Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ELEVENTH CIRCUIT RESTRICTS EXTRASTATUTORY JUDICIAL REVIEW OF ARBITRATION AWARDS

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The Eleventh Circuit recently limited the authority by which an aggrieved party can obtain judicial review of arbitration awards outside of the four grounds enumerated in the Federal Arbitration Act, ruling that an insurance policy alone could not serve as “an independent basis for the enforcement of an arbitration award.” The plaintiff argued that its right to expanded judicial review was based on the policy’s express language that “[a]ny decision rendered in arbitration is binding on you and us unless judicial review is sought…you and we have the right to judicial review of any decision rendered in arbitration.” The Eleventh Circuit disagreed, holding that if parties wish to allow for more avenues to judicial review, they must explicitly designate the “state statutory or common law alternatives to the FAA in their arbitration agreements.” Otherwise, the contract alone will not suffice as the sole basis for judicial review when the FAA itself does not apply. Campbell’s Foliage, Inc. v. Federal Crop Insurance Corp., No. 13-11896 (11th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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CAPTIVE INSURANCE TRADE ASSOCIATION OPPOSES PROPOSED REVISIONS TO THE NATIONAL STANDARDS FOR STATE ACCREDITATION

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In a letter dated May 19, 2014, the Captive Insurance Companies Association (CICA) urged the National Association of Insurance Commissioners (NAIC) to reject proposed revisions to the definition of “multi-state reinsurer” in the Part A and Part B preambles of the standards for state accreditation. According to the CICA, the proposed new definition is overly broad and would bring a new regulatory burden for numerous alternative risk structures that have nothing to do with problem that is sought to be addressed by the change, i.e., the utilization of special purpose vehicles and captives as reinsurance mechanisms by life and annuity insurers regarding excess reserves. The CICA argues that the proposed definition would subject most captive reinsurers (including reinsurers in the property/casualty industry) to NAIC accreditation standards, and that there is no evidence that captives need this additional regulatory burden. The CICA argues that if the NAIC is concerned with the life and annuity reinsurance provided by the captive subsidiaries of large commercial insurers that may present “systemic risk” to the global financial system, then the definition should be properly tailored so as to avoid application for the thousands of captives that are not in this category.

Previously, the preamble had excluded “insurers that are licensed, accredited or operating in only their state of domicile but assuming business from insurers writing that business that is directly written in a different state.” The proposed revised definition removes that exclusion, defining a multi-state reinsurer as “an insurer assuming business that is directly written in more than one state and/or in any state other than its state of domicile. This includes but is not limited to captive insurers, special purpose vehicles and other entities assuming business.”

This post written by Catherine Acree.

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COLORADO AMENDS LAWS GOVERNING CREDIT FOR REINSURANCE AND RECEIVERSHIPS

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Colorado has amended its laws regarding credit for reinsurance and receiverships to conform to certain model acts adopted by the National Association of Insurance Commissioners (NAIC). House Bill 14-1315, conforms Colorado Revised Statutes 10-3-701 through 10-3-706 with the NAIC Credit for Reinsurance Model Act to establish criteria that the insurance commissioner is to use in certifying reinsurers, imposes requirements on ceding insurers to take certain steps to manage their concentration of risk, and imposes requirements upon the insolvency of a non-U.S. insurer or reinsurer that provides security to fund its U.S. obligations.

Furthermore, House Bill 14-1315 enacts Colorado Revised Statute 10-3-540.5 to specify the conditions under which insurance companies may offset their obligations to each other when an insurance company becomes insolvent. Colorado Revised Statute 10-3-540.5 adopts section 711 of the NAIC Insurer Receivership Model Act.

The Governor signed House Bill 14-1315 on May 31, 2014. The amendments to Colorado Revised Statutes 10-3-701 through 10-3-706 are effective January 1, 2015. Colorado Revised Statute 10-3-540.5 is effective August 6, 2014.

This post written by Kelly A. Cruz-Brown.

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APPELLATE COURT HOLDS THAT ARBITRATORS DID NOT ACT IN EXCESS OF THEIR AUTHORITY OR IN MANIFEST DISREGARD OF LAW IN DENYING MOTION TO VACATE AWARD

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The Ninth Circuit Court of Appeals affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between the Johnsons and Wetzel’s Pretzels, concerning the termination of a franchise agreement. The appellants, the Johnsons, challenge the award on grounds that the arbitrator exceeded his powers by enforcing provisions in the franchise agreement that required the Johnsons to assign their lease and property interests to the defendant. The Ninth Circuit denied the appellants’ claims, stating that the Johnsons were unable to show that the award was “irrational or exhibit[ed] a manifest disregard of law,” two of the limited grounds on which a federal court may vacate an arbitral award. Emphasizing the terms of the franchise agreement, the Court stated that the arbitrator acted within the scope of the agreement, which expressly provided for the assignment of the plaintiff’s lease and property interests upon termination of the agreement. Additionally, the Court indicated that the Johnsons were unable to offer convincing evidence that award exhibited a manifest disregard of law. Wetzel’s Pretzels, LLC v. Johnson, No. 12-56716 (10th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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APPELLATE COURTS ADDRESS JURISDICTION TO HEAR DISPUTES CONCERNING ARBITRATION

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Establishing that a federal court has jurisdiction to hear an arbitration dispute is not always easy. The Fourth Circuit recently affirmed the dismissal of an action seeking to vacate an arbitration award based upon lack of subject matter jurisdiction. Plaintiff attempted to show that the nexus between her claims and “commerce” fell within the realm of the FAA, and therefore there was a federal question under §1331. However, she failed to raise that argument below, so it was not properly before the court of appeal, and the Court found it to be unavailing in any event. Ball v. Stylecraft Homes, LLC, No. 13-1946 (4th Cir. Mar. 26, 2014)

The Eleventh Circuit affirmed the denial of a motion to remand for lack of jurisdiction. The issue was whether diversity jurisdiction was defeated because the action was a direct action against an insurer, defeating diversity jurisdiction under 28 U.S.C. §1332(c). The Court held that it was not a direct action, and affirmed the district court’s order compelling arbitration. Kong v. Allied Professional Insurance Company, No. 13-12305 (11th Cir. May 9, 2014)

This post written by Rollie Goss.

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