Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURANCE DISPUTE SETTLEMENTS

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Following are summaries of three recently announced settlements of reinsurance-related disputes.

Mortgage insurance dispute – This class action suit alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) for acceptance of “kickbacks” from mortgage insurers under “captive reinsurance agreements” in exchange for the referral of business. Wells Fargo has agreed to pay roughly $12,750,000 to class members, which includes over $4,000,000 in attorneys fees and litigation costs and a case contribution award of $7,500 for each named plaintiff as approved by the court. Liguori v. Wells Fargo & Co., Case No. 08-479 (USDC E.D. Pa. Feb. 7, 2013) (final approval Order and Order approving attorneys’ fees, costs and class representative incentive payments).

Life insurance retrocession – Swiss Re and Berkshire Hathaway announced the settlement of a dispute over a life retrocession agreement entered into in 2010 by allowing Swiss Re to recapture certain treaties from the portfolio of term life business in return for a payment of $610 million from Berkshire Hathaway, and a reduction in the assumption of losses by Berkshire Hathaway from $1.5 billion to $1.05 billion. The payment is expected to result in a gain of approximately $100 million for Swiss Re in the first quarter of 2013. See Swiss Re’s press release.

Workers’ compensation reinsurance – In this dispute, members of a pool for workers’ compensation reinsurance sought $3.1 billion from AIG for underreporting premiums, which caused other pool members to bear a disproportionate share of the pool’s losses. The district court approved a class settlement for $450 million, which Safeco challenged on appeal, claiming that the settlement did not adequately compensate it for individual claims against AIG. The Seventh Circuit dismissed the appeal based on Safeco and AIG’s representations that they have reached an additional settlement regarding the individual claims. Judge Posner dissented, finding dismissal to be premature since the terms of the additional settlement were not disclosed to the court. Safeco Ins. Co. of Am. v. Am. Int’l Group, Inc., No. 12-1157 (7th Cir. Mar. 25, 2013).

This post written by Abigail Kortz.

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ARBITRATION PROCESS ISSUES ROUNDUP

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Following is a summary, by category, of recent opinions of note concerning arbitration process issues.

Class Waiver

Muriithi v. Gadson, No. 11-1445 (4th Cir. April 1, 2013) (vacating judgment that found arbitration clause unconscionable; remanding for court to compel individual arbitration; class waiver not unconscionable under Concepcion; insufficient evidence that arbitration fee-splitting provision rendered arbitration cost prohibitive)

Torres v. United Healthcare Services, Inc., Case No. 12-00923 (USDC E.D.N.Y. Feb. 1, 2013) (granting motion to dismiss and compel arbitration; right to participate in a FLSA collective action can be waived; plaintiffs failed to meet burden of showing that costs of individual arbitrations are cost prohibitive)

Multiple Contracts

Germains Seed Technology, Inc. v. R&R Manufacturing, Inc., Case No. 12-02737 (USDC D. Kan. March 12, 2013) (denying motion to stay and compel arbitration; arbitration clause language in supply agreements was limited to disputes “arising out of” those agreements, and did not encompass dispute connected with claims based on separate stock purchase agreement)

Enterprises International, Inc. v. Pasaban, S.A., Case No. 11-05919 (USDC W.D. Wash. Feb. 11, 2013) (granting motion to stay and compel arbitration against non-signatory to arbitration agreement under alter ego and equitable estoppel theories; free-standing arbitration agreement encompassed dispute arising out of separate license agreement because it “approve[d] and consent[ed]” to the license agreement and thus was “intimately linked” to it)

Related Claims

Cook v. John Hancock Life Insurance Co. (U.S.A.), Case No. 12-00455 (USDC W.D. Va. March 13, 2013) (granting motion to stay pending completion of arbitration; notwithstanding presence of non-arbitrable claims and parties not involved in arbitration, stay would serve considerations of judicial economy, and avoidance of confusion and possible inconsistent results)

