Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURERS’ MOTION TO VACATE ARBITRATION AWARD HELD TIME-BARRED

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A federal judge in New York has denied reinsurers’ motions for relief from a prior judgment. The reinsurers, Equitas Insurance Limited and Certain Underwriters at Lloyd’s of London, argued that they were entitled to judicial relief because the insured, Arrowood Indemnity Company, procured an arbitration award later confirmed by the Southern District through fraud. Arrowood entered into a casualty reinsurance agreement with the underwriters. To recover under this agreement, claims needed to fall within one of three types of coverage. The underwriters denied a series of Arrowood’s asbestos claims under the “Common Cause Coverage” because it believed that the asbestos claims needed to be noticed during the original contract period. The parties submitted the matter to arbitration, where the panel agreed that Arrowood’s interpretation of the contract: that Common Cause Coverage was intended only to prevent recovery on known losses whose “common cause” occurred before the term of the original contract. The court confirmed the award.

Months later, the underwriters obtained a letter produced by Arrowood in a separate action that revealed Arrowood interpreted the Common Cause Coverage clause in the same way the underwriters had posited in the previous arbitration. The underwriters filed a motion seeking to relieve it from the judgment because of fraud. While relief on this basis under the Federal Rules of Civil Procedure is not time-limited, similar relief under the Federal Arbitration Act imposes a time limit – a motion to vacate an arbitration award must be served upon the adverse party within three months after the award is filed or delivered. Because the Act trumps civil rules when those rules conflict, the underwriters were time-barred. Arrowood Indemnity Co. v. Equitas Insurance Ltd., Case No. 13 Civ. 7680 (USDC S.D.N.Y. May 14, 2015).

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

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MONTANA LAW REVISED TO ALLOW CAPTIVES TO ORGANIZE AS LIMITED LIABILITY COMPANIES

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On April 28, 2015, Montana Governor Steve Bullock signed into law amendments to Montana’s law regarding captive insurers. Significantly, the amendments make it possible for public entities in Montana to set up captives. Additionally, the amendments allow captives in Montana to be organized as limited liability companies. Such LLCs must be established with a minimum of five members. John Jones, President of the Montana Captive Insurance Association (“MCIA”), called these amendments “meaningful improvements to what is already one of the country’s premier captive domiciles.” The amendments, spearheaded by the MCIA and the Montana Commissioner of Securities and Insurance, aim to make Montana a more attractive destination for companies looking to establish or re-domesticate captives.

This post written by Zach Ludens.

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FIO DIRECTOR TESTIFIES ON THE IMPACT OF INTERNATIONAL REGULATORY STANDARDS ON THE COMPETITIVENESS OF U.S. INSURERS

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The Director of the Federal Insurance Office (FIO), Michael McRaith, recently testified before the House Financial Services Subcommittee on Housing and Insurance regarding the impact international regulatory standards have on the competitiveness of United States insurers. Citing to the FIO’s 2014 Annual Report, McRaith noted that, in the aggregate, insurers operating in the U.S. continue to show resilience in the aftermath of the 2008 financial crisis. At year-end 2013, the life and health sector reported $335 billion in capital and surplus, and the property and casualty sector reported approximately $665 billion in capital and surplus. McRaith testified that the pace of globalization in insurance markets has “increased exponentially and is expected to continue to grow in the coming years.” Due to this global economic growth, many jurisdictions, both developing and well-established, are modernizing insurance supervisory regimes. These jurisdictions include Mexico, Canada, Australia, China, and South Africa.

McRaith cited to a recent agreement among members of the International Association of Insurance Supervisors (IAIS), as publicly described in March 2015, where members agreed on the “ultimate goal” of a single insurance capital standard (ICS) that will include a common methodology by which ICS achieves comparable, i.e., substantially the same, outcomes across jurisdictions. That agreement followed the IAIS October 2014 annual meeting where IAIS adopted an approach to the Basic Capital Requirement (BCR) for globally systemically important insurers. McRaith also noted that the European Commission was recently given the mandate to pursue an agreement with the U.S. to “facilitate trade in reinsurance and related activities” and to “recognize each other’s prudential rules and help supervisors exchange information.” McRaith concluded his testimony by stating that “U.S. insurance authorities are positioned to provide U.S. leadership that complements the shared interest in a well-regulated insurance market that fosters competition, promotes financial stability, and protects consumers.” McRaith’s April 29, 2015, testimony can be found here.

