Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

MARYLAND ADOPTS CREDIT FOR REINSURANCE REGULATIONS

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The Maryland Insurance Commissioner adopted regulations regarding Credit for Reinsurance effective August 18, 2014. The regulations will implement changes made to Title 5, Subtitle 9 of the Maryland Insurance Article, and are based upon recent amendments to model law and regulation developed by the National Association of Insurance Commissioners entitled “Credit for Reinsurance Model Law” (No. 785) and “Credit for Reinsurance Model Regulation” (No. 786), respectively. The regulations provide standards for a licensed ceding insurer to receive credit for reinsurance ceded to a certified reinsurer as a reduction of collateral requirements and include provisions that establish: 1) eligibility requirements to be considered for certification as a certified reinsurer; 2) eligibility requirements of a jurisdiction in which an assuming insurer may be domiciled to be considered a qualified jurisdiction; 3) eligibility requirements to be considered for approval as an accredited reinsurer; 4) a rating method to be used in the certification process; and, 5) a sliding scale with the level of required collateral varying from 0% to 100% of ceded liabilities based on the certified reinsurer’s rating.

This post written by Kelly A. Cruz-Brown.

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REINSURER’S EXPOSURE CAPPED AT THE CERTIFICATE LIMITS: NO OBLIGATION TO PAY DEFENSE EXPENSES ABOVE THE LIMITS

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A New York federal court recently was presented with a reinsurance dispute about the amount a reinsurer was required to pay under certain reinsurance Certificates. The issue was whether the reinsurer’s obligation was capped at the stated limit, or whether the reinsurer was also liable for defense costs in excess of the limit that the direct insurer had reimbursed. The court ruled that the “Certificate Limits” stated in the “Reinsurance Accepted” section of the Certificates capped the maximum amount that the reinsurer could be obligated to pay for combined loss and expenses.

The court rejected the direct insurer’s argument that the reinsurer should have to pay additional sums for defense costs above the amount of the “Certificate Limits,” ruling that “the unambiguous language in the ‘Reinsurance Accepted’ sections of the Certificates does not differentiate between reinsurance accepted for loss versus reinsurance accepted for expenses, but simply provides a total cap on liability. If the parties intended to exclude expenses from the total liability cap, they could have made that clear in the language of the Certificates.” Under New York law, for costs to be excluded from the liability cap in a reinsurance certificate, language in the certificate must expressly state that such costs were excluded from the indemnification limit. Because nothing in the Certificates that expenses were to be excluded from the Certificate Limits, the court entered summary judgment in favor of the reinsurer. Global Reinsurance Corp. of America v. Century Indemnity Co., Case No. 1:13-CV-6577 (USDC S.D. N.Y. Aug. 15, 2014).

This post written by Catherine Acree.

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CLASS ACTION ALLEGING MORTGAGE KICKBACK CAPTIVE REINSURANCE SURVIVES DISMISSAL PENDING DISCOVERY ON TOLLING OF LIMITATIONS

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A court denied dismissal of a putative class action involving claims against Suntrust Bank subsidiaries and a captive reinsurer for an alleged illegal kickback scheme arising out of captive reinsurance covering Suntrust’s lender-placed insurance. The plaintiffs alleged violations of the Real Estate Settlement Procedures Act, unjust enrichment, and unfair trade practices. The defendants attempted to dismiss the case on the basis of the expiration of the statutes of limitations, but the court denied dismissal, finding that it could not “conclusively determine at [that] time that the claims contained with” the complaint could survive due to tolling. The court permitted discovery on that issue, as well as on the issue of whether plaintiffs’ could “pierce the corporate veil” and sue certain Suntrust subsidiaries. The court did dismiss one plaintiff’s unjust enrichment claim against Suntrust due to the existence of an express insurance agreement between those parties. Finally, the court found that a co-obligor on one of the plaintiff’s loans must be joined to the case as an indispensible party in order to avoid the potential for duplicative or inconsistent judgments. Thurmond, et al. v. Suntrust Banks, Inc., et al., Case No. 11-1352 (USDC E.D. Pa. June 26, 2014.

This post written by Michael Wolgin.

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COURT LACKS JURISDICTION TO HEAR MOTION TO VACATE ARBITRATION DECISION THAT DENIED WITHDRAWAL OF ARBITRABLE CLAIM

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A federal district court has dismissed a motion to vacate an arbitration decision denying a party’s request to unilaterally withdraw a claim that was subject to a pending arbitration. Finding the arbitration decision was not final, and did not fall within any exception to the finality requirement, the court held it lacked jurisdiction to consider the motion to vacate it. The court also rejected application of the collateral order doctrine which, if applicable, would justify the court’s jurisdiction to hear the motion. That doctrine is reserved for only a few substantial interests, such as defenses of presidential immunity and double jeopardy. No such substantial interest was shown by the argument that consideration of the order could avoid unnecessary legal expenses. Bailey Shipping Ltd. v. American Bureau of Shipping, et al., Case No. 12-CV-5959 (USDC S.D.N.Y. Mar. 28, 2014).

This post written by Renee Schimkat.

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COURT DENIES PETITION TO APPOINT ARBITRATION UMPIRE IN RETROCESSION DISPUTE

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Odyssey Reinsurance Co. petitioned the court to appoint an umpire to serve in arbitration with its retrocessionaries, certain Lloyd’s underwriters and Reliastar Reinsurance Group, over a disputed reinsurance claim. Odyssey argued that arbitration had been unduly delayed due to what it contended were poorly qualified candidates proposed by the retrocessionaires. The court held that Odyssey’s arguments were insufficient to obtain relief from the court at that time, and that in its view, there had “not been a breakdown in the process that justifies court intervention.” The court directed the parties “to proceed to the next stage of arbitrator selection” as described in the agreements between them. Odyssey Reinsurance Co. v. Certain Underwriters at Lloyd’s London Syndicate 53, et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. June 30, 2014) (Opinion & Order and Judgment).

This post written by Michael Wolgin.

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