Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COMMUTATION AGREEMENTS BETWEEN RELIANCE INSURANCE COMPANY (IN LIQUIDATION) AND THREE REINSURERS APPROVED

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A Pennsylvania court has approved commutation agreements between Reliance Insurance Company (in Liquidation) and reinsurers Connecticut General Life Insurance Company (“Connecticut General”), Phoenix Life Insurance Company (“Phoenix”), and Hannover Rueckversicherung AG and E + S Rueckversicherung AG (“Hanover”), respectively. The Reliance Estate will receive $7,044,565 from Connecticut General and $5,017,408 from Phoenix for commuting obligations on reinsurance policies written through Unicover Managers covering workers’ compensation losses. Hanover will pay $4,790,789 to the Reliance Estate in exchange for commuting liabilities on reinsurance contracts covering various lines of business including accident and health, aviation liability, and D&O liability.

This post written by Ben Seessel.

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CALIFORNIA COURTS CONTINUE TO CONTEND WITH CONCEPCION

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Two recent California Appellate Court decisions address class arbitration waivers post-AT&T Mobility v. Concepcion, the 2011 U.S. Supreme Court case that dramatically curtailed parties’ ability to challenge class action waivers in arbitration agreements. In Caron v. Mercedes-Benz Financial Services USA, LLC, No. G044550 (June 29, 2012), the Court reviewed a trial court decision denying a motion to compel, based on the anti-class-action-waiver provision of California’s Consumer Legal Remedies Act. The Appellate Court reversed, citing Concepcion, and holding that the CLRA is pre-empted by the FAA, because it acts as an obstacle to the FAA’s intention of enforcing arbitration agreements.

Likewise, in Truly Nolen of America v. Superior Court, No. D060519 (Aug. 9, 2012), the Appellate Court reversed an order allowing class-wide arbitration. The trial court had granted a motion to compel arbitration of a putative class action labor dispute, but denied the employer’s motion to direct individual arbitration, instead allowing class-wide arbitration of the claims. The employer appealed and the Appellate Court reversed, citing Concepcion. However, it remanded with instructions that the trial court hear arguments and evidence on whether the arbitration agreement in fact contained an implied right to class-wide arbitration, as argued by the plaintiff class, including extrinsic evidence of intent, if necessary, and to then rule anew on the issue of whether class-wide arbitration should be allowed.

This post written by John Pitblado.

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NAIC REINSURANCE AND SURPLUS LINES TASK FORCE MEETINGS

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The NAIC has released summaries of the minutes of the meetings of its Reinsurance Task Force and Surplus Lines Task Force, both of which took place on August 13, 2012, during the Summer National Meeting in Atlanta.

The Reinsurance Task Force adopted recommendations regarding accreditation standards, heard status updates on implementation of the revised credit for reinsurance models, approved establishing a subgroup regarding quota share reinsurance contracts, addressed ongoing international reinsurance issues, including US/EU dialogue and activities of the International Association of Insurance Supervisors, heard updates from the Captive and Special Purpose Vehicle Use Subgroup on alternative risk transfer in relation to existing state law, and heard a status update from The Financial Condition Committee regarding ceding reinsurers in receivership.

The Surplus Lines Task Force created a Surplus Lines Requirements Subgroup, to research issues related to eligibility requirements, which were addressed at the meeting.

This post written by John Pitblado.

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COURT COMPELS ARBITRATION, CALLING UNCONSCIONABILITY AN ISSUE FOR THE ARBITRATOR

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Applying California law and the Federal Arbitration Act, a federal district court ruled that Senior Services of Palm Beach must arbitrate its claims against ABCSP, Inc., a franchising company, pursuant to the arbitration clause of the parties’ franchise agreement. Although Senior Services claimed the arbitration clause was unconscionable, the court held that, by incorporating the rules of the American Arbitration Association into their arbitration provision, the parties had agreed to allow the arbitrator to determine gateway issues such as arbitrability, which included unconscionability. The court went on to say that, however, that if the matter were properly before it, it would hold that the arbitration clause was not unconscionable. The provision did not meet the test for either procedural or substantive unconscionability, as there was no inequality in bargaining power or evidence of surprise, nor was the provision, including its requirement to arbitrate in California, harsh or one-sided. Thus, the court granted the prevailing party’s motion to dismiss the case and compel arbitration. Senior Services of Palm Beach LLC v. ABCSP Inc., Case No. 9:12-cv-80226-JIC (USDC S.D. Fla. June 7, 2012).

This post written by Brian Perryman.

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MAGISTRATE RECOMMENDS SUMMARY JUDGMENT FOR REINSURER ASSERTING NONCOMPLIANCE WITH PROMPT NOTICE PROVISION

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On April 5, 2010, we reported on a federal district court’s decision to decline a magistrate judge’s report and recommendation on defendant TIG Insurance Company’s motion for partial summary judgment. The dispute involved a reinsurance claim made by plaintiff AIU Insurance Company in 2007 after settling litigation brought in 2001 involving the underlying insurance coverage. TIG responded by denying the claim, citing the reinsurance certificates’ prompt notice provision. The court declined the magistrate’s report as premature to the extent it sought rulings that: (1) Illinois law governed its reinsurance coverage dispute with AIU and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; and (2) AIU breached the reinsurance contracts at issue by providing late notice of the 2001 claim.

Upon conclusion of discovery and TIG’s renewal of its motion for summary judgment, the magistrate judge has found again that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. AIU breached the reinsurance certificates by failing to provide prompt notice, notwithstanding AIU’s contention that TIG had notice of the potential claims from other sources. The magistrate explained, “although notice from third parties can satisfy policy requirements under Illinois law, reinsurers are not charged with notice based merely on receipt of non-specific information that might lead to discovery of a potential claim.” AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 16, 2012).

This post written by Michael Wolgin.

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