Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

by

The Eleventh Circuit affirmed a Florida district court’s denial of Cashcall’s motion to compel arbitration, as the forum selected in the parties’ loan agreement was not available.  Appellee Abraham Inetianbor initially borrowed $2,600 from Western Sky Financial LLC. He subsequently repaid $3,252.65 to the servicer of the loan, CashCall, over twelve months. Mr. Inetianbor refused to pay a subsequent bill from Cashcall because he believed his financial obligations had been fulfilled. CashCall disagreed, and reported Mr. Inetianbor’s purported default to credit agencies. Mr. Inetianbor then sued, inter alia, for defamation and usury violations.

The loan agreement mandated any dispute be arbitrated by the Cheyenne River Sioux Tribal Nation (the “Tribe”). Despite attempts to comply with arbitration, the Tribe explained to Mr. Inetianbor and the district court on multiple occasions that the Tribe does not authorize arbitration.  CashCall argued that the specified arbitral forum was not integral to the agreement, and therefore its unavailability should not cause the court to deny its motion to compel. The Court looked to “how important the term was to one or both of the parties at the time they entered into the agreement” – to determine whether the arbitration agreement is integral. In this case, the agreement made multiple references to the Tribe. In nine paragraphs regarding arbitration in the contract, the Tribe was specifically mentioned in five of them. The Court concluded that the contract’s use of “shall” and “is required to” was sufficient evidence of the intent to make the Tribal arbitral forum the exclusive forum.  Since that arbitral forum was unavailable, Appellant’s motion to compel arbitration was denied.  Inetianbor v. Cashcall, Inc., No. 13-cv-60066-JIC (11th Cir. 2014).

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

See our disclaimer.

FIO ISSUES REPORT ON GLOBAL REINSURANCE MARKET AND ITS IMPORTANCE TO THE U.S. INSURANCE INDUSTRY

by

On December 31, 2014, the Federal Insurance Office (FIO) issued a report entitled “The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States.”  The report was prepared pursuant to the Dodd-Frank Act.  It provides an overview of the history, forms, and purposes of reinsurance, the U.S. regulatory framework governing reinsurance, and the global reinsurance market.  The report analyzes the important role that global reinsurers play to U.S. insurance industry generally.  It does not, however, purport “to analyze the extent to which reinsurance or any particular reinsurer could be systemically important.”

The report discussed two roles of the federal government in the reinsurance market.  First, it mentions that the Dodd-Frank Act contains several provisions relating to the oversight of reinsurance.  It is noted that the approach of those provisions is “to enhance uniformity in the state-based insolvency regulation of insurers and reinsurers by increasing deference to the state in which the reinsurer is domiciled or licensed.”

Second, it discusses some of the history of credit for reinsurance collateral reform, and mentions that efforts by the NAIC to achieve uniformity with respect to this area through a Model Act have not been successful.  The report states that the Treasury Department and the United States Trade Representative are considering exercising their authority to enter into an international agreement  concerning this issue, which would preempt inconsistent state laws.

This post written by Michael Wolgin.

See our disclaimer.

ILLINOIS COURT ISSUES CORRECTED OPINION ON EXPENSES BEING INCLUDED IN REINSURANCE LIMIT

by

As we previously reported, an Illinois appellate court recently concluded that the limit stated on certain reinsurance certificates applied to both indemnity expenses as well as defense expenses, relying on the often cited case from the Second Circuit, Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2nd Cir. 1990.) On December 16, 2014, the court issued a substituted opinion, making non-substantive changes to its prior opinion. Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Dec. 16, 2014.)

This post written by Catherine Acree.

See our disclaimer.

