispute, or controversy . . . .”

Procedurally, the court first found that it had subject matter jurisdiction over the dispute as the parties were diverse—National is based in Colorado and Bridges is from South Carolina. The threshold question became whether the Federal Arbitration Act (“FAA”) governed the arbitration provision. This question hinged on whether the HBW warranty involved interstate commerce. The court found that because the HBW warranty was located in South Carolina, that HBW completed the warranty application in Georgia, and because National insured the warranty in Colorado, the FAA applied. Because the FAA applied, National’s motion to compel was granted. However, the court did deny National’s petition to stay the proceedings in South Carolina state court pending arbitration. The court found that “[National] has alleged no facts indicating that the state court would fail to act in accordance with its obligations under the FAA . . .” Additionally, the court’s decision did not preclude National from seeking a similar stay order in the South Carolina state court. National Home Ins. Co., v. Bridges et al., No. 6:15-00112-MGL (D.S.C. Oct. 30, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.
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COURT LAYS OUT VARIOUS GUIDELINES FOR ASSERTING PRIVILEGE IN INSURANCE AND REINSURANCE RELATED DISCOVERY

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The court considered the various privilege assertions of both the insurers (plaintiffs) and the insureds (defendants) in a multi-insurer insurance litigation. In analyzing varying categories of documents, including subsets of documents produced to the court in camera, the court ordered the production of certain documents but not others. Included in the court’s reasoning were the following principles based on New York law: (1) regarding attorney client privilege, discussions between the insurer and its attorney in advance of the denial of coverage are not privileged unless they are “primarily or predominantly a communication of a legal character,” as distinct from routine insurance business activities such as claim investigation; (2) regarding work product, the party seeking to withhold a document “must demonstrate that the document it seeks to withhold was created because of the anticipation of litigation” and in the context of insurers, that presumptively occurs when the insurance claim is denied; (3) documents related to reserves and reinsurance is discoverable unless they are “covered by another relevant privilege”; and (4) documents generated by the insureds that “speak more to the requirements for making a case to the insurers, not a case against the insurers in the courts,” namely, documents generated before the submission of proof of loss, is presumptively not privileged and is discoverable. Great American Insurance Co. of N.Y. v. Castleton Commodities International LLC, Case No. 1:15-cv-03976 (USDC S.D.N.Y. Oct. 15, 2015).

This post written by Michael Wolgin.

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SIXTH CIRCUIT CLARIFIES PRIOR REVERSAL OF AN ORDER THAT HAD VACATED ARBITRATION AWARD AS A MANIFEST DISREGARD OF THE LAW

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After an arbitrator ruled that indemnification agreements between an acquiring company and certain former directors and trustees of employee stock ownership plans, were void under ERISA, the district court vacated the arbitrator’s ruling as a manifest disregard of the law. On the initial appeal of that ruling, the directors argued that district court properly found a manifest disregard of the law based on ERISA, and also because the arbitrator ignored the directors’ alternative arguments based on fraud and estoppel. The Sixth Circuit reversed the vacatur ruling under ERISA, but in passing appeared to reject the remaining arguments asserted by the directors. Accordingly, on remand, the district court precluded the directors from asserting their alternative fraud and estoppel arguments, as the “law of the case.” The directors appealed, and, in a candid opinion, the Sixth Circuit reversed, noting “[w]e regret the extent to which [the Court’s] language was misleading.” The directors’ fraud and estoppel theories were not rejected, and on remand, “the district court should address that argument in the first instance.” Schafer v. Multiband Corp., Case No. 14-2518 (6th Cir. Oct. 20, 2015).

This post written by Michael Wolgin.

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GEORGIA ENACTS NEW INSURANCE REGULATIONS FOR CAPTIVE INSURANCE OVERSIGHT

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On July 1, 2015, Georgia’s House Bill 552 went into effect, marking a change in Georgia’s insurance laws that will make the state more attractive to business. That law lowers the state tax on captive insurance premiums and reduces the capital requirements for such companies. Then on August 24, 2015, Georgia’s Commissioner of Insurance issued an order adopting new insurance regulations that incorporate changes to Georgia’s insurance code from House Bill 552 and to implement additional best practices of the captive industry. The new regulations, among other things, create new reporting and auditing requirements, adds a licensure requirement for captive managers, and changes the way in which captive insurance companies pay into the fraud fund. The new regulations went into effect on October 11, 2015.

Ga Comp. R. & Regs. 120-2-45-.01 to .20; 120-2-72-.05.

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

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CONNECTICUT FEDERAL COURT GRANTS REINSURER’S MOTION FOR SUMMARY JUDGMENT, ENTITLING IT TO COMMISSION ADJUSTMENT PAYMENTS

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In a diversity action arising out of a series of reinsurance agreements, a reinsurer, Odyssey Reinsurance Company, alleged that it was owed sliding scale commission adjustment payments from Cal-Regent Insurance Services Corporation, and sought summary judgment on its breach of contract and declaratory judgment claims. On August 20, 2015, a district court in Connecticut denied Odyssey’s motion for summary judgment without prejudice, and allowed Cal-Regent to amend its answer to comply with the Federal Rules of Civil Procedure and to properly plead that Odyssey breached the reinsurance agreements (which we reported on September 21, 2015). Thereafter, Cal-Regent did not amend its answer, and Odyssey renewed its motion for summary judgment. On October 14, 2015, the Court held that there was no genuine issue of material fact, and that Odyssey is entitled as a matter of law to a declaratory judgment that Cal-Regent breached the reinsurance agreements, allowing Odyssey to recover over $2.7 million in the commission adjustment payments, plus prejudgment interest.

Odyssey Reinsurance Co. v. Cal-Regent Insurance Services Corp., No. 3:14-cv-00458 (USDC D.Conn. Oct. 14, 2015).

This post written by Jeanne Kohler.

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