Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

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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.

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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.

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PRIOR TO AMERICAN EXPRESS, MASSACHUSETTS SUPREME COURT FINDS CLASS WAIVER UNENFORCEABLE UNDER THE FAA ON COST-PROHIBITIVE GROUNDS

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Eight days before the U.S. Supreme Court issued its American Express decision, the Massachusetts Supreme Court appeared to reach a contrary conclusion when it found that U.S. Supreme Court precedent interpreting the FAA precluded a class waiver when a party would be precluded from pursuing individual statutory relief due to the complexity and cost of the case. The Massachusetts court made this determination in an opinion that reversed its own previous holding made prior to Concepcion in the same putative class action, regarding a class waiver provision in a consumer contract that the court had invalidated because it was “contrary to the fundamental public policy of the Commonwealth favoring consumer class actions” under state statute. It seems likely that the defendant will either seek further review of renew its motion to compel arbitration in light of the American Express decision. Feeney v. Dell Inc., Case No. SJC-11133 (Mass. June 12, 2013).

This post written by Michael Wolgin.

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U.S. SUPREME COURT UPHOLDS CLASS WAIVER PROVISIONS UNDER THE FAA, NOTWITHSTANDING COST-PROHIBITIVENESS OF INDIVIDUAL RELIEF

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On June 20th, the U.S. Supreme Court reversed a decision from the Second Circuit that refused to enforce a class waiver arbitration provision in a putative antitrust class action. The Supreme Court held that individual arbitration could be compelled under the FAA based on a class waiver contract provision, notwithstanding that the cost of arbitration exceeded the potential recovery. The Supreme Court based its decision on its prior ruling in Concepcion, and the fact that nothing in the antitrust laws or the class action procedural rules guarantee an affordable path to litigating claims. Additionally, the Court held that the class waiver did not run afoul of prior case law stating that a class waiver might be prohibited if it precluded “effective vindication” of statutory rights. The Court explained that that exception is intended to prevent only a “prospective waiver” of a right to pursue statutory remedies, which does not exist simply because it is not cost-effective to prove one’s case. American Express Co. v. Italian Colors Restaurant, Case No. 12-133 (S. Ct. June 20, 2013).

This post written by Michael Wolgin.

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