CALIFORNIA’S “THIRD PARTY LITIGATION EXCEPTION” NOT PREEMPTED BY THE FAA

by

A California appellate court recently examined that state’s legislative response to the situation where a party moves to compel arbitration and some of the parties to the dispute are not parties to the arbitration agreement. In a situation including an arbitration provision of a reinsurance agreement, the court interpreted the so-called “third party litigation exception” to compelling arbitration, which according to the Court of Appeals addresses “the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate.” Section 1281.2(c) of the California Code of Civil Procedure provides that a court need not order arbitration if it determines that: (1) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party; (2) the dispute arises out of the same transaction or series of related transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact.  The court concluded that the California statute was not preempted by the Federal Arbitration Act, relying on an opinion of the Untied States Supreme Court which held that the application of the third party litigation exception of section 1281.2(c) to stay the arbitration of a contract dispute involving interstate commerce did not undermine the goals and policies of the FAA, and was not preempted by the FAA.  Arrow Recycling Solutions, Inc. v. Applied Underwriters, Inc., No. B245379 (Cal. Ct. App. Jan. 8, 2015), modified (Cal. Ct. App. Jan. 12, 2015).

This post written by Catherine Acree.

See our disclaimer.

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZED

by

On January 12, 2015, the Terrorism Risk Insurance Act Program (“TRIA” or “Program”), which was originally adopted in 2002 to provide a federal backstop to protect insurers from catastrophic claims arising from terrorist attacks on U.S. soil, was extended.

Specifically, the TRIA Reauthorization Act of 2015 (the “Reauthorization Act”), Public Law No: 114-114th-1, revises the Program as follows:

  • Extends the Program until December 31, 2020.
  • Decreases the federal share of the compensation for the insured losses of an insurer during each Program year by 1% until it equals 80% of the portion of the amount exceeding the annual insurer deductible.
  • Increases the insurance marketplace aggregate retention amount under the Program (currently $27.5 billion) by $2 billion per calendar year until such amount equals $37.5 billion.
  • Directs the Secretary of the Department of Treasury (the “Secretary”) to conduct a study within nine months after the enactment of the Reauthorization Act regarding the process used by the Secretary to certify an act as an act of terrorism under the Program.
  • Directs a biennial study by the GAO regarding the impact on the Federal government of assessing and collecting upfront premiums on insurers that participate in the Program and the creation of a capital reserve fund under the Program.
  • Authorizes the Secretary to establish and appoint the Advisory Committee on Risk-Sharing Mechanisms (the “Advisory Committee”) to provide advice, recommendations, and encouragement with respect to the creation and development of the nongovernmental risk-sharing for the protection against losses arising from acts of terrorism. The Advisory Committee must consist of nine members who are directors, officers, or other employees of insurers, reinsurers, or capital market participants that are participating or that desire to participate in the nongovernmental risk-sharing mechanisms and who are representative of the affected sectors of the insurance industry, including commercial property insurance, commercial casualty insurance, reinsurance, and alternative risk transfer industries.
  • Requires insurers participating in the Program to submit to the Secretary beginning January 1, 2016, and each calendar year thereafter, information regarding insurance coverage for terrorism losses to analyze the effectiveness of the Program. The information to be reported shall include information regarding lines of insurance with exposure to such losses; premiums earned on such coverage; geographical location of exposures; pricing of such coverage; the take-up rate for such coverage; the amount of private reinsurance for acts of terrorism purchased; and such other matters as the Secretary considers appropriate.
  • Authorizes the Secretary to conduct a study (commencing June 30, 2017, and every other June 30 thereafter) of small insurers participating in the Program, and identify any competitive challenges small insurers face in the terrorism risk insurance marketplace.

Furthermore, the Reauthorization Act includes several other amendments, unrelated to the Program. It amends the Gramm-Leach-Bliley Act to establish the National Association of Registered Agents and Brokers as an independent nonprofit corporation to prescribe licensing and insurance producer qualification requirements and conditions on a multi-state basis, while retaining essential state regulatory authority. It also removes Dodd-Frank Act margin requirements for certain end-users, like utilities and manufacturers, involved in derivatives trading to hedge risk. Finally, it requires the Federal Reserve to have at least one governor with community banking or supervision experience.

This post written by Kelly A. Cruz-Brown.

See our disclaimer.