Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

VIRGINIA BUREAU OF INSURANCE ISSUES GUIDELINES ON CREDIT FOR REINSURANCE

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Virginia’s Bureau of Insurance issued guidelines for implementation of the Commonwealth’s credit for reinsurance law. The Bureau’s December 13, 2012 Administrative Letter 2012-11 (the “Letter”) lists the basic criteria the Bureau will rely on in making determinations as to whether a domestic ceding insurer can take credit for reinsurance, based on the reinsurer qualifying as: (1) a licensed Virginia insurer in good standing, (2) an accredited Virginia reinsurer with at least $20 million surplus, (3) a reinsurer licensed in a state with similar credit laws and at least $20 million surplus, (4) a single assuming insurer with a trust account and at least $20 million surplus, (5) a participant in an association of unincorporated underwriters and at least $100 million surplus, (6) a participant in an association of incorporated underwriters with aggregate surplus of $10 billion and a joint trusteed surplus of at least $100 million; or (7) a reinsurer certified in Virginia with a surplus of $250 million, domiciled and licensed in a qualified jurisdiction, and with acceptable ratings from two or more ratings agencies.

The Letter also delineates ceding insurer responsibilities in ensuring the validity of credit reported on their statements, and provides information pertaining to filing requirements and forms.

This post written by John Pitblado.

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TWO COURTS FIND LACK OF APPELLATE JURISDICTION TO HEAR ARBITRATION-RELATED APPEALS

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Two recent opinions illustrate the need to assess jurisdiction when proceeding in arbitration-related matters. The Seventh Circuit Court of Appeals recently held that it did not have appellate jurisdiction over an arbitration dispute involving a collective bargaining agreement for interstate truckers. Since appellate jurisdiction was predicted on a jurisdictional grant in the Federal Arbitration Act, 9 U.S.C. §16(a)(1), and 9 U.S.C. §1 exempts from the FAA’s scope employment agreements involving interstate commerce, the court found, after a remand for fact finding, that it did not have jurisdiction under 9 U.S.C. §16 because the dispute involved truckers working in interstate commerce, and dismissed the appeal for lack of jurisdiction. International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast LLC, No. 11-2097 (7th Cir. Dec. 13, 2012).

Of perhaps more interest to reinsurance practitioners, one party in a reinsurance arbitration filed an action in United States district court in Wisconsin seeking a declaration that the law firm representing the opposing party could not represent the opposing party in an arbitration pending in New York due to a conflict of interest. Jurisdiction was predicated on diversity of citizenship and amount in controversy. The court raised a question of subject matter jurisdiction on its own, and determined that the amount in controversy was not measured by the amount in dispute in the arbitration, but rather by the cost of replacing counsel, and that there was no good faith basis for believing that the cost of replacing counsel would satisfy the jurisdictional requirement of $75,000. The court therefore remanded the case to state court on its own motion. National Casualty Co. v. Utica Mutual Insurance Company, Case No. 12-657 (USDC WD Wis. Dec. 12, 2012).

This post written by Rollie Goss.

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CONNECTICUT INSURANCE DEPARTMENT AMENDS CREDIT FOR REINSURANCE REPORTING REQUIREMENTS

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Effective October 1, 2012, the Connecticut Insurance Department has amended its Credit for Reinsurance law to align with the November 2011 amendments to the NAIC Credit for Reinsurance Model Law. The amendments to Connecticut’s law adopt the NAIC Model Law’s reporting requirements, which require a domestic ceding insurer to notify the Insurance Commissioner when reinsurance recoverables and amounts ceded to a single assuming insurer exceed certain thresholds. State of Conn. Ins. Dep’t, Credit for Reinsurance Reporting Requirements, Bulletin No. FS-24 (Dec. 3, 2012).

This post written by Abigail Kortz.

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TWO RECENT DECISIONS ADDRESS WHETHER PREJUDGMENT RELIEF IS AVAILABLE IN ARBITRATION PROCEEDINGS

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The first decision involved reconsideration of an interim arbitration award of prejudgment security that the court initially refused to confirm as a manifest disregard of the law. The court had determined that the arbitrators erroneously awarded a prejudgment bond of $10 million or an injunction from transferring such an amount, in the alternative. The court had relied on a provision in the underlying contract that provided that the agreement would be enforced in accordance with New York law, which prohibits such provisional remedies. On reconsideration, however, the court focused on another provision of the agreement, which adopted the AAA International Dispute Resolution Procedures. Under those rules, such provisional remedies were permitted. The court held, “It lay with the parties to confer on the arbitrator whatever powers they wished. Having adopted rules that allowed the arbitrator to award interim security, [defendants] are bound by their bargain. Nothing about enforcing an order rendered in accordance with the procedures to which the parties agreed offends either New York law or New York public policy.” The court relied on a Second Circuit opinion, Banco de Seguros del Estado v. Mutual Marine Offices, Inc., as support for this holding, and as support for the underlying premise that interim security issues are reviewable prior to a final arbitration award. CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, Case No. 1:12-cv-08087 (USDC S.D.N.Y. Dec. 10, 2012).

The second decision involved a court’s refusal to prohibit a foreign sovereign-owned bank from litigating in a reinsurance dispute, notwithstanding the bank’s failure to post security as required by state law. The court held that the bank could not be compelled to post such security under the Foreign Sovereign Immunities Act, which prohibits “attachment” of the property of a foreign state or its instrumentalities. The court found that other courts that have considered this issue have determined that the practical effect of prejudgment security is akin to an attachment of property, and thus the FSIA’s immunity applied. The court also found that the bank did not waive this immunity, distinguishing the Second Circuit’s opinion in Banco De Seguros Del Estado v. Mutual Marine Offices, Inc. Whereas the Second Circuit opinion found waiver of FSIA immunity under an arbitration agreement that permitted the arbitrators to “abstain” from following “the strict rules of law,” this case involved no such agreement. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, Case No. 1:12-cv-06357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by Michael Wolgin.

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FOURTH CIRCUIT REVERSES ORDER DENYING MOTION TO COMPEL ARBITRATION BASED ON WAIVER, APPLYING FAA RATHER THAN STATE LAW

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In a recent opinion, the Fourth Circuit reversed a district court order denying a motion to compel non-class arbitration. The district court applied Maryland arbitration law and concluded that the party moving to compel arbitration waived its right to enforce arbitration because the moving party (1) waited six months from the date the complaint was filed to file a motion to compel arbitration, (2) participated in some discovery, and (3) made a strategic decision to delay seeking arbitration until the law regarding whether it would be forced into class arbitration was more certain (that certainty was provided by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. __, 130 S. Ct. 1758 (2010)). The Fourth Circuit determined that the FAA, rather than Maryland law, applied and provides for more limited circumstances that give rise to a waiver of the right to compel arbitration. The only relevant factors under the FAA are the amount of delay and the extent of the moving party’s trial oriented activity, not the moving party’s reason for delay. Applying these factors, the Fourth Circuit found that the non-moving party was not prejudiced by the six month delay or the moving party’s minimal participation in litigation, focusing on the fact that the moving party did not file any dispositive motions. Rota-McLarty v. Santander Consumer USA, Inc., No. 11-1597 (4th Cir. Nov. 28, 2012).

This post written by Abigail Kortz.

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