Non-Signatories/Equitable Estoppel

Muecke Co., Inc. v.CVS Caremark Corp., No. 12-40475 (5th Cir. Feb. 11, 2013) (affirming denial of motion to compel arbitration; no abuse of discretion in denying motion to compel non-signatories to arbitration under equitable estoppel theory)

Kramer v. Alexsandra Del Real, No. 12-55050 (9th Cir. Jan. 30, 2013) (affirming denial of motion to compel arbitration in putative class action; notwithstanding agreement to arbitrate arbitrability, district court had authority to determine arbitrability between plaintiff/signatories and defendant/non-signatories; equitable estoppel did not permit appellant/non-signatories to compel arbitration where claims were not intertwined with contracts containing arbitration agreement)

This post written by Michael Wolgin.

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CFPB ENTERS INTO SETTLEMENT PROHIBITING CAPTIVE MORTGAGE REINSURANCE

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The Consumer Financial Protection Bureau (“CFPB”) recently filed complaints in the Southern District of Florida against Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, Radian Guaranty Inc., and United Guaranty Corporation alleging violations of the Real Estate Settlement Procedures Act (“RESPA”) by engaging in the practice of paying kickbacks to captive reinsurance affiliates of mortgage lenders in exchange for referrals. All four mortgage insurers have agreed to consent orders, which inter alia (1) prohibit them from entering into any new captive mortgage reinsurance arrangements for a period of ten years, regardless of whether the arrangement includes any payments that might be interpreted as kickbacks, (2) prohibit them from accessing funds held in trust related to existing reinsurance arrangements other than for the reimbursement of reinsurance claims, (3) impose a civil penalty ranging from $2.6 to $4.5 million each, and (4) require them to submit to compliance monitoring and reporting to the CFPB. The fact that these settlements prohibit any captive reinsurance agreements for ten years, whether or not a “kickback” payment was involved, seems to overreach the allegations of the Complaints. See, e.g., CFPB v. Radian Guaranty Inc., Case No. 13-21188 (S.D. Fla. Apr. 9, 2013) (Order granting motion to approve consent judgment and Complaint).

This post written by Abigail Kortz.

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SPECIAL FOCUS: RECENT DEVELOPMENTS IN THE CAT BOND AND REINSURANCE MARKETS

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There has been significant development in both the cat bond and traditional reinsurance markets so far in 2013, with the emergence of competition between the markets, new bond terms, a cash influx into the reinsurance sector, a re-examination of business strategies and pricing reductions in both markets. Reinsurance Focus Blogmaster Rollie Goss, who has been representing ceding insurers in both cat bond and traditional reinsurance transactions, analyzes these developments in a Special Focus article titled The Developing Relationship Between the Catastrophe Bond and Traditional Reinsurance Markets.

This post written by Rollie Goss.

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FEDERAL COURT RECONSIDERS SUMMARY JUDGMENT DECISIONS IN FEDERAL ACTION BY REINSURER AGAINST RETROCESSIONARE

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We reported earlier on decisions rendered on the parties’ cross motions for summary judgment in an action brought by reinsurer Munich Re against retrocessionaire ANICO relating to retrocessional cover issued by ANICO to Munich Re in connection with Munich Re’s reinsurance of an Everest National workers’ compensation program. The federal court has reconsidered two of its summary judgment decisions and affirmed one and reversed one of its prior rulings. The court affirmed that ANICO had failed to present sufficient evidence to create a genuine issue of material fact as to whether Munich Re’s late notice of claims prejudiced ANICO by affecting ANICO’s decision to commute liabilities to Max Re. The court, however, reversed itself by holding that ANICO had established that sunset provisions in the Munich Re-ANICO agreements precluded certain claims submitted after December 31, 2007 and that there were genuine issues of material fact regarding whether claims submitted after December 31, 2008 were similarly barred. Munich Reinsurance America, Inc. v. American National Insurance Co., Case No. 09-6435 (USDC Mar. 28, 2013).

This post written by Ben Seessel.

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