Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FIO FINALLY ISSUES INSURANCE REGULATION REPORT

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The Federal Insurance Office has finally issued the report required by the Dodd-Frank Act assessing the regulation of insurance in the United States. The report includes recommendations for the federal government to consider a limited role in helping to make the regulation of insurance more uniform. With respect to reinsurance, the report contains the following recommendations:

· States should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives (see page 32 of the report); and

· To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation (see page 37 of the report). This would apparently be an international level agreement to introduce uniformity throughout the states, which under Dodd-Frank would pre-empt state laws.

This post written by Rollie Goss.

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FIFTH CIRCUIT REPUDIATES NLRB POLICY ON CLASS ARBITRATION WAIVER

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The Fifth Circuit Court of Appeals reversed in part a decision by the National Labor Relations Board which held that D.R. Horton, a homebuilder with operations in over twenty states, had violated the National Labor Relations Act by requiring its employees to sign an arbitration agreement that prohibited them from pursuing collective or class claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial. Deferring to the NLRB’s interpretation of the National Labor Relations Act to the extent it could, the Fifth Circuit nonetheless found that the NLRB paid insufficient respect to other federal statutes and policies, namely the Federal Arbitration Act. The Court first emphasized that the FAA’s purpose is to ensure the enforcement of arbitration agreements according to their terms. However, requiring class arbitration interferes with fundamental attributes of arbitration, primarily its informality, and thus creates a scheme inconsistent with the FAA. Thus, consistent with the FAA, D.R. Horton’s prohibition should be upheld, absent an overriding contrary congressional command in the NLRA. Because (1) the NLRA contains no explicit language about, and does not even mention, collective action, much less the procedures such an action would employ, (2) the legislative history of the NLRA discusses no right to file class or consolidated claims against employers, and because (3) the NLRA was enacted prior to the advent of modern class action practice, the Court held that the class arbitration agreement must be enforced according to its terms. Additionally, the Court upheld the NLRB’s determination that D.R. Horton must clarify with its employees that the arbitration agreement language did not eliminate entirely their right to pursue claims of unfair labor practices with the NLRB. D.R. Horton, Inc. v. National Labor Relations Board, No. 12-60031 (5th Cir. Dec. 3, 2013).

This post written by Kyle Whitehead.

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COURT ALLOWS INTERVENTION OF “TOLLING SUB-CLASS” IN RESPA CLASS ACTIONS REGARDING PMI REINSURANCE

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We have previously reported on a case styled Munoz v. PHH Corp., No. 1:08-CV-0759 (E.D. Cal.), and other similar suits alleging putative class actions under the Real Estate Settlement Procedures Act (“RESPA”), arising from purported “sham” reinsurance transfers covering private mortgage insurance. In Munoz, where a class of consumers was certified, an intervening plaintiff sought intervention in order to certify a sub-class of consumers whose claims would be time-barred under the statute of limitations, but who sought to create a “tolling sub-class” of similarly situated claimants. The court granted the motion for intervention, and the defendants sought reconsideration. Finding the prior order not “clearly erroneous or contrary to law,” the court denied the motion for reconsideration. Munoz v. PHH Corp., No. 1:08-CV-0759 (USDC E.D. Cal. Oct. 29, 2013)

This post written by John Pitblado.

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PROPOSED ALTERNATIVE UMPIRE SELECTION REJECTED BY COURT

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Addressing the method of appointing a tie-breaking umpire-arbitrator in a series of reinsurance coverage arbitrations commenced by insurer Arrowood Indemnity Company, the Southern District of New York recently ordered that the parties’ already chosen arbitrators follow the steps provided in the “excess of loss” reinsurance agreements in selecting the third arbitrator. Although the relevant reinsurance treaties specified a method for such selection, Arrowood sought an alternative approach, which included the nomination by each party of up to eight candidates and a voir dire-like objection and selection process. However, the Court, acting under authority granted by Section 5 of the Federal Arbitration Act, denied that alternative, ordering that the present arbitrators select an umpire in accordance with the treaties’ requirements. Then, the Court would regard that selection as “presumptively appropriate,” albeit rebuttable, for appointment by the Court as umpire for the remaining arbitrations of the series. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., No. 12-cv-08005-LLS (USDC S.D.N.Y. Oct. 25, 2013).

This post written by Kyle Whitehead.

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BRITISH COURT REFUSES TO ENJOIN U.S. REINSURANCE LAWSUIT, OR STAY BRITISH SUIT, BETWEEN SAME PARTIES REGARDING SAME ISSUES.

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The claimant, the Insurance Company of the State of Pennsylvania, sued Equitas under certain reinsurance contracts that provided cover of $15 million, excess of $5 million in underlying insurance for ICP-issued policies covering the Dole Food Co. Dole faced more than $30 million in liabilities arising from alleged personal injuries caused by its use of certain pesticides in its fruit farming operations. Equitas claimed that ICP failed to timely notify Equitas of the claims, barring coverage under the reinsurance contracts. ICP brought suit first in New York, and Equitas filed its own later action in London, arguing that venue in the U.S. was improper, and seeking to enjoin the U.S. action. The English court declined to enjoin the U.S. action. However, it also denied ICP’s motion to stay the English proceeding, leaving the litigation proceeding on parallel tracks in New York and London. Insurance Co. of Pa. v. Equitas, [2013] EWHC 3713 (U.K. High Court of Justice, Comm. Div. Nov. 29, 2013)

This post written by John Pitblado.

See our disclaimer.