Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REJECTS NUMEROUS DEFENSES TO ARBITRATION BY NON-SIGNATORY AND APPOINTS UMPIRE FOR ARBITRATION TO PROCEED

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In a decision granting a workers’ compensation insurer’s petition to appoint an umpire and proceed with arbitration, a court recently analyzed and rejected a number of defenses to arbitration made by the two affiliated company respondents. The court considered whether one of the companies, a non-signatory to the underlying agreement, could be compelled to arbitrate. Applying principles of actual and apparent agency, the court found that the signatory had authority to obtain insurance for the non-signatory affiliate and was therefore subject to the agreement, based on the contract language, and other close connections between the affiliated companies. Next, the court rejected the respondents’ claim that the court lacked jurisdiction based on a forum selection clause in the agreement. The court also refused to stay the action pending a subsequently filed overlapping action in California and refused to find that the agreement was unenforceable because it had not first been submitted to the California Department of Insurance. The court found that the California DOI defense constituted a challenge to the entire insurance agreement, rather than specifically the arbitration provision, and thus the court could direct that arbitrability be resolved by the arbitration panel under the FAA. On this last point, the court found that the California requirements did not “reverse-preempt” FAA arbitration under the McCarran-Ferguson Act, because the court found no conflict between the California requirements and the agreement to arbitrate. National Union Fire Ins. Co. of Pittsburgh, PA v. Personnel Plus, Inc., Case No. 1:12-cv-04647 (USDC S.D.N.Y. July 23, 2013).

This post written by Michael Wolgin.

See our disclaimer.

DENIAL OF ARBITRATION OF STOP-LOSS INSURANCE DISPUTE AFFIRMED UNDER STATE INSURANCE LAW

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The president of a corporate administrator of a trust appealed the denial of his motion to compel arbitration against a company that sued him individually in a case seeking benefits and other relief for disputed medical stop-loss coverage. The appellate court initially held that, although the president was a non-signatory to the underlying agreements, the president could enforce the arbitration provisions based on agency and the plaintiff’s allegations, which treated the president and his corporation as one and the same. The court concluded, however, that arbitration could not be compelled under state insurance law, which prohibits arbitration involving certain insurance agreements. The court found that under the McCarran-Ferguson Act, the state insurance law was not preempted by the FAA or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The court held that the state law regulated insurance, and the agreement at issue provided “indemnity” and was therefore properly subject to the state insurance law as a contract of “insurance.” Scott v. Louisville Bedding Co., No. 2012-CA-000252-MR (Ky. Ct. App. July 12, 2013).

This post written by Michael Wolgin.

See our disclaimer.

NAIC TAKES FURTHER ACTION ON CAPTIVES – TRANSACTION LEVEL REVIEWS TO COME

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We have previously posted on the NAIC’s initiatives with respect to captives and the NY Department’s captives report. The NAIC’s Executive Committee and Plenary, in a joint teleconference, have adopted the Reinsurance Task Force’s proposed White Paper on the activities of captives. Activity regarding captives at the NAIC continues on several fronts, including:

Financial Analysis Working Group of the Financial Condition (E) Committee

Additional responsibilities relating to captives have been assigned to this working group:

  • Perform analytical reviews of transactions (occurring on or after a date as determined by the NAIC membership) by nationally significant US life insurers to reinsure XXX and/or AXXX reserves with affiliated captives, special purpose vehicles (SPVs), or any other US entities that are subject to different solvency regulatory requirements than the ceding life insurers, to preserve the effectiveness and uniformity of the solvency regulatory system.
  • For such transactions entered into and approved prior to this date and still in place, collect specified data in order to provide regulatory insight into the prevalence and significance of these transactions throughout the industry.
  • Provide recommendations to the domiciliary state regulator to address company specific concerns and to the PBR Implementation (EX) Task Force to address issues and concerns regarding the solvency regulatory system.

It was noted that some state insurance departments already conduct reviews of some individual transactions involving captives.

Principle-Based Reserving Implementation (EX) Task Force of the Executive (EX) Committee

This task force will consider the Report’s recommendations in the context of the proposed Principal-Based Reserving system and make further recommendations, if any, to the Executive (EX) Committee. This activity may be conducted through a new Captive Working Group, which will report to this task force. The Captive Working Group will consider the following issues:

  • Address any remaining XXX and AXXX problems without encouraging formation of significant legal structures utilizing captives to cede business;
  • Address confidentiality of information; and
  • Recommend enhancement to the Financial Analysis Handbook Guidance to allow for a consistent approach for states’ review and ongoing analysis of transactions involving captives and SPVs.

Blanks Working Group of the Accounting Practices and Procedures Task Force of the Financial Condition (E) Committee

This working group is evaluating an exposure draft of a definition of “captive affiliate,” which, if adopted, would result in enhanced disclosure in Schedule F of transactions with captives. (see recent agenda item).

Reinsurance Task Force of the Financial Condition (E) Committee

The Reinsurance Task Force may implement other recommendations from the White Paper.

This post written by Rollie Goss.

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NEVADA AND LOUISIANA AMEND SURPLUS LINES INSURANCE REGULATIONS

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Both Nevada and Louisiana have amended their insurance regulations to make it easier for surplus lines brokers to procure insurance from “nonadmitted” or “unauthorized” insurers. Nevada loosened the requirements for determining the financial solvency of a nonadmitted insurer, modernized some of its filing requirements to be consistent with an “electronic age,” and provided straightforward guidelines for determining insurer eligibility. Louisiana’s amendments allow brokers to procure insurance from unauthorized insurers that meet certain eligibility requirements, even if those insurers are not on an approved list, and clarify that surplus lines insurance may be procured without regard to the availability of coverage from authorized insurers. State of Nev. Dep’t. of Bus. & Indus. Div. of Ins., Revisions to NAC Chapter 685A Concerning Nonadmitted Insurance, Bulletin No. 13-004 (Jun. 5, 2013); H.B. 543, 2013 Leg., Reg. Sess., (La. 2013).

This post written by Abigail Kortz.

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CLASS ACTION WAIVER ARBITRATION PROVISIONS ENFORCEABLE IN THE SECOND CIRCUIT POST-AMEX V. ITALIAN COLORS

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In back-to-back opinions addressing wage disputes brought under the Fair Labor Standards Act, the Second Circuit reversed the district court’s orders denying defendants’ motions to compel arbitration. In so doing, the Second Circuit explicitly followed the Supreme Court’s holding in American Express Co. v. Italian Colors Restaurant that plaintiffs cannot use the “effective vindication doctrine” to invalidate class action waiver provisions by showing that their claim is not economically worth pursuing individually. The Second Circuit also made clear that Amex I and its progeny that preceded the Supreme Court decision are no longer good law. The Amex I cases invalidated a class action waiver provision based on plaintiffs’ showing that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver.” Sutherland v. Ernst & Young LLP, No. 12-304 (2d Cir. Aug. 9, 2013); Raniere v. Citigroup Inc., No. 11-5213 (2d Cir. Aug. 12, 2013).

This post written by Abigail Kortz.

See our disclaimer.