This post written by Renee Schimkat.

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U.S. SUPREME COURT TO HEAR APPEAL ON ENFORCEABILITY OF ARBITRATION AGREEMENTS IN CALIFORNIA

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The United States Supreme Court has granted DIRECTV’s petition for Writ of Certiorari and will hear the following question presented: Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.

As reported here previously, DIRECTV had moved to dismiss or stay a class action litigation filed against it and to compel individual arbitration pursuant to the arbitration clause contained in DIRECTV’s customer agreements in California, which specifically prohibit class actions. The trial court denied the motion and the California Court of Appeal affirmed. The Court of Appeal focused on the arbitration clause’s non-severability provision and its reference to “state” law to hold that the class-action waiver in the arbitration clause was invalid under California law and the entire arbitration agreement was therefore unenforceable. In its petition, DIRECTV argued that the Court of Appeal did precisely what the Supreme Court’s Concepcion decision prohibits: “It applies state law to invalidate an arbitration agreement solely because that agreement includes a class-action waiver.” DIRECTV further argued that because the decision is in direct conflict with a recent Ninth Circuit decision, creates an acknowledged conflict between state and federal courts on a matter of federal law, and “evinces the very hostility to arbitration that led to the enactment of the FAA in the first place,” the Supreme Court’s review was warranted. Petitioner’s brief on the merits is to be filed with the Court by May 29, 2015, and Respondents’ brief is to be filed by July 17, 2015. The Court is scheduled to hear the case during its October 2015 term. DIRECTV, Inc. v. Imburgia, et al., Case No. 14-462.

This post written by Renee Schimkat.

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SUMMARY JUDGMENT OVERTURNED IN COVERAGE DISPUTE

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In late April, the Indiana Supreme Court held that Continental Casualty Company (“CNA”) must provide insurable relief for Anthem Insurance Companies, Inc. (“Anthem”), reversing a lower court decision. Anthem’s expenditures were covered under their excess reinsurance policy.

Anthem, which later merged with co-defendant WellPoint Inc., was originally subject to multiple lawsuits in Florida and Connecticut for failing to pay claims in a timely manner, breach of state and federal statutes, breach of good faith and fair dealing, unjust enrichment, negligent misrepresentation, and violations of Racketeer Influenced and Corrupt Organizations Act. Anthem later settled, without admitting wrongdoing or liability, a multi-district litigation that consolidated the various state actions. Anthem then sought indemnification from their reinsurers.

Anthem self-insured E&O liability coverage and also purchased additional reinsurance coverage. CNA and other implicated excess reinsurers denied coverage for Anthem’s underlying litigation expenses. The trial court granted summary judgment in favor of CNA. Twin City Fire Insurance Company (“Twin City”) later joined that verdict. A court of appeals affirmed that decision.

CNA argued that (1) Anthem’s alleged conduct was not solely in performance of “Professional Services,” a requirement under their reinsurance agreement; (2) that Anthem’s coverage relief was barred under Indiana public policy; and (3) Anthem’s alleged conduct was barred under the reinsurance agreements “dishonest or fraudulent act or omission” exception. The court found that Anthem’s coverage extended to “loss of the insured resulting from any claim or claims…for any Wrongful Act of the Insured…but only if such Wrongful Act…occurs solely in the rendering of or failure to render Professional services.” The court found that Anthem’s alleged conduct fit under this guidance, as the conduct was a part of Anthems handling of health claims. The court also noted a strong presumption for the enforceability of contracts, especially between CNA and Anthem, both sophisticated parties. For these and other reasons, the court reversed the trial court and granted in large part, summary judgment for Anthem.

WellPoint, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 49S05-1404-PL-244 (Ind. Apr. 22, 2015).

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

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