Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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PARTIES AGREE TO DISMISSAL OF ACTION AFTER LIBERTY MUTUAL PETITIONS COURT TO APPOINT ARBITRATOR

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A lawsuit involving a reinsurance dispute has been voluntarily dismissed so that it may proceed in arbitration. On July 14, 2011, Liberty Mutual petitioned a court to appoint an umpire and compel arbitration pursuant to its reinsurance agreement with Continental Insurance under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. The dispute between the two parties arose after Liberty Mutual sought reimbursement from its reinsurer, Continental for amounts paid to a policyholder. Although the parties agreed that their contracts required them to arbitrate, and each had successfully chosen one arbitrator, they were unable to choose an umpire. Because their contracts did not specify a selection process for the umpire and the parties were unable to come to an agreement themselves, Liberty Mutual sought judicial intervention, asking for an order appointing one of five disinterested industry umpires or, alternatively, a retired Massachusetts judge. Although both parties submitted memoranda on the issue and the court held a hearing on the motion, the parties thereafter stipulated to a dismissal of the action and, pursuant to this, the court dismissed the action with prejudice. Liberty Mutual Insurance Co. v. Continental Insurance Co., Case No. 11-cv-11245-MBB (USDC D.Mass. May 7, 2012).

This post written by Brian Perryman.

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SPECIAL FOCUS: THE BENEFITS OF CAT BONDS FOR CEDING INSURERS

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In this Special Focus piece, entitled “The Benefits of Cat Bonds for Ceding Insurers and the Potential for Life and Annuity Risk Bonds,” Rollie Goss compares the relative advantages of catastrophe bonds over traditional reinsurance, as well as the developing market for transfer of life and annuity risks.

This post written by Rollie Goss.

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