Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NO REINSURANCE COVERAGE FOR CEDENT’S EXTRACONTRACTUAL LIABILITY FOR BAD FAITH

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USF&G settled underlying asbestos coverage claims for nearly a billion dollars, and looked to its reinsurers for coverage. The reinsurers, including American Re, challenged the claims, and USF&G brought suit. A New York state trial court granted USF&G summary judgment, and the intermediate appellate court affirmed. American Re petitioned to New York’s high court, arguing (1) summary judgment was improper because USF&G improperly calculated its share of the losses; and (2) USF&G improperly attempted to allocate the portion of the underlying settlements attributed to bad faith claims against USF&G to the reinsurers.

As to issue (1), the Court of Appeals affirmed, citing the “follow the settlements” doctrine. As to issue (2), the Court agreed with American Re that summary judgment was improper as to the issue of allocating a portion of the settlements that could reasonably have been attributed to extracontractual bad faith claims against USF&G. It remanded with instructions for the trial court to determine if, and by how much, it should reduce allocation to the reinsurers of any portion of the underlying settlements attributable to USF&G’s settlement of the underlying bad faith claims against it, for which the reinsurers are not responsible. United States Fidelity & Guaranty v. American Re-insurance Co., 2013 NY Slip Op 00784 (N.Y. Feb. 7, 2013).

This post written by John Pitblado.

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NEW YORK AG LACKS STANDING TO OBJECT TO PROPOSED SETTLEMENT IN AIG SECURITIES LITIGATION

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In a case that has been litigated since 2004, and on which we have frequently reported, the New York Attorney General (“NYAG”) has attempted to block progress toward resolution by filing an objection to the pending settlement between class plaintiffs and a group of defendants. The NYAG asserts that the settlement is “unfair and inadequate” because it does not take into account an allegedly fraudulent finite reinsurance transaction between AIG and General Reinsurance Corp. The court found that the NYAG lacks standing to object, both under the Class Action Fairness Act and constitutional standing requirements, and denied the NYAG’s request for intervention taking into consideration the interest of the settlement class to resolve the matter without further delay. The court did, however, entertain the NYAG’s concerns about misrepresentations in the Class Notice regarding findings from the plaintiffs’ loss causation expert and ordered a Supplemental Notice to be sent out, which includes an additional opportunity to opt out of the settlement class. The Fairness Hearing for the proposed settlement is set for April 10, 2013. In re American International Group, Inc. Securities Litigation, Case No. 04-cv-8141 (USDC S.D.N.Y. Jan. 7, 2013).

This post written by Abigail Kortz.

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ARBITRATION CLAUSE INTERPRETATION ROUND-UP

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Following is a summary of five recent opinions of note concerning the interpretation of arbitration agreements and arbitration procedure:

Klein v. Nabors Drilling USA L.P., Case No. 11-30824 (5th Cir. Feb. 26, 2013) (reversing denial of motion to compel arbitration; option in contract to agree to non-binding alternative dispute resolution proceedings did not render mandatory arbitration clause unenforceable).

Noohi v. Toll Bros., Inc., Case No. 12-1261 (4th Cir. Feb. 26, 2013) (affirming denial of motion to dismiss or stay pending arbitration; arbitration clause was unenforceable because it lacked mutuality of consideration under state law, notwithstanding Concepcion).

GGNSC Omaha Oak Grove, LLC v. Payich, Case No. 12-2592 (8th Cir. Mar. 4, 2013) (affirming denial of application to compel arbitration; estate of deceased nursing home resident was not bound by arbitration agreement as a third-party beneficiary where agreement was not executed by decedent’s son in his individual capacity).

Landers v. FDIC, Case No. 27223 (S.C. Feb. 27, 2013) (reversing denial of motion to compel arbitration of claims for slander, emotional distress, illegal proxy solicitation, and wrongful expulsion, in connection with arbitration clause in employment agreement; the “pleadings provide a clear nexus between [plaintiff’s] claims and the employment contract sufficient to establish a significant relationship to the employment agreement”).

MHC Kenworth-Knoxcille/Nashville v. M & H Trucking, LLC, Case No. 2011-SC-000441 (Ky. Feb. 21, 2013) (reversing order denying motion to compel arbitration; state case law holding jurisdiction does not exist for state courts to compel out-of-state arbitration did not apply when arbitration clause provided for choice of law to be the FAA).

This post written by Michael Wolgin.

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IN HOT PURSUIT OF PREJUDGMENT SECURITY FROM A FOREIGN NATIONAL CONDUCTING REINSURANCE BUSINESS

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As previously reported, the Northern District of Illinois recently held that the prejudgment security required by the Illinois Insurance Code is an “attachment” within the meaning of the Foreign Sovereign Immunities Act and was therefore not required of the foreign defendant in that case. The court denied plaintiff’s motion to strike and the plaintiff subsequently moved to amend or correct the court’s order. The court stood by its decision in two additional orders: 1) denying plaintiff’s motion to amend the order because plaintiff failed to establish any misapprehension of the case law, and 2) granting defendant’s motion to dismiss plaintiff’s complaint for an order compelling arbitration for failure to state a claim. The court determined that the plaintiff could not compel arbitration because the assignment agreement that gave plaintiff limited rights to collect certain debts did not also assign the rights and duties under the reinsurance treaties with the defendants, which included the arbitration clauses. The plaintiff has appealed the December 13, 2012 Order concerning pre-hearing security and the February 5, 2013 Order denying the request to amend the December Order to the United States Court of Appeals for the Seventh Circuit. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, Case No. 12-6357 (USDC N.D. Ill.)

This post written by Abigail Kortz.

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UPDATE ON CAPTIVE INQUIRIES

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We have previously posted on the NAIC’s pending inquiries into the appropriateness of the use of captives. There are two recent developments of note with respect to such issues. First, the NAIC’s subgroup which has been conducting an inquiry has exposed for public comment a revised version of its white paper titled Captives and Special Purpose Vehicles. This draft does not resolve all of the disagreements evident in prior discussions of these issues at the NAIC, calling for further study with respect to some issues. The comment period for this document ends April 29, 2013. Second, the Treasury’s Federal Insurance Office (“FIO”) has formed a task force, headed by District of Columbia Insurance Commissioner William White, to examine the national implications of the use or possible abuse of captives and special purpose vehicles by life insurance companies. This represents a new direction for the FIO, and the reason for this shift is not readily apparent. Although the FIO has been involved mostly in international issues so far, and the NAIC white paper does identify its inability to regulate offshort capitves as an issue, it is unclear whether the FIO’s interest has been prompted by international regulatory concerns.

This post written by Rollie Goss.

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