Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW YORK COURT REAFFIRMS THAT REINSURER’S STATUTE OF LIMITATIONS DEFENSE DETERMINED BY ARBITRATORS, NOT COURT

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Because a reinsurer participated in the arbitrator selection process, the reinsurer was precluded from seeking a stay on statute of limitations grounds pursuant to New York law, a New York appellate court ruled. As discussed in a previous post, the arbitration agreement stated that the parties’ arbitration would be governed by the “arbitration laws of New York State.” New York’s arbitration laws state that a party may raise statute of limitations defense as a threshold issue in the courts. By contrast, the Federal Arbitration Act states that the limitations defense is presumed to be reserved to the arbitrator, rather than the court, except where the parties agree to leave that issue to the court. In its most recent ruling, the court held that although the reinsurer had waived its ability to have the courts determine the statute of limitations issue, that issue may be determined by the arbitrators. In re ROM Reinsurance Management Co. v. Continental Insurance Co., No. 11809 654480/12 (N.Y. App. Div. May 21, 2014).

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

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MOTION FOR RECONSIDERATION OF PARTIAL SUMMARY JUDGMENT DENIED CONCERNING LIABILITY CAP ON REINSURANCE CERTIFICATES

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A district court in New York denied an insurer’s motion for reconsideration of a partial summary judgment order in favor of the reinsurer that concluded that the reinsurance limits set forth nine certificates of reinsurance at issue in the case were inclusive of costs and expenses, and created an overall cap of liability on the certificates. The insured moved for reconsideration of the district court’s opinion based on the Second Circuit’s intervening unpublished opinion, not to be cited as precedent, in Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., 594 F. App’x 700 (2d Cir. 2014). The district court denied the motion for reconsideration because the insurer conceded that the Utica decision represented an important clarification of existing law and was not in of itself an intervening change in law. Thus, the insurer failed to point to any change in controlling law or any new evidence that might reasonably be expected to alter the conclusion reached by the Court in granting the reinsurer’s partial summary motion. Global Reinsurance Corp. v. Century Indemnity Co., Case No. 13 Civ. 06577 (USDC S.D.N.Y. April 15, 2015).

This post written by Kelly A. Cruz-Brown.

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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.

See our disclaimer.

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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