Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION DENIED DESPITE RELATED AGREEMENT WITH ARBITRATION PROVISION

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A Florida court of appeals affirmed a trial court decision to deny arbitration finding a later signed contract supplanted an earlier contract with an arbitration provision. The Appellant, HHH Motors, LLP, signed a retail purchase agreement with Appellees, Jenny and Kristopher Holt, to purchase a Dodge Ram truck. The contract contained an arbitration provision. To finance the truck purchase, both parties then executed a retail installment sales contract (“RISC”) which failed to include a similar provision. The contract did include a merger clause however, which signified that the RISC was to be a complete and final agreement between HHH Motors and the Holts.

The Holt’s then filed a class action lawsuit alleging HHH Motors violated Florida’s Deceptive and Unfair Trade Practices Act relating to certain customer charges. The trial court denied HHH Motors motion to compel arbitration based on the retail purchase agreement, and they subsequently appealed.

HHH Motors argued that their right to arbitration vested when the original agreement was signed. They further argued that as the contracts were signed “contemporaneously,” both contracts should be interpreted together. While the appeals court did acknowledge two documents signed contemporaneously on the same transaction may be interpreted together, this argument was not dispositive. The RISC was “was sufficiently unequivocal to render the [retail purchase agreement] arbitration clause nugatory.” The court further noted that if HHH Motors wanted to include an arbitration clause in the RISC, they easily could have done so. HHH Motors v. Holt, No. 1D13-4397, (Fla. 1st DCA, Dec. 3, 2014).

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

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NAIC CONSIDERS PROPOSAL WHICH MIGHT EXPAND THE MARKET FOR CAT BONDS AMONG LIFE INSURANCE COMPANIES

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At the November 17, 2014 meeting of the Valuation of Securities Task Force of the NAIC’s Financial Condition (E) Committee, a proposal was received from the North American CRO [Chief Risk Officers] Council to modify the capital treatment for catastrophe bonds held by life insurance companies, to encourage life insurance companies to purchase cat bonds.  A slide presentation accompanied the proposal.  The proposal contended that a revised RBC treatment for cat bonds might have the following benefits:

  • property and casualty insurers would benefit from a larger and more stable source of capital, thereby reducing their cost of capital;
  • life insurers would benefit from improved risk-adjusted asset returns as natural catastrophe risk and systemic investment risk are largely uncorrelated and, as a result, can provide a diversification benefit;
  • a lower cost of capital for property and casualty insurers could improve the availability and affordability of insurance products, thereby benefiting property and casualty customers;
  • life insurance customers would benefit from improved risk-adjusted returns; and
  • regulators’ solvency concerns would diminish as greater diversification is introduced into the system.

The task force exposed this proposal for comment for a sixty day period expiring January 16, 2015.  It is not clear whether the Task Force will revisit this proposal at its March meeting.

This post written by Rollie Goss.

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SEVENTH CIRCUIT DENIES REHEARING IN FAILED ATTEMPT TO COMPEL ARBITRATION AND TO REQUIRE PRE-PLEADING SECURITY FROM URUGUAY STATE-OWNED REINSURER

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On November 18, 2014, we reported on the Seventh Circuit’s decision in Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, in which Pine Top claimed that Banco de Seguros owed it $2,352,464.08 under certain reinsurance contracts.  The Seventh Circuit affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, agreeing that Pine Top’s assigned rights under the reinsurance contracts were limited to the collections of certain debts and did not include the right to arbitrate.  The Seventh Circuit also had affirmed the trial court’s denial of a motion to strike Banco Seguros’s pleading for failure to post security, holding that such pre-judgment security is a form of attachment that violates the Foreign Sovereign Immunities Act.  On December 22, 2014, the Seventh Circuit denied Pine Top’s petition for rehearing and rehearing en banc, as no judge requested a vote on the petition, and the judges on the prior panel voted to deny rehearing.  Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Dec. 22, 2014).

This post written by Michael Wolgin.

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FIRST CIRCUIT RECOGNIZES UBERRIMAE FIDEI IN ADMIRALTY CONTEXT

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The First Circuit recently examined, in the admiralty context, the doctrine of uberrimae fidei, a legal doctrine requiring that all parties to an insurance contract deal in good faith and fully disclose all material facts. The case involved a maritime insurance policy in which the insured failed to disclose that its dry dock had substantial, preexisting damage and failed to disclose the dry dock’s actual value. When the insured later made a claim and the facts were revealed, the insurer denied the claim. In subsequent coverage litigation, the district court decided in favor of the insurer, finding that the insurance policy was void ab initio because the insured failed to disclose the true value of the dry dock, its level of deterioration, and other material facts. The First Circuit affirmed, holding that uberrimae fidei is an established admiralty rule within the first circuit. The First Circuit, however, modified the district court’s ruling to reflect that the contract was merely voidable, not void ab initio.

Catlin at Lloyd’s v. San Juan Towing & Marine, No. 13-2491, 2015 WL 500744 (1st Cir. Feb. 6, 2015).

This post written by Catherine Acree.

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FEDERAL OFFICE OF INSURANCE REQUESTS COMMENTS FOR TRIA CERTIFICATION STUDY

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Section 107 of the Terrorism Risk Insurance Program Reauthorization Act of 2015 (the “Reauthorization Act”) requires the Secretary of the Treasury (“Secretary”) to conduct a study of the certification process required under in the Terrorism Risk Insurance Act of 2002, as amended (“TRIA”) and submit a report of the study results to Congress. To assist the Secretary in conducting the study and formulating the report, the Federal Insurance Office (“FIO”) issued a request for public comment, on the following items:

  • The establishment of a reasonable timeline by which the Secretary must make an accurate determination on whether to certify an act as an act of terrorism;
  • The impact that the length of any timeline proposed to be established may have on the insurance industry, policyholders, consumers, and taxpayers as a whole;
  • The factors the Secretary would evaluate and monitor during the certification process, including the ability of the Secretary to obtain the required information regarding the amount of projected and incurred losses resulting from an act which the Secretary would need in determining whether to certify the act as an act of terrorism;
  • The appropriateness, efficiency, and effectiveness of the consultation process required under section 102(1)(A) of TRIA and any recommendations on changes to the consultation process;
  • The ability of the Secretary to provide guidance and updates to the public regarding any act that may reasonably be certified as an act of terrorism;
  • The manner and extent to which the certification timeline and the Secretary’s ability to make an accurate determination on whether to certify an act as an act of terrorism may be influenced by domestic or international law enforcement processes; and,
  • The implications for insurers or policyholders if one or more events are certified as acts of terrorism but the aggregate, calendar-year insured losses do not exceed the amount required for Treasury to make payments for insured losses.

The written comments should also include: 1) the data or rationale, including examples, supporting any opinions or conclusions; 2) approaches and options respecting improvement of the certification process, if any; and, 3) any specific legislative, administrative, or regulatory proposals for carrying out such approaches or options.
Comments are due on or before March 6, 2015 and may be submitted electronically through the Federal eRulemaking Portal at http://www.regulations.gov.

This post written by Kelly A. Cruz-Brown.

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