Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FOURTH AND FINAL SETTLEMENT IN THE AIG SECURITIES LITIGATION IS APPROVED

by

On September 11, 2013, the Southern District of New York approved the final settlement in the protracted class litigation regarding allegedly artificially inflated prices for AIG securities. This final settlement resolves all claims against defendant Gen Re with a settlement fund of $72 million for a class of persons and entities who purchased AIG securities from October 28, 1999 through April 1, 2005. Lead counsel was awarded $6.5 million in attorneys’ fees (9.09% of the settlement fund) and $525k in expenses. Any funds not claimed by class members will be distributed to a 501(c)(3) not-for-profit rather than returned to the defendant. The three previous settlements resolved claims against PwC, AIG, and Starr International Company. In re American International Group, Inc. Securities Litigation, 04 Civ. 8141 (DAB) (S.D.N.Y. Sept. 11, 2013).

This post written by Abigail Kortz.

See our disclaimer.

MOTION TO COMPEL ARBITRATION DENIED AS TO NON-SIGNATORIES TO AGREEMENT

by

In a recent case involving an unsuccessful aquatic ecosystem restoration project in Clearwater, Florida, the Middle District of Florida applied the Federal Arbitration Act to resolve an arbitrability dispute, which involved a marine and dredging construction company, its performance bond sureties, and a dredging contractor. First granting a motion to compel arbitration with respect to the construction company and the contractor, both of which had signed the arbitration agreement, the court then reviewed common law contract and agency principles to determine whether the non-signatory sureties could also be bound by the agreement on some other theory, ultimately holding that they could not be because there existed no (1) incorporation by reference of another contract to which the sureties were signatories, (2) assumption by the sureties, (3) agency relationship, (4) veil-piercing/alter-ego, or (5) estoppel. Additionally, the court found that the arbitration agreement unambiguously limited its reach only to claims or disputes between the signatories because it listed those parties – and only those parties – regardless of the fact that it did not expressly exclude application to others. The court next determined that those claims found to be proper for arbitration – breach of contract and indemnity – did not predominate the nonarbitrable claims. Rather, the nonarbitrable claims – fraud in the inducement, negligent misrepresentation, rescission, personal liability, civil theft, and conversion – could be resolved in independent litigation without resulting in either duplicative proceedings or preclusive effect on the arbitrable claims. The court also denied the individual defendant’s motion to dismiss. U.S. Surety Company v. Edgar, Case No. 8:13-cv-1207-T-33TGW (M.D. Fla. Dec. 5, 2013).

This post written by Kyle Whitehead.

See our disclaimer.

WAIVER OF RIGHT TO ARBITRATE IS ISSUE FOR COURTS, NOT ARBITRATORS TO DECIDE

by

A California appellate court has confirmed that the issue of whether a party has waived the right to arbitrate is an issue to be decided by the trial court, not the arbitrator. Defendants in a dispute regarding a stock purchase agreement moved to compel arbitration pursuant to that agreement, but only after they filed a demurrer to the complaint, moved to require plaintiffs to furnish a bond, and commenced their own lawsuit against plaintiffs for alleged misrepresentations made in connection with the purchase agreement. Plaintiffs opposed the motion to compel arbitration by arguing that defendants waived the right to arbitrate through this litigation conduct. The trial court and the appellate both agreed that the waiver issue is one for the court to decide and that defendants had waived their right to arbitrate. Hong v. CJ GGV America Holdings, Inc., Case No. B246945 (Cal. Ct. App. Dec. 18, 2013).

This post written by Abigail Kortz.

See our disclaimer.

REINSURANCE BROKERS UNIFORMLY SEE SOFT PRICING IN CATASTROPHE REINSURANCE MARKET AS CAT BOND MARKET BROADENS

by

The major reinsurance brokers have published their analyses of the reinsurance market for catastrophe risks during fourth quarter of 2013, the catastrophe bond market and predictions for renewal rates for traditional reinsurance during early 2014. These analyses generally predict declines in renewal rates for traditional reinsurance for cat risks in the neighborhood of 10-14%. The factors contributing to the declining rates include: (1) further increases in capital in the market; (2) competition from a strong catastrophe bond market; and (3) moderate levels of cat losses in recent years. A separate report summarizes the activity in the catastrophe bond market during 2013.

  • Aon Benfield suggests that traditional reinsurers enhance their competitiveness by providing unlimited hours for U.S. named storm occurrences and by reducing the cost of reinstatements. Reinsurance Market Outlook: January 2014 (includes a rating agency and regulatory update)
  • Guy Carpenter notes that the softening of rates-on-line has extended to non-cat markets due to increased reinsurance capacity, and that reinsurers have offered the following enhancements to coverages: aggregate and quota share cover; multi-year arrangements; extended hours clauses; better reinstatement provisions; early signing opportunities at reduced pricing; and expanded coverage for terrorism and cyber risks. January 2014 Renewal Report: Capacity, Evolution, Innovation and Opportunity
  • Willis Re also notes an increased capital level in the market, moderate loss levels, softening of rates in non-cat markets and the retention by some major insurance groups of more risk due to stronger balance sheets. Changes in the market include more complex, multi-class and multi-year reinsurance and more pooling arrangements to provide access to the market to smaller reinsurers. 1st View: 1 January 2014
  • A concise summary of the cat bond market in 2013 may be found in a short publication from Property Claim Services titled PCS Full-Year 2013 Catastrophe Bond Report: Underlying Change. Although this report over emphasizes the role of index triggers in cat bonds (as opposed to indemnity triggers), it does highlight the important trends of the broadening of the scope of risks encompassed by cat bonds and the issuance of such bonds by midmarket cedents.

This post written by Rollie Goss.

See our disclaimer.

COURT COMPELS PRODUCTION OF LIABILITY INSURER’S COMMUNICATIONS WITH ITS REINSURER

by

In a dispute over coverage under a liability policy for directors and officers of a failed bank, the court compelled certain documents from the insurer covered by a discovery request seeking “documents relating to any communications with any reinsurer about the claim at issue.” While some of the documents were deemed privileged based on submitted declarations, the court found that the basis for withholding other documents was not sufficiently supported or described in the insurer’s privilege log. The court also compelled certain documents shared between the insurer and the reinsurer, notwithstanding the insurer’s assertion of the common interest doctrine. The court explained that although the insurer and reinsurer shared commercial or financial interests, the insurer failed to demonstrate that it shared the requisite “identical legal interest” with the reinsurer. Bancinsurer, Inc. v. McCaffree, Case No. 2:12-cv-02110 (USDC D. Kan. Oct. 24, 2013).

This post written by Michael Wolgin.

See our disclaimer.