Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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TRUSTMARK NOT LIABLE FOR FAILING TO OBTAIN SETOFF IN LONG-RUNNING BATTLE OVER RETROCESSION AGREEMENTS

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A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).

COURT AWARDS REINSURER REVENUE-SHARING UNDER BROKER AUTHORIZATION CONTRACT

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Reinsurer Homeowner’s Choice Property and Casualty Insurance Company entered into a one-year broker authorization contract with Aon Benenfield. The contract contained a revenue-sharing agreement (“RSA”) under which Aon was to pay Homeowners a portion of the commissions it earned from placing Homeowners’ reinsurance. Homeowners declined to renew the contract when the one-year term expired. Aon refused to pay Homeowners revenue-sharing, claiming that the RSA was contingent upon Homeowners renewing the contract. Homeowners sued, seeking payment under the RSA. An Illinois federal court granted summary judgment in Homeowners’ favor, awarding Homeowners what it was due under the RSA. After holding that the RSA should be construed against drafter AON under Illinois law, the court found that there was no clear intent by the parties to make revenue-sharing payments contingent upon Homeowner’s renewal. Homeowners Choice, Inc. v. AON Benfield, Inc., Case No. 10 C 7700 (USDC N.D. Ill. Mar. 29, 2013).

This post written by Ben Seessel.

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BRITISH HIGH COURT FINDS FOR CEDENTS IN DISPUTE OVER COVERAGE FOR A DEFECTIVE KUWAITI OIL TANK

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A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

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