Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER BREACHED CONTRACT TO AVIATION INSURER CONCERNING 9/11 LOSSES

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In a case on which we have previously posted, following a bench trial, a court held that a reinsurer breached its contract to an aviation insurer by overbilling the insurer after entering into commutation agreements. These agreements sought to save the insurer from bankruptcy following massive losses it sustained in connection with the terrorist attacks of September 11, 2001. The court sided with the insurer’s interpretation limiting the insurer’s liability to either 48% or 43.2% of the total amount paid by the reinsurer, following the commutations. Moreover, the insurer was able to maintain that it was not liable for more than a portion of reinstatement premiums paid by the insurer, despite extrinsic evidence casting doubt on the contract itself. Aioi Nissay Dowa Insurance Co. Ltd. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. June 20, 2013).

This post written by Brian Perryman.

See our disclaimer.

REINSURANCE-RELATED DISCOVERY DENIED IN CONNECTION WITH CHOICE OF LAW ISSUES

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An insurer denied coverage to a corporate insured for losses sustained at one of its Indiana processing plants under the pollution exclusion, arguing that Michigan law should apply and that Michigan law recognizes such exclusions. The corporation argued instead that Indiana law applied and, thus, the exclusion could not be enforced. After both parties moved for summary judgment on the choice of law issue, the corporation sent discovery requests related to reinsurance and premium calculation information, which the magistrate judge determined were irrelevant to the choice of law issue. In addition, the magistrate judge stated that it was inconsistent for the corporation to claim it needed additional discovery to brief the choice of law issue after they had already moved for summary judgment. The district judge affirmed, holding it was only relevant for the choice of law issue where the insurance premiums were paid, not the rationale for calculating premiums. Visteon Corp. v. National Union Fire Insurance Co., Case No. 1:11-cv-200 (USDC S.D. Ind. June 17, 2013).

This post written by Brian Perryman.

See our disclaimer.

SUMMARY JUDGMENT DENIAL AFFIRMED AGAINST MAURICE GREENBERG AND HOWARD SMITH IN ALLEGED SHAM FINITE REINSURANCE CASE

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In affirming the appellate division’s order against former American International Group, Inc. executives Maurice Greenberg and Howard Smith, the New York Court of Appeals held that claims brought by the State’s Attorney General had enough support to withstand summary judgment. The case, which began in 2005, centers on reinsurance transactions between AIG and General Reinsurance Corporation. The Attorney General alleges that Greenberg and Smith entered AIG into transactions which did little to actually allocate risk amongst the parties but, instead, were used by AIG to increase certain financial metrics. These transactions would benefit AIG’s stock price once better financial numbers were reported in their insurance business. The Attorney General alleges Greenberg and Smith violated the Martin Act and engaged in common law fraud by entering AIG into these contracts.

New York’s high court decided two questions: first, whether the information known by Greenberg and Smith presented an issue of fact for trial; and second, whether the Attorney General was barred from attaining equitable relief from Greenberg and Smith. The court acknowledged that previous criminal proceedings against the two defendants did find enough evidence for conspiracy based on telephone conversations between Greenberg and the General Reinsurance’s CEO. The court also found sufficient evidence in the record to proceed to trial, and allowed for equitable relief to proceed as well. People v. Greenberg, No. 63 (N.Y. June 25, 2013).

This post written by Brian Perryman.

See our disclaimer.

CALIFORNIA COURT UPHOLDS ARBITRATION PROVISION INVOKED BY NON-SIGNATORY

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In a dispute alleging violations of the Telephone Consumer Protection Act related to attempts to collect on a credit card debt, defendants moved to compel arbitration. Although defendants were not signatories to the agreement containing the arbitration provision, the court found the defendants had standing to compel arbitration because the language of the agreement was broad enough to include them. The arbitration provision governed ‘[a]ny claim, dispute or controversy . . no matter by or against whom the claim is made, whether by or against either you or us or . . . by or against any involved third party.” (emphasis added). The court also determined that the unavailability of the National Arbitration Forum (“NAF”), which was specifically designated as the arbitral forum in the arbitration provision, as an arbitration forum for consumer disputes did not render the agreement unenforceable. Significant to the court was the fact that the arbitration provision itself contained a severability provision, which allowed the provisions naming the NAF as the arbitral forum to be deemed invalid without rendering the entire arbitration provision unenforceable. Selby v. Deutche Bank Trust Co. Ams., Civ. No. 12-cv-01562 (USDC S.D. Cal. Mar. 28, 2013).

This post written by Abigail Kortz.

See our disclaimer.

ARKANSAS, FLORIDA, MISSOURI, AND TEXAS PASS CAPTIVE INSURANCE COMPANY LEGISLATION

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In an attempt to attract more captive insurance companies to the state, Arkansas passed a bill on March 21, 2013 that provides a tax break to captive insurance companies that meet certain requirements. S. B. 789, 89th Gen. Assem., Reg. Sess. (Ark. 2013). Effective July 1, 2013, captive insurance companies that meet certain capital and surplus requirements in the state of Florida may become licensed to provide worker’s compensation and employer’s liability insurance. H. B. 1191, Reg. Sess. (Fl. 2013). Missouri amended its captive insurance law effective August 28, 2013 to allow for the formation of sponsored captive insurance companies, which are defined as captive insurance companies in which one or more sponsors provide the capital and surplus, that insure the risks only of its participants, and fund its liability to participants through protected cells. S. B. 287, 97th Gen. Assem., Reg. Sess. (Mo. 2013)(full text and summary). Texas also recently passed legislation authorizing the licensing of pure captive insurance companies and the imposition of fees and taxes on those companies. The Texas legislation took affect in May 2013. S. B. 734 (Tx. 2013).

This post written by Abigail Kortz.

See our disclaimer.