Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

U.K. COURT APPROVES INSURANCE BUSINESS TRANSFER SCHEME

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A court in the United Kingdom has approved the transfer of the entire long-term insurance business of Prudential Annuities Limited (PAL) to The Prudential Assurance Company Limited (PAC). The transfer’s purpose was to simplify the corporate structure of Prudential UK’s business, improve the flexibility and efficiency of capital management, and facilitate Prudential’s response to regulatory developments. The transfer affected approximately 134,000 contracts of long-term insurance business, all non-profit pension policies, and approximately 90,000 policyholders. Regulators did not object to the transfer and an independent expert and three actuaries all supported it.

PAL was already an asset of the PAC fund to which its business was transferred and, since 2012, the vast majority of PAL’s business had been reinsured by that fund. The court found that the reinsurance arrangements for the transfer significantly restricted the ability of the PAC fund to “walk away” from PAL and agreed with the independent expert that there would be no adverse change to either PAL or PAC policyholders from the transfer. Finding that all requirements of the Financial Services and Markets Act 2000 had been met, the court sanctioned the transfer of business. In the Matter of Prudential Annuities Ltd., [2014] EWHC 4770 (Ch.) (High Courts of Justice (Chancery Division) Cos. Ct.) Nov. 13, 2014).

This post written by Renee Schimkat.

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IN BATTLE OF APPAREL COMPANIES, COURT COMPELS ARBITRATION

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In early September, a New York district court granted defendants United States Polo Association, Inc. (“USPA”) and Arvind Ltd.’s (“Arvind”) motion to compel arbitration. It further dismissed Ralph Lauren Corporation and its subsidiaries’ (collectively “Ralph Lauren”) complaint alleging breach of contract, fraudulent inducement, and unjust enrichment.

This action was the latest in a longstanding battle between Ralph Lauren and the USPA, who have been actively involved in trademark litigation since 1984. A 2003 settlement resolved disputes concerning USPA’s use of logos and trademarks with their sale of apparel. The settlement further contained an arbitration provision that would govern any dispute between the parties arising from the settlement agreement.

Ralph Lauren alleged that USPA/Arvind breached this settlement agreement by selling products that infringed upon their protected trademarks without language that indicated that the two companies were not affiliated. It also alleged that the defendants waived arbitration by filing to enforce arbitration in India instead of New York. The court rejected Ralph Lauren’s argument that the defendants waived their right to arbitration because Ralph Lauren showed neither substantive prejudice nor prejudice due to excessive cost and time delay. The court found that USPA/Arvind were not attempting to re-litigate any issue in arbitration. It further noted that “[i]t was the Polo plaintiffs, not USPA/Arvind, that filed the present action in the Southern District of New York and that postponed the arbitration proceedings in India,” negating a claim for excessive cost and delay. Finally, the court found that Ralph Lauren’s fraudulent inducement and remaining claims should be handled through arbitration. Ralph Lauren Corp. v. United States Polo Ass’n, No. 13 Civ. 7147 (S.D.N.Y. Sept. 4, 2014).

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

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CONNECTICUT REVISES FINANCIAL REPORTING REQUIREMENTS

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The Connecticut Insurance Department has issued two Bulletins revising certain financial reporting requirements for certain insurers.  Bulletin FS-4AR-14 (November 25, 2014) revises the annual financial filing requirements for accredited reinsurers, requiring the submission of an annual statement that complies with the NAIC’s Annual Statement Instruction Manual, an actuarial opinion and management discussion and analysis, a copy of the reinsurer’s annual independent audit report as of December 31, 2014 and a list of insurers domiciled in Connecticut ceding business to the accredited reinsurer as of December 31, 2014.  Bulletin FS-4C-14 (November 24, 2014) requires that all captive insurance companies domiciled in or, in the case of a branch captive insurance company, licensed in Connecticut, file annual financial statements verified under oath by two executive officers.  The annual financial statements must be certified by an independent public accountant and must include certain actuarial certifications.

This post written by Rollie Goss.

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RHODE ISLAND SUPREME COURT BARS SECOND ARBITRATION BASED ON THE DOCTRINE OF RES JUDICATA

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An architectural firm contracted to provide architectural, engineering and design services for a state veterans home for a “not to exceed fee” of $61,500, which was calculated as a percentage of overall expected construction costs. When there were changes to the scope of the construction, the construction costs increased, and the firm sought an additional fee. The request was denied, an administrative appeal was rejected and suit was filed. The parties stipulated to a stay of the lawsuit pending a statutory arbitration procedure. The arbitration was resolved adversely to the claimant, with the arbitrator declaring that he was not deciding any equitable claims the claimant may have had which were not asserted in the arbitration. The arbitration award was confirmed by agreement and no appeal was filed. The claimant then filed a petition to compel a second arbitration of equitable claims. The court denied the petition, holding that the proposed equitable claims were barred by the doctrine of res judicata.

The Rhode Island Supreme Court agreed, holding that the claimant could have asserted the equitable claims in the first arbitration, and that the scope of precluded claims was determined using the transaction test, i.e., whether the claims arose out of the same transaction or series of connected transactions. Finding that the equitable claims arose out of the same transactions as the previously arbitrated claims, and finding no applicable exception to the preclusion doctrine, the Supreme Court ruled that the unasserted equitable claims were barred by the final judgment confirming the award in the first arbitration. Torrado Architects v. Rhode Island Dept. of Human Services, No. 2013-274 (R.I. Nov. 25, 2014).

This post written by Rollie Goss.

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COURT DENIES RECONSIDERATION OF ORDER STAYING ACTION TO COMPEL ARBITRATION

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A federal district court refused to reconsider its order staying Allstate’s action to compel arbitration against its insured, A.O. Smith. The case involved a Settlement/Coverage-in Place Agreement between A.O. Smith and Allstate regarding coverage for asbestos liability. Continental Casualty Company, another insurer for A.O. Smith, filed an action in Wisconsin state court against both A.O. Smith and Allstate arguing that the Agreement impermissibly limited its subrogation and contribution rights against Allstate. When Allstate and A.O. Smith asserted their defenses in the Wisconsin action, a dispute emerged between them as to the nature of the Agreement. Allstate attempted to compel arbitration against A.O. Smith in federal court and to stay the Wisconsin litigation pending the outcome of the arbitration. The federal court, however, refused to compel arbitration and instead stayed its own proceedings, in deference to the Wisconsin court’s determination of a pending motion for summary judgment that could impact arbitrability. In denying reconsideration of that ruling, the court explained that its stay was warranted because the Wisconsin litigation was further along, the Wisconsin court was “currently in a more informed position from which to address the issue of arbitrability, and a stay [was therefore] warranted on that basis.” Allstate Insurance Co. v. A.O. Smith Corp., Case No. 1:15-cv-06574 (USDC N.D. Ill. Dec. 11, 2015).

This post written by Barry Weissman.

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