Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FIFTH CIRCUIT HOLDS ORDER REMANDING CASE BACK TO ARBITRATORS FOR CLARIFICATION IS NON-FINAL AND NON-APPEALABLE

by

The appeal arose from a lawsuit to clarify an arbitration award concerning an alleged breach of a corporate merger agreement containing a binding arbitration clause. The federal district court found the arbitration panel had exceeded its authority under that arbitration clause by failing to provide sufficient findings of fact and conclusions of law regarding a damages claim. The district court therefore remanded the case back to the panel for consideration of that issue and clarification of the award. On appeal, the Fifth Circuit held that because the district court neither confirmed nor vacated the award, the order was not final, a point on which the dissent strongly disagreed, and it therefore did not have appellate jurisdiction over the order. The court further reasoned that it was necessary to decline jurisdiction to avoid generating piecemeal appeals and in light of the court’s deferential standard of review of arbitration awards. Murchison Capital Partners, L.P., et al. v. Nuance Communications, Inc., No. 13-10852 (5th Cir. July 25, 2014).

This post written by Renee Schimkat.

See our disclaimer.

NEW YORK COURT REJECTS BID TO COMPEL ARBITRATION OF REINSURANCE DISPUTE

by

A New York federal district court denied Transatlantic Reinsurance Company’s petition to compel National Indemnity Company (“NICO”) to submit to arbitration. While the court’s order does not provide the basis for its ruling and only refers to the reasons set forth on the record, the issues were extensively analyzed in the parties’ briefing. The core issue was whether NICO, which was not a signatory to the reinsurance agreements between Transatlantic and AIG, should be compelled to arbitrate under those agreements’ arbitration provisions. Transatlantic argued that NICO was bound by the reinsurance agreements because it substituted itself for AIG by virtue of the Loss Portfolio Transfer wherein AIG to transferred NICO its asbestos-related liabilities which Transatlantic reinsured. According to Transatlantic, the principles of “direct benefits estoppel” required NICO to arbitrate under the reinsurance agreements in light of the benefits enjoyed by NICO as a result of those agreements.

The court rejected these arguments, evidently agreeing with NICO, which had challenged Transatlantic’s characterization of the Loss Portfolio Transfer and the reinsurance agreements. NICO argued it never agreed to arbitrate. Further, NICO maintained it was a third-party administrator acting on AIG’s behalf and did not substitute for AIG under the Loss Portfolio Transfer or any other agreement. NICO claimed it also did not receive any direct benefits under the reinsurance agreements, so the “direct benefits estoppel” theory was inapplicable. Finally, NICO pointed out that it was not a necessary party to the arbitration because Transatlantic could obtain complete relief without NICO being a party. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 14 Civ. 2109 (ER) (USDC S.D.N.Y. July 22, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

ELEVENTH CIRCUIT REVERSES COVERAGE RULING UNDER REINSURANCE AGREEMENT

by

Public Risk Management of Florida, an intergovernmental risk management association that functions as a primary insurer for certain government entities in Florida, ceded some of its risk to One Beacon under a reinsurance policy. Public Risk’s insured, the City of Wintergarden, made a claim for defense and indemnity for an underlying lawsuit against it by a contractor who performed public works, but was claimed it was underpaid as a result of delays arising from the City’s failure to provide accurate plans and maps. Public Risk defended under a reservation of rights. It also tendered the claim to One Beacon, which disagreed there was a duty to defend. Ultimately, Public Risk was not required to indemnify its insured, but sustained over $286,941.07 in loss for legal fees above the $200,000 retention, which it believed were owed by One Beacon pursuant to the reinsurance agreement. Public Risk sued One Beacon, but the district court found no duty to defend and dismissed the claim. Public Risk appealed, and the Eleventh Circuit reversed the coverage ruling, finding that the underlying claims did not sound entirely in intentional tort, and therefore there was a duty to defend. Public Risk Management of Florida v. One Beacon Insurance Co., No. 13-15254 (11th Cir. June 24, 2014).

This post written by John Pitblado.

See our disclaimer.

CEDENT WINS BREACH OF CONTRACT CLAIM AGAINST R&Q REINSURANCE

by

A Wisconsin federal district court granted summary judgment in favor of plaintiff, Employers Insurance Company of Wausau, and against its reinsurer, R&Q Reinsurance Company, on Employers’ claim that R&Q breached its agreement by failing to pay Employers for those claims paid Employers to its insureds. R&Q unsuccessfully maintained that Employers could not combine its indemnity payments and defense expenses and that it should have calculated the defense expenses using the ratio terms provided on the certificate of insurance. The Court disagreed, finding that the reinsurance agreement did not distinguish between indemnity and defense expenses, which were covered under the agreement, such that Employers was not required to calculate the defense expenses differently from the way it calculated the indemnity payments. The court also rejected R&Q’s argument that Employers had failed to produce sufficient evidence to demonstrate that its payments exceeded the retention amount. The court found that R&Q’s argument was precluded by R&Q’s failure to present contrary evidence on summary judgment where a party must do more than speculate that other evidence supporting its case may exist. The court did, however, find a factual issue existed as to the calculation of prejudgment interest and denied Employer’s motion for summary judgment accordingly. Employers Insurance Company of Wausau v. R&Q Reinsurance Company, Case No. 13-cv-709-bbc (USDC W.D. Wis. July 28, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

COURT GRANTS SUMMARY JUDGMENT IN $40M REINSURANCE COMMISSION DISPUTE

by

Greenlight Reinsurance brought suit against Appalachian Underwriters (“AUI”), Appalachian Reinsurance (“App Re”) and Insurance Services Group (“ISG”) alleging it had been shortchanged more than $40,000,000 pursuant to three types of agreements it entered into with the respective defendants (1) a reinsurance agreement between Greenlight and AIU, where AIU acted as managing general agent, and was obliged to refund ceded premium beyond contractually defined amounts based on loss ratios; (2) a similar retrocession agreement with App Re; and (3) a guarantee agreement with ISG. Greenlight claimed that, based on loss ratio thresholds, it was owed a return of premium under the reinsurance and retrocession agreements, and that ISG had guaranteed those payments.

The court analyzed the agreements, and, based on the minimum loss ratios, and the undisputed calculations of ceded premium, held that AUI owed Greenlight $16,986,516 under the reinsurance agreement, and App Re owed Greenlight $24,456,213 under the retrocession agreement. The court held, however, that Greenlight failed to demonstrate that the guarantee from ISG was a guarantee of payment. Rather, the court found that it was a parental guarantee, which required ISG, as a parent corporation, to ensure that its subsidiaries, AIU and App Re, remained solvent, but did not require it to make direct payments on their behalf. The court thus granted summary judgment on Greenlight’s claims against AUI and App Re, but denied summary judgment as to ISG. Greenlight Reinsurance, Ltd. V. Appalachian Underwriters, Inc., Case No. 12-CV-8544 (JPO) (USDC S.D.N.Y. July 28, 2014).

This post written by John Pitblado.

See our disclaimer.