Reinsurance Focus Blog

CALIFORNIA ENACTS NAIC CREDIT FOR REINSURANCE AND HOLDING COMPANY MODEL LAWS

December 6, 2012 by Carlton Fields

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 The credit for reinsurance law, however, will be deemed automatically repealed on January 1, 2016, unless separate legislation provides otherwise.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

December 5, 2012 by Carlton Fields

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

December 3, 2012 by Carlton Fields

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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U.S. SUPREME COURT SLAPS OKLAHOMA SUPREME COURT ON THE WRIST FOR DISREGARDING PRECEDENT ON THE FAA AND GRANTS CERT. IN YET ANOTHER ARBITRATION CASE

December 3, 2012 by Carlton Fields

In a recent per curiam opinion, the U.S. Supreme Court reminded state courts that the Federal Arbitration Act is “the supreme Law of the Land” and they must abide by the Supreme Court’s opinions interpreting that law. The Oklahoma Supreme Court ignored Supreme Court precedent, which holds that a court has authority to decide the validity of an arbitration clause, but that the validity of the contract is left to the arbitrator to decide once the arbitration clause is deemed valid. Improperly assuming the role of arbitrator, the Oklahoma Supreme Court declared a noncompetition agreement that included a valid arbitration clause to be “void and unenforceable against Oklahoma’s public policy,” elevating Oklahoma law over the FAA. Nitro-Lift Technologies, L.L.C. v. Howard, No. 11-1377, 586 U.S. __ (U.S. Nov. 26, 2012).

Accepting an opportunity to provide further guidance with respect to class arbitrations, the Supreme Court has also granted certiorari in an arbitration case decided by the Second Circuit to decide “[w]hether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.” As profiled in a prior post, the Second Circuit held that arbitration agreements that do not provide for class arbitration are unenforceable if the claimant can demonstrate that “the cost of . . . individually arbitrating their dispute . . . would be prohibitive.” It will be intertesting to see whether the Court decides this case on a narrow statement of the issue or uses it to provide broader principled guidance for post-Concepcion cases. In re American Express Merchants’ Litigation, No. 12-133 (U.S. Nov. 9, 2012).

This post written by Abigail Kortz.

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