Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT AFFIRMS JUDGMENT CONFIRMING ARBITRATION AWARD AND DENYING MOTION TO VACATE

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In a summary order, the Second Circuit Court of Appeals affirmed the district court’s confirmation of an arbitration award issued in favor of NCG Network Asia and the denial of PAC Pacific Group International’s motion to vacate. The court found that the arbitrator had properly disclosed a prior business relationship that indirectly linked him with NCG Network Asia, nothing about the relationship would compel a reasonable person to believe that the arbitrator was partial, and that PAC Pacific Group had thus not made the requisite showing to entitle it to post-arbitration discovery on the arbitrator’s alleged bias. The court also held that there was nothing inappropriate in denying PAC Pacific Group’s challenges to the arbitrator based on alleged impartiality, which denials complied with governing AAA rules and, further, that the arbitrator’s conclusion that there was no breach of the implied covenant of good faith and fair dealing was in accord with applicable law. NGC Network Asia, LLC v. PAC Pacific Group International, Inc., No. 12-0967 (2d Cir. Feb. 11, 2013).

This post written by Ben Seessel.

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ALLIED WORLD AND HANNOVER RE SETTLE DISPUTE OVER “FOLLOW THE SETTLEMENTS” BREACH CLAIM

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In July 2012, Allied World Assurance Company brought suit against its reinsurer, Hannover Ruckversicherung AG, alleging that it improperly declined coverage under certain facultative agreements covering certain of Allied’s commercial property insurance risks. The complaint cites Hannover’s breach of its duty to “follow the settlements” which allegedly required Hannover Re to cover settlements which Allied agreed to pay to underyling policyholders, despite misrepresentations allegedly made to Allied by the broker who placed the underlying property risks. The breach is also cast in the complaint as a breach of Hannover’s “utmost duty of good faith.” On January 22, 2013, the court entered an order of dismissal, based on the parties’ reported settlement (the terms of which were not disclosed). Allied World Assurance Co. (U.S.), Inc. v. Hannover Ruckversicherung AG, Case No. 12 Civ. 5146 (USDC S.D.N.Y. Jan. 22, 2013).

This post written by John Pitblado.

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BANKRUPTCY COURT DENIES REINSURERS’ MOTION TO DETERMINE DEBT OWED TO THEM IS NONDISCHARGEABLE

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A Massachusetts bankruptcy court denied the motion for summary judgment of reinsurers Trenwick America Reinsurance Corporation and Unum Life Insurance Company, which sought to determine that debtor Malcom C. Swasey’s debt owed them was nondischargeable in bankruptcy. The underlying dispute centered on the reinsurers’ claim that Swasey and companies he controlled, IRC, Inc. and IRC Re, engaged in fraud and breached a contract under which IRC Re was to provide retrocessional coverage in connection with a workers’ compensation program. The reinsurers had prevailed in a lawsuit in which the district court held that Swasey violated Massachusetts’s unfair or deceptive practices statute, Chapter 93A, by disavowing the parties’ retrocessional contract in bad faith. The reinsurers sought summary judgment on the grounds that the district court’s determination that Swasey had violated Chapter 93A established, under the doctrine of collateral estoppel, that Swasey’s debt was nondischargeable under Bankruptcy Code § 523(a)(6), which excepts from discharge any debt that results from “willful and malicious injury.” The court denied the reinsurers’ motion, holding that Chapter 93A’s “willful and knowing” standard differed from the standard for willfulness under § 523(a)(6) and that the reinsurers had not established, for purposes of the Bankruptcy Code, that Swasey had intended to injure them. In re Swasey, Case No. 11-20627, Adv. P. No. 12-1040 (USDC Bankr. Mass. Feb. 14, 2013).

This post written by Ben Seessel.

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COURT COMPELS ARBITRATION IN CEDENT DISPUTE WITH SIGNATORY REINSURERS AND STAYS PROCEEDING AGAINST NONSIGNATORIES

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Security Life Insurance Company was the successor to certain reinsurance agreements covering underlying life insurance risks. Pursuant to the agreements, the reinsurers created a trust in order to fund the required reserves. The trustee, INA Trust FSB, and the reinsurers thereafter allegedly created a new trust, transferred funds from the previous trust to one of the reinsurers, and/or its principal, but did not name Security Life as a beneficiary under the new trust, as allegedly required under the reinsurance agreements. The reinsurance agreements contained arbitration clauses. The trust agreements did not. Security Life brought suit against the trustee and the reinsurers and their principals in federal court. All the defendants moved to compel arbitration, or, in the alternative, stay the proceeding pending completion of arbitration. The court granted the motion to compel arbitration between Security Life and the defendants which were signatories to the arbitration agreement, and stayed the remainder of the action until completion of that arbitration. Security Life Insurance Co. of America v. Southwest Reinsure, Inc., Case No. 11-1358 (USDC D. Minn. Feb. 11, 2013).

This post written by John Pitblado.

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TRAVELERS CASUALTY AND SURETY CO. SETTLES REINSURANCE DISPUTE WITH EXCALIBUR REINSURANCE CORP.

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Travelers and runoff reinsurer Excalibur have settled Traveler’s suit for reinsurance benefits allegedly owed to Travelers for asbestos claims coverage reinsured by three facultative certificates. Travelers had filed suit in federal court for breach of contract and account stated, seeking $451,809.66 in allegedly unpaid claims made in 2011 and 2012. The reinsurance claims were based on benefits Travelers paid to its insured, Zurn Industries, Inc., further to a settlement entered into in 2003. Travelers alleged that Excalibur had previously paid reinsurance claims based on the subject insurance coverage, but had failed to pay the 2011 and 2012 claims. Travelers Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 3:12-cv-01701 (D. Conn. Jan. 31, 2013) (notice of dismissal).

This post written by Michael Wolgin.

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