Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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ARBITRATION AWARD ROUNDUP

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Following is a summary of selected court opinions addressing requests for confirmation and vacation of arbitration awards.

Manifest disregard

NYKCool A.B. v. Pacific Fruit, Inc., No. 11-4246 (2d Cir. Jan 16, 2013) (affirming judgment by S.D.N.Y. confirming an arbitration award based on finding that defendant did not establish a “manifest disregard of the law,” or that the panel exceeded its authority or that the panel denied defendant a fundamentally fair hearing)

Murray v. Citigroup Global Markets, Inc., No. 11-4355 (6th Cir. Jan. 10, 2013) (affirming district court’s denial of plaintiff’s motion to vacate or modify an arbitration award; court could not determine whether the panel acted in “manifest disregard of the law” because plaintiff did not request a reasoned award from the panel)

Swarm, LLC v. Cohen, Case No. 10-03188 (C.D. Cal. Dec. 7, 2012) (granting defendants’ motion to confirm final arbitration award based on finding that arbitrator’s application of the alter ego doctrine, finding of a written agreement, and reliance on the same evidence presented by plaintiff for two different claims is not a “manifest disregard of the law” under the FAA)

Ometto v. ASA Bioenergy Holding A.G., Case No. 12-1328 (S.D.N.Y. Jan. 9, 2013) (denying petitioners’ motion to vacate two arbitration awards and granting respondents’ motion to confirm the awards based on finding that petitioners’ grounds for vacatur were without merit, including allegations that the tribunal’s chairman was partial, the tribunal acted in manifest disregard of the law, and the awards were procured through fraud)

Budget Blinds Inc. v. LeClair, Case No. 12-1101 (C.D. Cal. Jan. 16, 2013) (denying petition to vacate arbitration award and granting cross-petition to confirm award, on grounds that petition to vacate did not establish “manifest disregard of the law” or that arbitrator exceeded her authority and was merely an attempt to re-litigate the arbitrator’s factual findings)

Fuchs & Associates, Inc. v. Lesso, No. B239246 (Cal. Ct. App. Jan. 8, 2013) (affirming trial court’s judgment confirming an arbitration award based on finding that the arbitrator did not exceed his authority and there was no “manifest disregard of the law”)

Exceeding authority

Brotherhood of Locomotive Engineers and Trainmen v. United Transportation Union, No. 11-4177 (6th Cir. Dec. 5, 2012) (affirming district court’s reinstatement of arbitration award following magistrate judge’s vacatur; arbitration board did not exceed its jurisdiction when it interpreted contractual provisions)

Zhao v. Ming Due International Trade, Inc., No. B236813 (Cal. Ct. App. Jan. 7, 2013) (affirming trial court’s judgment confirming an arbitration award based on finding that arbitrator did not exceed the scope of his power by denying plaintiff’s motion for an uncontested arbitration, especially since the parties stipulated to binding arbitration in which the arbitrator would control the proceedings in “his sole discretion”)

Disclosure inadequacy

Gray v. Chiu, No. B238304 (Cal. Ct. App. Jan. 22, 2013) (reversing trial court’s denial of appellant’s petition to vacate a medical malpractice arbitration award on grounds that the arbitrator violated the disclosure provisions of the California Arbitration Act and the California Ethics Standards for Neutral Arbitrators in Contractual Arbitrations by failing to disclose that counsel for the defendant was affiliated with the abritrator’s firm)

Re-litigating arbitrators’ decisions

Citigroup Global Markets, Inc. v. Bock, Case No. 10-24157 (S.D. Fla. Jan. 17, 2013) (confirming FINRA arbitration award and denying respondent’s motion to vacate the award as an attempt to “re-litigate discovery decisions that were properly before the arbitration panel”)

Untimely vacation request

Domnarski v. UBS Financial Services, Inc., Case No. 12-30139 (D. Mass. Jan. 23, 2013) (denying plaintiff’s motion to vacate a FINRA arbitration award and allowing defendant’s motion to confirm the award because plaintiff filed her motion outside the 3 month limitations period established by the FAA)

Foreign Arbitration Awards – jurisdiction

Covington Marine Corp. v. Xiamen Shipbuilding Industry Co., No. 12-30383 (5th Cir. Dec. 21, 2012) (affirming district court’s decision to deny confirmation of a foreign arbitral award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards against a Chinese shipbuilding company and the People’s Republic of China due to lack of personal and subject matter jurisdiction)

This post written by Abigail Kortz.

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TENNESSEE OVERHAULS ITS CAPTIVE INSURER REGULATIONS

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In December 2012, the Tennessee Department of Commerce and Insurance revamped its regulations concerning captive insurers by repealing a law regarding letters of credit used by captive insurance companies and replacing it with a more extensive regulatory scheme. The new regulatory scheme requires annual reports of a captive insurance company’s financial condition and examinations by the insurance commissioner every three to five years. The five year cycle for examinations is only available for captive insurers that submit to annual audits conducted by independent certified public accountants authorized by the commissioner. The annual audits consist of an examination of financial statements by the independent CPA according to GAAP, an evaluation of internal controls, and certification as to the adequacy of the captive insurer’s loss reserves. Tenn. Comp. R. & Regs. tit. 0780, Ch. 01-41 (effective February 28, 2013).

This post written by Abigail Kortz.

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