Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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COURT COMPELS PRODUCTION OF CFPB INVESTIGATION DOCUMENTS IN DISPUTE OVER ALLEGED REINSURANCE KICKBACKS

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A putative class of plaintiffs brought an action against PHH Corporation, alleging violations of the Real Estate Settlement Procedures Act, arising from a purported scheme of alleged “kickbacks” to the defendant mortgage insurer from its captive reinsurer to which transfers no actual underlying risk was transferred. The plaintiffs sought documents relating to any government investigation of PHH. After PHH came under investigation by the Consumer Financial Protection Bureau, PHH provided certain discovery in the course of the investigation to the CFPB. The plaintiffs thereafter renewed their requests, seeking all documents produced to the CFPB. After defendant refused, the court granted plaintiffs’ motion to compel the following categories of documents produced to the CFPB:

“(1) corporate information and organization charts showing the PHH entities involved with PHH’s captive reinsurance arrangements’ position and the PHH corporate hierarchy; (2) documents relating to the genesis of PHH’s captive reinsurance arrangements; (3) documents describing or relating to PHH’s captive reinsurance arrangements and how they operated; (4) financial statements; (5) contracts and agreements with private mortgage insurers; (6) actuarial, accounting reports, summaries, audits and statements; (7) invoices, bills, receipts, dividends and records of payments from the captive reinsurance trusts or in any way related to PHH’s captive reinsurance arrangements; and (8) disclosures, communications to borrowers regarding mortgage insurance and captive reinsurance.”

Munoz v. PHH Corp., No. 1:08-cv-0759-AWI-BAM (USDC E.D. Cal. Feb. 22, 2013).

This post written by John Pitblado.

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COURT DENIES BANK, INSURER’S, AND REINSURER’S MOTION TO DISMISS RESPA COMPLAINT

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Two borrowers filed a putative class action complaint in Pennsylvania federal court alleging that mortgage lender, First Horizon Home Loan Corporation, private mortgage insurers First Horizon had selected, and FT Reinsurance Company had engaged in a “captive reinsurance scheme” whereby illegal referral payments in the form of reinsurance premiums had been paid by the private mortgage insurers to FT Reinsurance, a wholly-owned subsidiary of First Horizon. Plaintiffs alleged that the reinsurance premiums violated the anti-kickback provisions of the Real Estate Settlement Procedures Act and that little or no risk was actually transferred from the mortgage insurers to FT Reinsurance. The court granted motions to dismiss filed by mortgage insurers Genworth Mortgage Insurance Corporation, Republic Mortgage Insurance Company, and Radian Guaranty, Inc., finding that plaintiffs did not have standing to sue because these insurers had not issued them policies. The court denied motions to dismiss filed by the other defendants, however, holding that plaintiffs had sufficiently alleged that the statute of limitations on their claims was equitably tolled and, moreover, that plaintiffs could proceed on their unjust enrichment theory because it was not clear whether plaintiffs’ mortgage contracts cover the same subject as their lawsuit. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. Feb. 27, 2013).

This post written by Ben Seessel.

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BRITISH COURT AFFIRMS REINSURANCE ARBITRATION AWARD ON NUMBER OF OCCURENCES IN 9/11 ATTACKS

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Plaintiff cedent and defendant reinsurers were parties to certain reinsurance treaties providing cover for aviation-related risks, with threshold triggers of $200 million and $500 million, respectively. A coverage dispute arose regarding whether the terrorist attacks in New York City on September 11, 2011 constituted one, or two separate occurrences, as the term was defined in the underlying policies. Defendants contended there were two occurrences, and thus twice as much of the $1.2 billion in underlying settlements should be borne by the cedent. The parties submitted the dispute to arbitration, and a three-judge panel held that there were two occurrences, based on particular factual details unique to the September 11 attacks. Citing the applicable standards for overturning arbitration awards, the UK’s High Court of Justice affirmed the award, concluding that the tribunal “accurately identified the applicable law pursuant to which they undertook an exercise of judgement. The decision they came to was one which was open to them to reach and in making it they: (i) correctly applied the law; (ii) had regard to all materially relevant matters; and (iii) did not take into account impermissible considerations.” Aioi Nissay Dowa Insurance Co. Ltd v. Heraldglen Ltd, [2013] EWHC 154 (Comm) (High Court of Justice, Queen’s Bench, Comm. Div. Feb. 8, 2013).

This post written by John Pitblado.

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