Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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 As we reported earlier, Alaska, Connecticut, Mississippi, Nebraska and Hawaii have also withdrawn from the compact.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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IAIS POLICY PAPER: REINSURANCE DOES NOT CREATE OR AMPLIFY SYSTEMIC RISK

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The International Association of Insurance Supervisors recently released a policy paper entitled Reinsurance and Financial Stability which addresses specific issues related to the insurance industry along with evaluating the marketplace as a whole. Notably, the paper examined how current trends in reinsurance impact the stability of the financial markets. The IAIS concluded that traditional reinsurance is unlikely to cause or amplify systemic risk that may or may not already exist in the market. However, considerable systemic risk may arise from non-insurance entities (such as investment banks) which have started to offer longevity and pension services with risk transformation and risk transfer features similar to products offered by insurers. The paper may be found at the IAIS website (www.iaisweb.org).

This post written by John Black.

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BURDEN RESTS WITH REINSURER TO SHOW LESSER LIABILITY UNDER RETROCESSIONAL INSURANCE AGREEMENT

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On January 23 and April 12, 2012, we reported on orders concerning liability and damages in a suit involving disputed payment obligations under reinsurance and retrocessional agreements between Munich Re and Tower Insurance. The court recently addressed the parties’ motions in limine designed to determine whether Munich must affirmatively prove that Tower was 100% liable for claims under one of the retrocessional agreements at issue, or whether a burden rested with Tower to show that it was obligated to pay only 10% under certain conditions provided in the agreement. The court interpreted the agreement’s language and found that the burden of proof belonged to Tower because the 10% indemnity provisions constituted policy exclusions, which, under state law, must be “construed narrowly with the onus on the insurer to bring the case within the exclusion.” Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-02598 (USDC D.N.J. July 17, 2012).

This post written by Michael Wolgin.

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