Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

EMERGING CAT RISK TRANSFER STRATEGIES

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There are two new strategies being considered for catastrophe risk transfers. First, H.R. 1101, recently introduced in the House of Representatives, provides for a pre-funded public-private cat risk insurance “backstop” through privately funded reinsurance through state approved plans. The bill includes requirements for reinsurance coverages to be provided by the program. The goals of this program include the stabilization of the cat risk reinsurance market, the expansion of market capacity and the reduction of the dependence on the federal government for funding for responding to disasters.

Second, five Pacific island nations, Marshall Islands, Samoa, Solomon Islands, Tonga and Vanuatu have become members of the Pacific Catastrophe Risk Insurance Pilot. Sponsored by the World Bank, with funding from Japan, the two year pilot program features cat risk modeling by AIR and parametric trigger coverage from four insurance companies, Swiss Re, Mitsui Sumitomo Insurance, Sompo Japan and Tokio Marine Nichido. The objective of the program appears to be to assess whether catastrophe insurance for hurricane, earthquake and tsunami risks might be workable feasible to provide immediate post-event liquidity to member countries. Although details are not presently available, this pilot may envision a program similar to that of the Caribbean Catastrophe Risk Insurance Facility.

This post written by Rollie Goss.

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ARBITRATION AWARD REVIEW ROUNDUP

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Manifest Disregard/Exceeding Powers

Tivo, Inc. v. Goldwasser, Case No. 12-cv-07142 (USDC S.D.N.Y. Feb. 14, 2013) (denying motion to vacate award; granting motion to confirm award; panel did not exceed authority for allegedly basing award on theory not advanced by parties; panel’s patent licensing determinations not a “manifest disregard” of the law)

Giller v. Oracle USA, Inc., No. 12-895 (2d Cir. Feb 22, 2013) (affirming order granting motion to dismiss petition to vacate award in employment dispute; no grounds for vacatur for arbitrator’s interpretation of underlying contract; noting that “manifest disregard” still regarded as a “judicial gloss” on the FAA in the Second Circuit)

Peterson v. Macy’s, Case No. 10-cv-05119 (USDC E.D.N.Y. Feb. 25, 2013) (denying motion to vacate in pro se employment discrimination action; “since, inter alia, there is more than a ‘colorable justification’ for the arbitrator’s decision, the arbitration award was not rendered in manifest disregard of the law”)

Department of Professional & Financial Regulation v. Maine State Employees Association, Case No. 2013 ME 23 (Me. Feb. 28, 2013) (reversing and remanding for lower court to enter order denying motion to vacate award that reinstated employee; because the award “did not violate a public policy ‘affirmatively expressed or defined in the laws of Maine,’ the arbitrator did not exceed his powers, and the award is not subject to further judicial scrutiny on that basis”)

Choice of Law

Orbitcom, Inc. v. Qwest Communications Co., Case No. 12-cv-01639 (USDC D. Co. March 12, 2013) (granting motion to confirm award; denying motion to vacate; arbitrator did not exceed powers for 16-month delay of entry of final award; arbitrator correctly applied FAA for arbitration procedure, rather than New York law, notwithstanding New York substantive choice of law provision)

Abu Dhabi Investment Authority v. Citigroup, Inc., Case No. 12-cv-00283 (USDC S.D.N.Y. March 4, 2013) (denying petition to vacate award; no manifest disregard for New York choice of law; proceedings were not fundamentally unfair, notwithstanding tribunal’s denial of certain discovery)

Subject Matter Jurisdiction

Duffy v. Legal Aid Society, Case No. 12-cv-02152 (USDC S.D.N.Y. Feb. 12, 2013) (dismissing petitioner’s pro se action to vacate arbitration decision in employment dispute; employee lacked standing to challenge arbitration between union and employer; petitioner failed to argue that union did not provide fair representation; argument that arbitration decision was “confusing and contradictory” not grounds for vacatur)

Smith v. Cheesecake Factory Restaurants, Inc., Case No. 06-cv-00829 (USDC M.D. Tenn. Feb. 8, 2013) (denying motion to vacate award; arbitrator’s award authorizing collective arbitration under Fair Labor Standards Act was an interim decision and vacatur was thus not ripe for judicial review)

