Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CALIFORNIA FEDERAL COURT FINDS ARBITRATION AGREEMENT NOT UNCONSCIONABLE

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Plaintiff Abreu filed a putative class action lawsuit against Slide, Inc., the developer of SuperPoke!, an online game in which users adopt, care for, and interact with virtual pets. Google acquired Slide in 2010 and, shortly thereafter, discontinued the game. Plaintiff asserted a number of common law and statutory causes of action against Slide and Google pertaining to the termination of the game, including alleged violations of California’s Unfair Competition Law (UCL). Google and Slide successfully moved to compel arbitration.

The federal district court held that the requirement of a $125 filing fee was not substantively unconscionable, particularly where the arbitration agreement provided that respondent would pay arbitration costs if the arbitrator determined costs to be excessive. It further rejected plaintiff’s argument that the arbitration provision was substantively unconscionable because the clause failed to provide that plaintiff could recover attorney’s fees if she was successful on her claims. The court held in abeyance the issue of whether the arbitration provision was unconscionable because it permitted only defendants to file an action for injunctive relief in court, finding that the one-way injunctive relief clause was severable so as to permit arbitration of all other issues. Abreu v. Slide, Inc., Case No. 12-00412 (USDC N.D. Cal. July 12, 2012)

This post written by Ben Seessel.

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SWISS RE ILS MARKET UPDATE

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Swiss Re has released its annual insurance-linked securities (“ILS”) market update, noting that 2012 has seen the most active first half since the record-setting issuance in 2007 (and 2012 is not far behind). The ILS market – an alternative to traditional reinsurance – consists mainly of catastrophe bonds (or “cat bonds”) and longevity bonds, both of which serve as hedges against traditional insurance-based risks (property-casualty risks in the case of cat bonds, and “longevity” based risks associated with the life insurance, pension and annuity markets). A number of new sponsors came to market, with U.S. hurricane risk the most common covered peril for new issues. The update notes that sponsors are increasingly turning to “indemnity” triggers (coverage triggers based on loss levels, thus functioning more or less like traditional excess or reinsurance), rather than the industry index triggers that were previously more common. The update also notes that the market share for modeling firm AIR Worldwide has increased dramatically to 91%.

This post written by John Pitblado.

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ANOTHER STATE WITHDRAWS FROM NIMA

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Nevada has submitted its notice of withdrawal from the Nonadmitted Insurance Multi-State Agreement (“NIMA”), the interstate compact sponsored by the NAIC to collect and allocate surplus lines tax revenues consistent with the Nonadmitted and Reinsurance Reform Act of 2010. As we reported earlier, Alaska, Connecticut, Mississippi, Nebraska and Hawaii have also withdrawn from the compact. With Nevada’s withdrawal, remaining members include only Florida, Louisiana, Puerto Rico, South Dakota, Utah and Wyoming. The Nevada Division of Insurance issued a bulletin with guidance on surplus lines taxation given its withdrawal. The Bulletin does not state the reason for Nevada’s withdrawal from NIMA. Nevada Bull. 12-005 (July 2, 2012).

This post written by Ben Seessel.

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CALIFORNIA APPELLATE COURT REJECTS UNCONSCIONABILITY ARGUMENT IN EMPLOYMENT CASE

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Lorena Nelsen brought a putative class action in California state court against her former employer, Legacy Partners Residential, Inc. (“LPR”), alleging violations of the California Labor Code. LPR moved to compel individual arbitration based on the parties’ arbitration agreement. The trial court rejected Nelsen’s contention that the arbitration clause was unconscionable and unenforceable. The Appellate Court affirmed, distancing itself from its previous holdings that have been called into question by the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, upon which the decision heavily relies. Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. App. July 18, 2012).

This post written by John Pitblado.

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COURT DISMISSES INSURANCE AGENCY’S CLAIMS THAT INSURER FAILED TO DISCLOSE TROUBLED FINANCIAL CONDITION

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In a bankruptcy adversary proceeding arising out of claims made by an insurer against the debtor insurance agency/reinsurer, a court dismissed the debtor’s counterclaims for breach of fiduciary duty and fraud. The agency contended that the insurer, which itself was in rehabilitation, concealed and misrepresented its poor financial condition and austerity measures that it was taking to address it, which the agency claimed caused it to suffer financial harm and loss of good will. The court held that the agency failed to state claims beyond breach of contract because (1) the insurer was not in a “superior position” of a fiduciary simply by possessing greater knowledge of its internal operations and financial status, and (2) the agency failed to allege facts demonstrating that the insurer owed a separate legal duty to it beyond the obligations of the agency agreement. In re Black, Davis, & Shue Agency, Inc., Case No. 11-00160 (USDC Bankr. M.D. Pa. June 28, 2012).

This post written by Michael Wolgin.

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