Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

APPEAL DISMISSED IN NORTHWESTERN NATIONAL/INSCO REINSURANCE DISPUTE

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The Second Circuit has dismissed an appeal arising from a reinsurance dispute between Northwestern National Insurance Company and Insco, Ltd. As we last reported in a December 29, 2011 post, those entities were parties to a reinsurance agreement and submitted a dispute to arbitration, with each party appointing its own arbitrator, and those two in turn selecting a neutral third to act as umpire. Insco’s appointed arbitrator shared private email communications between panel members with Insco’s counsel, believing that they showed that Northwestern’s selected arbitrator could not serve as an impartial arbitrator. Insco reviewed the emails and thereafter demanded that all the arbitrators resign immediately. Northwestern’s arbitrator resigned, but Insco’s and the neutral umpire did not. Northwestern then became suspicious that Insco had received the private panel member emails and demanded copies, but Insco refused. Northwestern named a new arbitrator, and the panel took up the issue, compelling production, determining that Insco’s counsel had acted inappropriately, and allowing the parties time to take the matter up in court.

Northwestern brought an action in federal court to disqualify Insco’s counsel. The trial court granted the motion to disqualify. Insco appealed, challenging the trial court’s jurisdiction and statutory authority to do so. On November 6, 2012, however, Insco moved to dismiss the appeal because the parties had settled the underlying arbitration. That motion was granted on November 21, 2012. Northwestern National Insurance Co. v. Insco, Ltd., No. 11-4626 (2d Cir. Nov. 21, 2012).

This post written by Brian Perryman.

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COURT DENIES INSURER’S REQUEST FOR ARBITRATION ATTORNEY’S FEES

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Amerisure successfully arbitrated a dispute with Global Re. Under the parties’ reinsurance agreement, arbitration was to be governed by Illinois law, though Amerisure is a Michigan-based company and Global Re is based in New York. Amerisure’s award was confirmed by an Illinois circuit court but the portion of it awarding attorney’s fees was vacated. Subsequently, Amerisure filed a one-count complaint in the circuit court seeking attorney’s fees pursuant to Illinois statute. The court dismissed Amerisure’s complaint, determining that New York law applied to the lawsuit and that New York law did not permit an award of attorney’s fees in this instance. While the parties agreed that Illinois law should apply to arbitration matters, there was no such provision governing litigation. Absent a governing choice of law provision, New York law applied because New York had the most significant contacts with the parties’ dispute. Amerisure Mutual Insurance Co. v. Global Reinsurance Corp. of America, Case No. 10 L 012665 (Ill. Cir. Ct. Nov. 7, 2012).

This post written by Ben Seessel.

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CALIFORNIA ENACTS NAIC CREDIT FOR REINSURANCE AND HOLDING COMPANY MODEL LAWS

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On September 7, 2012, the governor of California signed into law two bills implementing amendments to the NAIC Credit for Reinsurance Model Law and NAIC Insurance Holding Company System Regulatory Model Act. The former, SB 1216, allows full credit to insurers for insurance ceded to unauthorized reinsurers that satisfy certain financial strength ratings, without the need to post full collateral. It also contains provisions increasing oversight of the nature and extent of risk ceded by domestic insurers. The California law differs from the NAIC Model, however, by authorizing the insurance commissioner to disallow credit for reinsurance under certain circumstances, notwithstanding technical compliance with the new requirements.

The second bill, SB 1448, increases oversight over an insurer’s holding company system, specifically over “enterprise risk” defined as “any activity, circumstance, or event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole.” The law requires, among other things, the filing of annual enterprise risk reports, and a statement that the insurer’s board of directors is responsible for overseeing corporate governance and internal controls, and that the insurer’s officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures. The law also authorizes the commissioner to establish and participate in a supervisory college to determine compliance for insurance holding company systems with international operations.

Both laws go into effect January 1, 2013. The credit for reinsurance law, however, will be deemed automatically repealed on January 1, 2016, unless separate legislation provides otherwise.

This post written by Michael Wolgin.

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NINTH CIRCUIT HOLDS THAT MALICIOUS PROSECUTION AND ABUSE OF PROCESS CLAIMS ARE ARBITRABLE

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The Ninth Circuit affirmed the district court’s grant of the motion to compel arbitration of defendant’s malicious prosecution and abuse of process claims against plaintiff that arose from a previous arbitration. In so affirming, the court determined that the arbitration clause, which stated that it applied to “all controversies” between the parties “which may arise from any account for any cause whatsoever” was broad enough to encompass the tort claims. The court distinguished this language from language that limits application of the arbitration clause only to claims “arising out of” the agreement. This is a fairly traditional articulation of the difference between narrow and broad arbitration provisions. Morgan Keegan & Co. v. Grant, No. 11-56399 (9th Cir. Oct. 25, 2012).

This post written by Abigail Kortz.

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APPEALS COURT AFFIRMS FLORIDA FORUM IN DISPUTE BETWEEN FOREIGN COMPANIES OVER OFFSHORE BOND TRANSACTIONS

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An appellate court upheld the denial of dismissal of a lawsuit relating to certain offshore bond transactions (made in U.S. Dollars) between a Venezuelan reinsurer and a British Virgin Islands company, finding that Florida was a proper forum for the case. The reinsurer filed suit in Florida, a state in which the defendant had a business address, and the defendant moved to dismiss, contending that Venezuela, rather than Florida, was the proper forum. The lower court denied the motion and the appellate court affirmed, holding that the defendant failed to meet its burden of establishing that all of the following four factors were met to show improper forum: (1) adequate alternative forum; (2) private interests; (3) public interest; and (4) inconvenience/prejudice. While it was undisputed that Venezuela was an adequate alternative forum, the court held that private interests, such as access to evidence and witnesses, adequate enforcement of judgments, and expense, did not balance in the defendant’s favor. ABA Capital Markets Corp. v. Provincial De Reaseguros C.A., Case No. 3D12-130 (Fla. Ct. App. Nov. 7, 2012).

This post written by Michael Wolgin.

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