Conclusory Challenge

Wanken v. Wanken, No. 12-10562 (5th Cir. Feb. 11, 2013) (affirming order denying motion for relief from judgment and confirming arbitration award; appellant failed to show that court ignored evidence allegedly showing that appellees gave perjured testimony and fraudulently procured the arbitration award)

Bailey Brake Farms, Inc. v. Trout, Case No. 2011-CA-00610 (Miss. Feb. 28, 2013) (reversing vacatur of arbitration award that set the value of shares under a stock buy-sell agreement; court’s order lacked any analysis or findings supporting grounds for vacatur, such as exceeding authority, “undue means,” or “unresolved issues”)

This post written by Michael Wolgin.

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UNAUTHORIZED FOREIGN OR ALIEN INSURERS NOT REQUIRED TO POST SECURITY PRIOR TO FILING A MOTION

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Section 5/123(5) of the Illinois Insurance Code requires unauthorized foreign and alien company’s to post security prior to filing a pleading in any action or arbitration proceeding. An explicit exception is made for the filing of a motion to quash process or set aside service. The Northern District of Illinois recently interpreted this section of the Insurance Code in coverage litigation between an insured and its insurer and determined that the “language does not suggest that the excepted motions are exclusive.” Based on that reasoning, the court denied plaintiff’s motion for an order requiring the defendant to post security prior to filing a motion. Baxter International, Inc. v. AXA Versicherung, Case No. 1:11-cv-09131 (USDC N.D. Ill. Jan. 11, 2013).

This post written by Abigail Kortz.

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NEW YORK AND MISSOURI AMEND THEIR CREDIT FOR REINSURANCE REGULATIONS

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As previously reported by Carlton Fields, LLP, the New York Department of Financial Services published a notice of proposed rulemaking regarding changes to New York’s Credit for Reinsurance regulations in November 2012. The proposed changes were published and took effect on March 20, 2013. Missouri also recently introduced a bill that will change its credit for reinsurance regulations effective January 1, 2014. The changes authorize a reduction in the required statutory trusteed surplus for reinsurers who discontinue underwriting new business for at least three years, provides credit for reinsurance ceded to credited insurers and eligibility requirements for certification, and requires ceding insurers to take steps to diversify their reinsurance programs. Both the New York and Missouri amendments are based upon the NAIC Credit for Reinsurance Model Law and Regulations. N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (2013); S.B. 60, 97th Gen. Assemb., Reg. Sess. (Mo. 2013).

This post written by Abigail Kortz.

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THIRD CIRCUIT AFFIRMS DISTRICT COURT’S HOLDING THAT ARBITRATOR DID NOT ACT WITH EVIDENT PARTIALITY

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The Third Circuit affirmed a district court decision denying a motion to vacate an arbitration award issued in favor of Pittsburgh Glass Works and PGW Auto Glass and against James Freeman. Freeman had asserted age discrimination claims in federal district court against the respondents after being fired from his job. The parties agreed upon a retired state court judge to arbitrate their dispute. The arbitrator had recently lost an election to the Pennsylvania Supreme Court. Freeman moved to have the award vacated on the basis that the arbitrator was biased because she had failed to disclose that she had received $4,500 in campaign contributions from PPG Industries, a minority owner of Pittsburgh Glass and PGW, during her unsuccessful Pennsylvania Supreme Court bid. Further, Freeman argued that the arbitrator had failed to disclose that she co-taught a law school course with a senior employment attorney at PPG Industries.

The district court denied the petition and the Third Circuit affirmed, holding that failing to disclose the existence of judicial campaign contributions did not establish “evident partiality” by the arbitrator, particularly in this instance where PPG Industries’ contributions were relatively small and, moreover, Freeman’s law firm had contributed five times the amount that PPG Industries had to the judge’s campaign. An undisclosed professional relationship with a minority owner was not “powerfully suggestive of bias.” The court made clear that “an arbitrator is evidently partial only if a reasonable person would necessarily conclude that the arbitrator was partial to one side,” and was careful to distinguish that standard from the more exacting appearance of bias standard for federal judges. Freeman v. Pittsburgh Glass Works, LLC, No. 12-2026 (3d Cir. Mar. 6, 2013).

This post written by Ben Seessel.

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