Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SUMMARY JUDGMENT GRANTED FOR REINSURER DUE TO LACK OF PRIVITY WITH DIRECT INSURED

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Plaintiff Backups Plus Computer Services, LLC (Backups) owned hard drives which failed. Plaintiff GF&C Holding Company (GF&C) was a client of Backups and stored its data on Backup’s servers. After the failure of the hard drives, Backups and GF&C both submitted claims to Harford Casualty Insurance Company (Hartford), which had issued policies to both companies. Hartford submitted a claim to its reinsurer, Hartford Steam Boiler Inspection & Insurance Company (HSB). HSB then engaged an independent analyst, LWG, to examine the hard drives and determine the cause of the failure. LWG determined that the damage was the result of normal wear and tear, not a covered risk under the policy. HSB advised Hartford that it would not pay a claim under the reinsurance agreement, and Hartford denied the claims submitted by Backups and GF&C.

Plaintiffs sued both Hartford and HSB. The district court granted the reinsurer’s motion for summary judgment on all claims. The court noted that plaintiffs’ counsel acknowledged at oral argument that there was no privity between the plaintiffs and the reinsurer. Consequently, there was no contract that could be breached and no implied covenant of good faith and fair dealing or bad faith. GF&C Holding Co. v. Hartford Casualty Insurance Co., Case No. 11-236 (USDC D. Idaho March 15, 2013).

This post written by Rollie Goss.

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IF AT FIRST YOU DON’T SUCCEED: INSURER ESTOPPED FROM COMPELLING ARBITRATION WITH MAGELLAN REINSURANCE

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Withdrawing its earlier opinion on rehearing, the Texas Court of Appeals held that New Hampshire Insurance Company (“New Hampshire”) is judicially estopped from compelling arbitration, therefore affirming the trial courts order denying New Hampshire’s motion to compel. The dispute centers on New Hampshire and Magellan Reinsurance Company’s (“Magellan”) Reinsurance Agreement (“agreement.”) Under this agreement, Magellan agreed to assume 100% of New Hampshire’s obligations for automobile insurance policies in return for the premiums paid under those policies. New Hampshire alleges that Magellan owes 1.4 million dollars to replenish an existing trust account, now emptied. New Hampshire filed suit in Turks and Caicos Island (“TCI”) to “wind up” Magellan’s business and also filed suit in Texas and New York.

The TCI Court found that New Hampshire was not a creditor of Magellan and therefore could not wind up Magellan’s business. Later that year, New Hampshire moved to compel arbitration, for which Magellan had initially argued for at the onset of the TCI litigation. The Court found that New Hampshire’s motion to compel arbitration had numerous inconsistencies with their previous arguments made to courts in TCI and New York. The Court held (consistent with its withdrawn opinion) that New Hampshire was estopped from seeking to arbitrate Magellan’s claims. New Hampshire Insurance Co. v. Magellan Reinsurance Co., No. 02-12-00196-CV (Tex, Ct. App. May 2, 2013).

This post written by Rollie Goss.

See our disclaimer.

COURT OF APPEAL AFFIRMS VACATION OF ARBITRATION AWARD ON GROUNDS OF ARBITRATOR’S EVIDENT PARTIALITY

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Thomas Kinkade Company’s suit against Nancy and David White was submitted to an arbitration proceeding in which, as the Sixth Circuit noted, “the coincidences all break one way.” During the five-year arbitration, the arbitrator, Mark Kowalsky, defied his role as neutral intermediary in various ways. For example, Kowalsky provided the Whites multiple opportunities to bolster the proofs of their claims. Kowalsky allowed the Whites to submit as evidence 8,800 documents they had deliberately withheld from Kinkade for four years. On a straightforward breach-of-contract claim that went virtually uncontested throughout arbitration, he denied Kinkade any relief. When Kinkade raised objections to Kowalsky’s decisions as an arbitrator, Kowalsky gave no response. Kowalsky additionally awarded the Whites attorney’s fees of nearly $500,000 after the arbitration panel unequivocally denied those fees in the Interim Award. Finally, during arbitration, the Whites and their appointed arbitrator both retained Kowalsky’s law firm in unrelated matters, and Kowalsky made no effort to avoid receiving compensation for such matters. Kinkaid sought to disqualify Kowalsky to no avail. Both the AAA and Kowalsky denied disqualification requests. The arbitration panel entered a Final Award in favor of the Whites in an amount in excess of $1.4 million. The district court granted Kinkade’s motion to vacate due to the arbitrator’s partiality, and the Sixth Circuit affirmed. Thomas Kinkade Company v. White, No. 10-1634 (6th Cir. April 2, 2013).

This post written by Rollie Goss.

See our disclaimer.

COURT DISMISSES ALL CLAIMS IN PRIVATE MORTGAGE REINSURANCE “KICKBACK” SCHEME RESPA SUIT

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As we reported yesterday , a number of suits in recent years have been filed challenging lender and insurer practices regarding private mortgage insurance. This practice has come under attack in suits alleging that privage mortgage insurers and lenders (and/or their captive reinsurers) have unlawfully entered into reinsurance arrangements between the primary insurers that issue the insurance, and captive reinsurers of the lender, that amount to “kickbacks” to the lenders violating the Real Estate Settlement Procedures Act (“RESPA”), among other causes of action.

A California federal court has granted motions to dismiss filed by each of the defendants, including the lender, primary insurers, and reinsurer. The court found that the plaintiff acquiesced in the dismissal of the bank defendants. The court also found the plaintiff had no standing to sue one of the primary insurers, which had not insured the named plaintiff’s mortgage, but had allegedly insured some putative class members’ mortgages. Finally, the court dismissed all the claims under RESPA’s statute of limitations, finding that the “discovery rule” did not apply, and the plaintiffs were not otherwise entitled to equitable tolling. Samp v. J.P. Morgan Chase Bank, N.A., Case No. 11-civ-1950 (USDC C.D. Cal. May 7, 2013).

This post written by John Pitblado.

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CLASS CERTIFICATION RECOMMENDED IN ALLEGED PRIVATE MORTGAGE REINSURANCE “KICKBACK” SCHEME

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When prospective home buyers cannot make a down payment at a certain level (usually twenty percent of the purchase price), lenders often require them to purchase private mortgage insurance, to cover the risk of default. Typically, the lender places the insurance on behalf of the borrower. The premium is charged to the borrower along with other escrow items, such as property tax and homeowners insurance premiums. This practice has come under attack in suits in recent years – often class action suits – alleging that private mortgage insurers and lenders (and/or their captive reinsurers) have unlawfully entered into reinsurance arrangements between the primary insurers that issue the insurance, and captive reinsurers of the lender, that amount to “kickbacks” to the lenders violating the Real Estate Settlement Procedures Act, among other causes of action.

In the long-running Munoz v. PHH Corp. case pending in the Eastern District of California, a federal magistrate recommended a partial grant of class certification, which would certify a class of “all persons who obtained residential mortgage loans originated and/or acquired by PHH and/or its affiliates on or after June 2, 2007, and, in connection therewith, purchased private mortgage insurance and whose loans were included with PHH’s captive mortgage reinsurance arrangements.” Munoz v. PHH Corp., Case No. 08-cv-0759 (USDC E.D.Cal. May 15, 2013).

This post written by John Pitblado.

See our disclaimer.