Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

POTENTIAL FOR FRUITS OF DISCOVERY FROM AN AMERICAN LITIGATION TO BE USED IN A FOREIGN ARBITRATION NOT THE BUSINESS OF AN AMERICAN COURT

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Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

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MISSOURI APPROVES FIRST FOREIGN REINSURERS UNDER ITS CREDIT FOR REINSURANCE LAW

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The Missouri Department of Insurance has announced its approval of two Swiss reinsurers, Swiss Reinsurance Co. Ltd. and Swiss Re Corporate Solutions Ltd., under Missouri’s “credit for reinsurance” law. This allows the two reinsurers to post reduced capital for Missouri transactions, based in part on their high credit rating from recognized rating agencies, and their respective capital surpluses, which far exceed the $250 million minimum under the law ($22.9 billion, and $2.65 billion, respectively).

This post written by John Pitblado.

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REINSURANCE “FOLLOW THE SETTLEMENTS” DISPUTE REFERRED TO MANDATORY MEDIATION

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Utica Mutual’s reinsurance lawsuit with Clearwater Insurance has been ordered to mediation. The reinsured (Utica) asserted claims for breach of contract and declaratory relief, alleging that the reinsurer (Clearwater) breached and is expected to continue breaching certain facultative reinsurance contracts covering a share of losses incurred by the reinsured under umbrella liability insurance policies. The reinsured contended that the reinsurer refused to pay a portion of asbestos claims arising out of a settlement the reinsured entered into with the underlying insured. The case was referred to mandatory confidential mediation on January 8, 2014, and is required to be completed within four months. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Sept. 20, 2013 & Jan. 8, 2014) (Complaint & Order).

This post written by Michael Wolgin.

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CANADA ISSUES NEW RULES ON REINSURANCE WITH A RELATED PARTY

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The Office of the Superintendent of Financial Institutions of Canada promulgated new reinsurance rules under Canada’s Insurance Companies Act, governing reinsurance transactions with a “related” reinsurer. The rules require detailed disclosures by the applicant (primary insurer) of required due diligence, objectives, risks, premiums, coverage, choice of law and other issues involved in the transaction. The rules also require detailed submissions from the proposed related reinsurer, regarding its financials, jurisdictions in which it operates, organization charts and past history of administrative or criminal sanctions, among other things. OSFI Index DA No. 21 (Dec. 2013).

This post written by John Pitblado.

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GAO REPORTS ON THE EFFECTS OF THE NONADMITTED AND REINSURANCE REFORM ACT ON THE SURPLUS LINES MARKET

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The United States Government Accountability Office has issued a Report to Congressional Committees entitled “Property and Casualty Insurance – Effects of the Nonadmitted and Reinsurance Reform Act of 2010.” The Report describes the size and condition of the surplus lines insurance market and examines actions states have taken to implement the Act’s provisions and the effects of the Act, if any, on the price and availability of coverage. The GAO analyzed end-of-year financial data for 2008 through 2012 for insurers who sold surplus lines insurance in 2012 and interviewed insurance regulators from states with a large number of surplus lines insurers, industry associations representing interests in the surplus lines market, and large insurers and brokers. Among the GAO’s finding are: (1) surplus lines insurers’ premiums have increased modestly from $24.8 billion to $25.2 billion; (2) the companies have generally remained profitable; (3) the Act has caused little noticeable shifting in coverage between the admitted and surplus lines markets; (4) nearly all states have modified their laws to implement at least portions of the Act; (5) the changes in states’ laws have simplified compliance for multistate risks, according to market participants; and (6) a few states are also participating in a premium tax-sharing agreement, as permitted by the Act.

This post written by Michael Wolgin.

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