Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

PROSECUTORS TO DISMISS INDICTMENT AGAINST GEN RE AND AIG EXECUTIVES

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On August 2, 2011, we reported on a decision by the United States Court of Appeals for the Second Circuit to vacate the criminal convictions of Gen Re and AIG executives stemming from an allegedly fraudulent finite reinsurance transaction designed to improve AIG’s financial statements. On June 22, 2012, the defendants entered into agreements with prosecutors to defer prosecution and dismiss the indictments after passage of one year, subject to the defendants’ respective payment of fines ranging from $250,000 to $100,000, and compliance with other conditions. The agreements identified “relevant considerations” to their execution, namely, (a) the Second Circuit’s vacatur decision, (b) the 12 months time that has now elapsed since the defendants’ conduct, (c) the significant resources required to conduct a retrial, (d) the defendants’ payment of fines, (e) SEC penalties, and (f) defendants’ admission that certain “aspects” of the reinsurance transaction were fraudulent. United States v. Ferguson, Case No. 3:06CR137 (USDC D. Conn. June 22, 2012).

This post written by Michael Wolgin.

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APPEALS COURT AFFIRMS CONFIRMATION OF AWARD DETERMINING THAT UMBRELLA POLICY’S POLLUTION EXCLUSION APPLIES

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[National Union Fire Insurance Company of Pittsburgh issued an umbrella policy to Continental Carbon Company, a manufacturer of carbon-black used in tires and other rubber and plastic goods. Continental notified National Union of a federal lawsuit in which plaintiffs alleged that their property had been damaged by exposure to carbon-black dust pollution. Plaintiffs won a multi-million dollar judgment against Continental that was affirmed on appeal. National Union denied coverage under a pollution exclusion in the policy.

Continental commenced arbitration against National Union, arguing that the Products Completed Operations Hazard (“PCOH”) exception to the pollution exclusion in the policy applied. The arbitrators disagreed, determining that the carbon-black dust pollution at issue was not Continental’s “product” thereby taking it outside of the exception to the pollution exclusion. A Texas court confirmed the arbitration panel’s decision without reasoning. Continental appealed the decision. The appellate court affirmed, finding that Continental had failed to argue in its initial brief that its motion to vacate had been timely under the FAA. The court agreed with National Union that the FAA’s three-month limitations period was an independent ground supporting the judgment of the lower court and affirmed the confirmation of the award. Continental Carbon Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. 14-11-00162-CV (Tex. Ct. App. Apr. 17, 2012).

This post written by Ben Seessel.

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COURT DENIES DISMISSAL OF CLAIMS BY RISK MANAGEMENT ADMINISTRATOR AGAINST INSURER

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In 2006, the Plaintiff, Tethys Health Ventures, LLC (“Tethys”), an administrator of organ transplant risk management services, entered into an agreement with the defendant, Zurich, which provided that Zurich would pay Tethys commissions for producing insurance business. During the course of the agreement, Tethys earned commissions for its part in producing new excess insurance and reinsurance business for Zurich. In 2011, Zurich gave notice that it was terminating the agreement. Tethys sued, on a contract theory, as well as on an unjust enrichment theory. Zurich moved to dismiss the claims. The court denied Zurich’s motion, finding that the agreement was ambiguous as to the definition of “produce” and left unclear what the parties’ intent was with respect to the classification of Tethys’s producer commissions. For similar reasons, the court also declined to dismiss the unjust enrichment count. Tethys Health Ventures, LLC v. Zurich American Ins. Co., No. WDQ-11-2761 (USDC D. Md. May 31, 2012).

This post written by John Pitblado.

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MULTI-STATE COMPACT FOR SURPLUS LINES TAX COLLECTION (NIMA) IS SHEDDING MEMBERS

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Several states have recently withdrawn 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 Dodd Frank’s Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). We have reported earlier on NIMA’s development and progress. States that have withdrawn include Alaska, Connecticut, Mississippi, Nebraska and Hawaii. Departing states have cited several reasons for withdrawing: the lack of a financial benefit from participating; the increased burden and cost in overseeing and auditing NIMA’s Clearinghouse; increased costs imposed on brokers and insureds from the Clearinghouse’s service fee; and conflict with state insurance laws on reporting requirements. Mississippi is among the states withdrawing notwithstanding that its insurance commissioner was a principal officer of NIMA. NIMA’s remaining members include only Florida, Louisiana, Nevada, Puerto Rico, South Dakota, Utah and Wyoming.

This post written by Ben Seessel.

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CLASS ACTION HALTED AFTER CERTIFICATION GRANTED AND ORDERED TO INDIVIDUAL ARBITRATION IN LIGHT OF CONCEPCION

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The Plaintiff brought a putative class action against his employer, alleging various Labor Code violations, in California State Court. Citing the parties’ arbitration agreement and class arbitration waiver, the Defendant moved to compel individual arbitration, which the trial court granted. Plaintiff appealed. Shortly thereafter, in 2007, the California Supreme Court decided Gentry v. Superior Court, which held that class action waivers should not be enforced if class arbitration was a more effective way to vindicate the class members’ claims than individual arbitration. The Appellate Court thus reversed and remanded in light of Gentry. After the case proceeded and the trial court certified the class, the U.S. Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion. The defendant renewed its motion to compel arbitration in light of Concepcion. The trial court granted the motion, and the Appellate Court affirmed. Iskanian v. CLS Transportation Los Angeles, LLC, No. B23158 (Cal. App. Ct. June 4, 2012).

This post written by John Pitblado.

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