Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NY DFS AMENDS INSURANCE REGULATION 41 TO CONFORM WITH NRRA

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The NY DFS announced an amendment to its regulations governing excess line placements to conform with the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), which prohibits any State, other than the insured’s home state, from requiring a premium tax payment for nonadmitted insurance. The new regulation sets forth capital and surplus requirements for non-admitted insurers, and otherwise conforms the regulations to the NRRA, as adopted by New York and signed into law in 2011, amending Chapter 61 of the Insurance Laws.

This post written by John Pitblado.

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INSURER MUST FOLLOW THE SETTLEMENTS, NOTWITHSTANDING CLAUSE PURPORTING TO LIMIT SETTLEMENT TO SETTLING INSURERS ONLY

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Interest holders in a vessel insured a 50% interest with certain Lloyd’s Syndicates, and a 30% interest with Aigaion Insurance Company. The terms of the Aigaion policy contained a clause reading, “Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments” (the “Follow Clause”). When the Syndicates later settled a claim after the vessel was damaged, a dispute between the insureds and Aigaion arose over whether Aigaion was required to follow the settlement. Aigaion contended that it need not follow the settlement due to the following provision in the settlement agreement between the Syndicates and the insureds (the “Settlement Clause”): “The settlement and release pursuant to the terms of this Agreement is made by each Underwriter for their respective participations in the Policy only…and do not bind any other insurer providing hull and machinery cover in respect of the [vessel].” The insureds disagreed that this provision was enforceable by Aigaion, and argued that Aigaion was obligated to follow the Syndicates’ settlement under the Follow Clause.

The court interpreted the plain meaning of the Aigaion policy and ruled that the Follow Clause did indeed require Aigaion to follow any settlement made by the Syndicates. The court rejected Aigaion’s argument that the clause’s purpose was only to make the Syndicates Aigaion’s agent to negotiate settlement of disputed claims. The court also found that, although it interpreted the Settlement Clause as an attempt to exclude other parties from the settlement between the insureds and the Syndicates, Aigaion was not an intended third-party beneficiary of that agreement, Aigaion was bound under the Follow Clause, and Aigaion therefore could not rely on the Settlement Clause to avoid liability to the insureds. San Evans Maritime Inc., et al. v. Aigaion Insurance Co. SA, [2014] EWHC 163 (U.K. High Court of Justice, Comm. Div. Feb. 4, 2014).

This post written by Michael Wolgin.

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CLASS ARBITRATION ROUND-UP

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There have been a number of recent court opinions enforcing class arbitration waivers, compelling individual arbitration and denying class arbitration, with the lone exception being a California Court of Appeal opinion which, in conflict with an opinion from the Ninth Circuit Court of Appeals, distinguished Concepcion and found a waiver of class arbitration to be unenforceable.

Alakozai v. Chase Investment Services Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (Affirming denial of motion to compel arbitration of class action claims, finding class arbitration exclusion in FINRA rules was not incorporated explicitly into parties’ agreement, potentially allowing for arbitration of class action claims in another arbitral forum).

Hickey v. Brinker Nat’l Payroll Company, LP, 1:13-cv-00951 (USDC D. Colo. Feb. 18 2014) (granting motion to compel individual arbitration of employees’ claims against employer, rejecting claims that agreement with class arbitration waiver was unenforceable under NLRA or was otherwise unenforceable as unconscionable or against public policy).

Michael Appelbaum v. AutoNation Inc., SACV 13-01927 (USDC C.D. Cal. April 8, 2014) (granting motion to compel individual arbitration of employee’s claims against employer, finding class arbitration waiver not unenforceable under NLRA or otherwise unconsionable, substantively or procedurally)

Johnson v. Consumerinfo.com, Inc., No. 11-56520 (9th Cir. March 20, 2014) (dismissing appeal of trial court’s grant of motion to compel individual arbitration of consumer protection claims, finding FAA bars appeals of court orders staying judicial proceedings and compelling arbitration).

Imburgia v. DirectTV, Inc., No. B239361 (Cal. App. Ct. April 7, 2014) (affirming denial of motion to compel individual arbitration, finding choice of law provision which did not explicitly mention FAA, but did mention state law, allowed for interpretation of enforceability issues under state law, despite that result would otherwise be preempted by FAA. The case distinguishes Concepcion, and is in conflict with Ninth Circuit decision in Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013), discussed in prior ReinsuranceFocus.com post.

This post written by John Pitblado.

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PRECLUSIVE EFFECT OF PRIOR ARBITRATION IS AN ARBITRABLE ISSUE

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The U.S. District Court for the District of Massachusetts recently applied the First Circuit’s analysis in Employers Insurance Co. of Wausau v. OneBeacon American Insurance Co., Case No. 13-1913 (1st Cir. Feb. 26, 2014), when it held that the preclusive effect of a prior arbitration is itself an arbitrable issue. Faced with one previously concluded and one pending arbitration between insurers and their reinsurer regarding the interpretation of an “Access to Records” clause as it pertained to allegedly privileged documents, the district court was not asked to vacate, modify, or correct the previously concluded arbitration order. Instead, both parties consented to the court confirming that order and sought to argue about the proper forum for the interpretation, application, and performance of the arbitration order. Ultimately, the court emphasized the First Circuit’s “general rule” that the preclusive effect of a prior arbitration is an arbitrable issue, particularly where, as in this case, the plain terms of the parties’ arbitration clause broadly encompasses “any dispute arising out of” the agreement. Liberty Mutual Insurance Co. v. Allstate Insurance Co., Case No. 13-cv-10387 (USDC D. Mass. Mar. 31, 2014).

This post written by Kyle Whitehead.

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LACK OF PROPER NOTICE TO REINSURER BARS CLAIM FOR PAYMENT UNDER FACULTATIVE REINSURANCE CONTRACTS

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A federal district court granted summary judgment in favor of a reinsurer who had been sued by a ceding company for failure to pay under two facultative reinsurance certificates that reinsured two excess liability policies from the 1980s. The certificates required the ceding insurer to promptly notify the reinsurer of “any event or development” that might result in a claim against the reinsurer. The reinsurer had not been provided with notice of millions of dollars worth of asbestos claims that had developed over several decades. The only correspondence between the ceding insurer and the reinsurer reflected a small potential exposure in the early 1980s that did not indicate the possibility that involvement of the certificates might follow. In the early 2000s, the insured was facing tens of thousands of asbestos bodily injury claims, and the ceding insurer engaged in lengthy and complex settlement negotiations with its insured without providing notice to the reinsurer. Ruling in the reinsurer’s favor, the court looked to the purpose of the notice provision – to provide the reinsurer with an opportunity to associate in the control and settlement of claims, as well as to ensure that the reinsurer has sufficient information at its disposal to determine whether to avail itself of that opportunity. The court also concluded that the ceding insurer’s failure to provide notice to the reinsurer was a breach of its duty of utmost good faith. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. 09-10607 (USDC S.D.N.Y Mar. 31, 2014).

This post written by Catherine Acree.

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