Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NAIC APPROVES PROCESS FOR DEVELOPING LIST OF QUALIFIED FOREIGN JURISDICTIONS IN SUPPORT OF COLLATERAL REFORM

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At its August 26, 2013 meeting, the National Association of Insurance Commissioners (NAIC) approved and adopted the Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions, a process developed and approved by the Reinsurance (E) Task Force and the Financial Condition (E) Committee. The process now turns to the first four jurisdictions selected for expedited review: Bermuda, Germany, Switzerland, and the United Kingdom. If approved, these jurisdictions would constitute “qualified jurisdictions” within the meaning of NAIC’s Credit for Reinsurance Model Law that has been adopted by 18 states and is being considered by several more.

This post written by John Pitblado.

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TEXAS APPEALS COURT DISMISSES INTERLOCUTORY APPEAL OF ORDER COMPELLING ARBITRATION OF INSURANCE DISPUTE

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In a dispute between two insurance companies regarding an underwriting agreement, the arbitrator selection process broke down when the arbitrators could not agree on appointment of the umpire. Each party raised concerns about the qualifications of the other party’s umpire nominees and reached such an impasse that they resorted to the courts for declaratory relief. The trial court entered a temporary injunction ordering the plaintiff to desist from arbitrating or litigating until the umpire selection dispute could be resolved and entered an order compelling arbitration and plaintiff’s participation in the umpire selection process as provided by the arbitration clause in the underwriting agreement. Plaintiff challenged both orders in an interlocutory appeal. The appellate court lacked jurisdiction to review the order to compel arbitration in an interlocutory appeal because the Federal Arbitration Act prohibits such review, but did affirm the temporary injunction. Drobny v. American National Insurance Co., Case No. 01-12-01034-CV (Tex. App. Aug. 29, 2013).

This post written by Abigail Kortz.

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COURT HOLDS LIABILITY LIMITS IN REINSURANCE CERTIFICATES LIMITED AMOUNTS FOR COVERED EXPENSES AS WELL AS COVERED LOSSES

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In a litigation over the extent of liability covered by certain facultative excess general liability reinsurance certificates, a court recently granted a reinsurer’s motion for judgment on the pleadings, dismissing the case. The reinsured sought a declaration that the reinsurance certificates at issue did not contain limits on the reinsurer’s liability for the reinsured’s expenses, and that the reinsurer therefore breached its certificates by failing to pay the full amounts owed for covered expenses under the certificates. The reinsured argued that no limits on liability for expenses were expressly stated in the certificates, and that the certificates’ use of the phrase “in addition thereto” with respect to the reinsurer’s obligation to pay its proportion of expenses, insulated expenses from the certificates’ limits on covered losses. The court rejected the reinsured’s argument, holding there was “nothing in the language of the certificate[s] to suggest that the ‘reinsurance assumed’ amount did not encompass both the ‘reinsurance assumed’ for losses and the ‘reinsurance assumed’ for expenses,” and that this interpretation “is in accord with the majority of cases that have dealt with similar reinsurance certificates.” The court also rejected the reinsured’s alternative argument that the certificates were ambiguous. Continental Casualty Co. v. Midstates Reinsurance Co., Case No. 12 CH 42911 (Ill. Cir. Ct. Aug. 29, 2013).

This post written by Michael Wolgin.

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COURT DECLINES TO APPOINT UMPIRE OR ORDER SEPARATE ARBITRATIONS IN REINSURANCE DISPUTE

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When a reinsurer refused to reimburse two AIG insurance companies for the insurers’ losses arising out of asbestos litigation, the AIG companies made a demand for a single arbitration under three reinsurance agreements between the parties. The reinsurer delayed the process of appointing an arbitration panel by asserting that differences between the contracts warranted three separate arbitrations. The insurers petitioned the court to appoint an umpire – two other arbitrators having already been appointed by the parties – under Section 5 of the Federal Arbitration and the reinsurer petitioned the court to order separate arbitrations under Section 4 of the Act. The court refused both parties’ demands, concluding that both issues would require the court to decide the core dispute: whether the insurers’ demand for a single arbitration was improper. The court ordered the parties to proceed with the agreed upon arbitrator selection process, so that the single arbitration panel could address the issue of whether the demand for a single arbitration was improper. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. C 13-2924 (USDC N.D. Cal. Aug. 19, 2013).

This post written by Abigail Kortz.

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FOLLOWING VACATUR OF ARBITRATION AWARD IN REINSURANCE DISPUTE AS “COMPLETELY IRRATIONAL,” COURT CONFIRMS NEW AWARD

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On September 29, 2009 and November 22, 2010, respectively, we reported on a court’s vacatur of an arbitration award related to a “deficit carry forward” provision in a reinsurance agreement, and the Third Circuit’s subsequent affirmance of that order. The dispute surrounded the manner in which deficits in a reinsurer’s “experience account” under a reinsurance agreement for one year, applies to distribution of account funds under a separate reinsurance agreement for a subsequent year. The court previously vacated an arbitration award that awarded the reinsurer $6 million and failed to apply the “deficit carry forward” provision, which the court found to be unsupported by the contract and therefore “completely irrational” (notwithstanding a broad “Honorable Engagement Clause”). In a recent opinion and order, the court affirmed the award of a new arbitration panel, which interpreted the agreements and found that the “deficit carry forward” provision applied to permit the reinsurer to retain its portion of the account deficits prior to distribution to the reinsured of the funds of the account for the subsequent year. Because the panel “grounded its decision on the language” of the relevant reinsurance agreement, the court found that the panel’s decision properly “draws its essence” from the contract. Platinum Underwriters Bermuda, Ltd. v. Excalibur Reinsurance Corp., Case No. 2:12-mc-00070 (USDC E.D. Pa. July 15, 2013), and corresponding judgment entered July 18, 2013.

This post written by Michael Wolgin.

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