Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW YORK ADOPTS REVISED EXCESS LINE PLACEMENT STANDARDS

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The New York Department of Financial Services promulgated, on an emergency basis, amendments to Insurance Regulation 41 on January 7, 2013. Regulation 41 deals with standards governing the placement of excess line insurance, which also is known as nonadmitted insurance. The Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), which was part of the Dodd-Frank Act, subjects the placement of nonadmitted insurance solely to the statutory and regulatory requirements of the insured’s home state, and provides that only an insured’s home state may require an excess line broker to be licensed to sell, solicit, or negotiate nonadmitted insurance with respect to such insured. The New York legistature adopted an amendment to New York’s insurance laws in 2011, in part to conform to these provisions of the NRRA, and these amendments to Regulation 41 further the implementation of the statutory changes. The current amendments affect a large number of sections.11 NYCRR Part 27.

This post written by Rollie Goss.

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EQUITABLE ESTOPPEL CANNOT COMPEL ARBITRATION AGAINST NON-SIGNATORIES WHERE CLAIMS WERE BASED ON STATUTE AND NOT CONTRACT

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In a putative class anti-trust action brought by retail grocers against wholesale grocers, a divided panel of the Eighth Circuit recently reversed the lower court’s decision to compel arbitration under an equitable estoppel theory. The retailers had purposefully brought suit against wholesalers with whom they did not have supply and arbitration agreements. The lower court found that equitable estoppel could be applied to compel arbitration because the retailers’ claims against non-signatory wholesalers were so intertwined with the agreement containing the arbitration clause that it would be unfair to allow the retailers to rely on the agreement in formulating its claims but to disavow availability of the arbitration clause of that same agreement. The lower court reasoned that without the arbitration “agreements no wholesaler-supplier relationship would exist to be exploited by the alleged anti-trust conspiracy.” On appeal, the Eighth Circuit reversed this ruling, holding that the retailers’ claims were based on statutory rights that exist independent of the supply and arbitration agreements, and that since none of the contracts specified price terms, the retailers’ claims did not involve alleged violation of any contractual terms. The lower court’s analysis, the Eighth Circuit concluded, “focuse[d] too much on the relationship between the signatories, rather than on the relationship between the signatory’s claims against the non-signatory and the contract containing the arbitration clause.” In re Wholesale Grocery Products Antitrust Litigation, No. 11-3768 (8th Cir. Feb. 13, 2013).

This post written by Michael Wolgin.

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FOLLOW THE FORTUNES DOCTRINE APPLIED TO ALLOCATION OF SETTLEMENT AMOUNT

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In a dispute with reinsurers over coverage for the settlement of asbestos-related disputes valued at close to one billion dollars, in which the reinsurance contracts contained a follow the fortunes provision, the reinsurers challenged whether the doctrine applied to the cedent’s decisions in the allocation of the settlement amount, and, if applicable, it could be applied in a summary judgment context to the cedent’s allocation of the settlement. Modifying the decision of the lower court, the Court of Appeals held: (1) the follow the fortunes doctrine applied to the cedent’s allocation of the settlement amount; (2) the doctrine appropriately was applied to sustain the cedent’s allocation of the entire settlement amount to a single policy year, since the applicable trigger of coverage supported such an allocation; and (3) disputed issues of material fact prevented the application of the doctrine in a summary judgment context with respect to challenges to the allocation of the settlement amount to different policies and the value attributable to specific types of claims. United States Fidelity & Guaranty Company v. American Re-Insurance Company3, 2013 WL 451666 (N.Y. Ct. App. 2/7/2013).

This post written by Rollie Goss.

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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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