Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER NOT OBLIGATED TO COVER D&O CEDANT

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An insurance company that provided directors and officers liability to a lottery corporation sought coverage from its reinsurer for an employment litigation judgment entered against the lottery corporation. The reinsurance certificate stated that coverage would not be provided until the insurer’s losses totaled $5 million. The final judgment at issue was $6.7 million, which included $2.4 million in interest. Thus, the issue was whether the $2.4 million in interest was considered a “loss,” which would trigger reinsurance coverage with a final judgment of $6.7 million, or “interest on a judgment,” which would result in a final of judgment of $4.3 million which falls just shy of the $5 million threshold. The court determined that the carefully worded conditions in the reinsurance certificate made it clear that the reinsurer’s obligation to cover a portion of “interest on any judgment” was separate and apart from its obligation to cover losses and granted summary judgment in favor of the reinsurer. Seneca Insurance Co. v. Everest Reinsurance Co., Case No. 11-7846 (USDC S.D.N.Y. Oct. 17, 2013).

This post written by Abigail Kortz.

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NON-SIGNATORIES AND THE POWER TO COMPEL ARBITRATION

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The District of Connecticut recently granted a motion to compel arbitration in a suit brought by Connecticut General Life Insurance Company (“CGLIC”) for a fraudulent overbilling scheme allegedly perpetrated by participating providers of outpatient medical imaging services. The court’s analysis hinged on (1) whether CGLIC’s claim fell within the scope of the arbitration clause at issue and (2) whether the defendants, neither of whom were signatories to the contracts containing the arbitration clause, may enforce the clause against CGLIC, who, though not a signatory either, conceded that it is an intended third-party beneficiary of the contracts.

With respect to scope, the court distinguished between “broad” and “narrow” clauses, relying on CardioNet, Inc. v. CIGNA Health Corp., Case No. 13-cv-191 (E.D. Pa. May 23, 2013), to conclude that the clause, which applied to “[d]isputes arising with respect to the performance or interpretation” of the contracts, was broad and thus deserving of a presumption of arbitrability. The court also invoked judicial estoppel, as a CGLIC affiliate had urged the broad construction in CardioNet, foreclosing CGLIC’s right to later argue for a narrow reading. With respect to the authority of non-signatories to enforce the clause, the court held that, because third-party beneficiaries are bound by the terms of the contracts that benefit them, CGLIC was bound to arbitration as if it were a signatory. The court also held that the non-signatory defendants could compel arbitration because (1) the factual issues of the dispute were intertwined with the contracts containing the arbitration clauses, (2) a parent-subsidiary-like relationship existed between the non-signatory defendants and the signatory imaging servicers, and (3) the conduct underlying the claim involved both signatory and non-signatory parties. Connecticut General Life Insurance Co. v. Houston Scheduling Services, Inc., Case No. 3:12-cv-01456 (D. Conn. Aug. 29, 2013).

This post written by Kyle Whitehead.

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POTENTIAL ARBITRATION AWARD SETOFF NOT JUSTIFICATION FOR A STAY

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Absent a “pressing need,” an arbitration action and related court case in one federal district do not justify an indefinite stay of a court case in a different federal district when different reinsurance contracts and different merits are at issue, regardless of whether the parties are the same. In Employers Insurance Company of Wausau v. OneBeacon Insurance Company, a garden-variety breach of contract claim, the Western District of Wisconsin recently entertained, and subsequently rejected, OneBeacon’s motion to stay arguments (1) that a Massachusetts arbitration award could eventually result in a setoff against an expected Wisconsin judgment and (2) that Employers Insurance Company of Wausau’s dawdling conduct in arbitration could be positively impacted by an indefinite stay in court. Holding that a potential setoff is not a “pressing need” and that concerns regarding party conduct should be raised in the forum in which that conduct occurs, the court ultimately granted summary judgment to Employers because OneBeacon had not disputed its liability under the Wisconsin contracts. It also awarded Employers prejudgment interest pursuant to Wisconsin law. Employers Insurance Co. of Wausau v. OneBeacon Insurance Co., Case No. 13-cv-85-bbc (W.D. Wis. July 8, 2013).

This post written by Kyle Whitehead.

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A FEDERAL “SOLUTION” FOR REINSURANCE FOR CATASTROPHE RISKS?

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There are three bills pending in Congress concerning reinsurance for catastrophe risks. Such bills have been introduced in prior years and generally have died in committee, and the same is true so far this year. H.R. 240 would authorize the Treasury Department to provide reinsurance to “eligible state programs” for homeowners cat risks. The bill specifically provides that this program “shall not displace or compete with the private insurance or reinsurance markets or the capital market ….” H.R. 737 would establish a non-profit entity which could issue what amounts to cat bonds for its members. The members of this organization would be a state which has established “a reinsurance fund or has authorized the operation of a State residual insurance market entity, or State-sponsored provider of natural catastrophe insurance ….” H.R. 1101 would provide a federal reinsurance program for individual state or multi-state cat risk plans. None of these bills have progressed beyond being referred to a committee. Given the current capacity and pricing of cat risk private reinsurance and cat bonds, these bills appear to present a “solution” in search of a problem.

This post written by Rollie Goss.

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NINTH CIRCUIT VACATES CERTIFICATION ORDER AND ORDERS PARTIES TO INDIVIDUAL ARBITRATION

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A recent California district court ruling denied the defendant’s motion to compel arbitration in an employment dispute, and also certified a class against the defendant. The district court found that the defendant waived its right to arbitrate through litigation conduct. The Ninth Circuit disagreed, reversing, and remanding with instructions to order the plaintiff and defendant to arbitrate, because the plaintiff had failed to demonstrate any prejudice arising from the “litigation conduct” which the district court found constituted a waiver. The Court also vacated the district court’s certification order, noting that the parties’ employment agreement prohibited class arbitration. Richards v. Ernst & Young, LLP, No. 11-17530 (9th Cir. Aug. 21, 2013).

This post written by John Pitblado.

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