Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Dismisses Suit by Insurer Against Former Reinsurance Broker

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Olympus Insurance Company entered into a contract with reinsurance broker Aon Benfeld, Inc. The contract required Aon to pay Olympus an “Annual Fee” (essentially defined as a rebate) under a so-called “evergreen” clause, based on the amount of commissions Aon received pursuant to reinsurance contracts it placed on Olympus’s behalf. The parties’ contract also contained a forfeiture clause, which stated that “No Annual Fee shall be payable subsequent to any decision by [Olympus] to terminate or replace Benfield.” Olympus terminated the parties’ contract by notice, and thereafter sought the Annual Fee. Aon refused to pay based on the loss forfeiture clause, and Olympus sued. Aon moved to dismiss for failure to state a claim. In an animated opinion, the Court found Olympus’s contract claim to be a “strained construction” of the parties’ agreement and dismissed it along with Olympus’s remaining quasi-contract claims “with prejudice and on the merits.” Olympus Insurance Co. v. Aon Benfeld, Inc., No. 11-CV-2607 (USDC D. Minn. March 30, 2012).

This post written by John Pitblado.

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DAMAGES AGAINST REINSURANCE AGENT AFFIRMED FOR FAILURE TO ADJUST COMMISSIONS BASED ON “INCURRED” RUN-OFF PAYMENTS

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On December 18, 2007, we reported on Gamma Group, Inc. v. Transatlantic Reinsurance Co., in which a reinsurer and its cedent prevailed in a case involving their agent’s failure to deduct run-off payments from its commissions. In that decision, the appellate court reversed a damages award in favor of the reinsurer and cedent because the award was incorrectly based on “reasonable” run-off payments, as opposed to actual “incurred” payments. After the trial court re-determined damages on remand, the agent appealed, arguing that the trial court (1) went “outside the mandate” by considering various types of evidence, including evidence of run-off payments made subsequent to the first trial, (2) improperly considered untimely evidence, and (3) erroneously calculated post-judgment interest from the date of the original judgment in 2005, rather than the date of the second judgment in 2010. The appellate court rejected these arguments, holding that the trial court properly considered all evidence of incurred run-off payments, acted in its discretion in considering untimely (but cumulative) evidence, and appropriately calculated post-judgment interest from the date of the original judgment, which was “still in full force and effect as to liability issues.” Gamma Group, Inc. v. Transatlantic Reinsurance Co., Case No. 05-10-00705 (Tex. Ct. App. March 28, 2012).

This post written by Michael Wolgin.

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NEW YORK HIGH COURT DISMISSES DONNELLY ACT CLAIMS AGAINST EQUITAS

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New York’s Court of Appeals reversed the Appellate Division of the Supreme Court and upheld the trial court’s dismissal of plaintiff’s claim against Equitas under the Donnelly Act, New York’s antitrust law. The plaintiff, a cedent under certain retrocessional agreements with various Lloyd’s syndicates covering non-life exposures, alleged that Equitas engaged in antitrust violations because it controlled the market for retrocessional and reinsurance claims adjustment for these types of so-called “long tail” claims, such as asbestos-related injury claims. Equitas was formed and approved by European governmental authorities, as a claims adjustment facility for the Lloyd’s syndicates, in order to manage exposures which threatened the financial stability of syndicates, and the market itself. The high court held that even if there were a “market” for the claims handling function performed by Equitas (which it found dubious), it held that any such market would not have a sufficient nexus with New York State to warrant extra-territorial application of its antitrust law. Global Reinsurance Corp. v. Equitas, Ltd., No. 2012-53 (N.Y. March 27, 2012).

This post written by John Pitblado.

See our disclaimer.

STATE LEGISLATIVE UPDATE ON REINSURANCE COLLATERAL REFORM

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In the first quarter of 2012, a number of state legislatures introduced bills proposing to amend state credit for reinsurance laws following, in large measure, the recently amended NAIC Model Law #785. Connecticut (HB 5484), Georgia (SB 385), Illinois (HB 3987 & SB 2864), Louisiana (HB 849), Missouri (HB 1936), and Virginia (HB 1139) all proposed legislation that would, among other changes, allow full credit to insurers for insurance ceded to unauthorized reinsurers that satisfy certain financial strength ratings, without the need to post full collateral. Following the amended NAIC Model Law, each of the bills also contains provisions increasing oversight of the nature and extent of risk ceded by domestic insurers. Only the Virginia bill, however, included a provision based on a section in the Model Law clarifying that the reduced collateral provisions do not have retroactive application.

On a related note, the New Jersey Department of Banking and Insurance proposed new rules and amendments (NJAC 11:2-28.4) to implement the previously enacted credit for reinsurance law in that state. In particular, the rules provide the standards by which a reinsurer may be deemed a “certified reinsurer” for purposes of insurers taking credit for reinsurance, tracking the amendments NAIC Model Regulation #786. The proposed rules also include provisions from the amended Model Law that had not previously been incorporated into the New Jersey law.

As to the current status of the bills, the Virginia bill passed both chambers and was signed into law on April 4, 2012. All other bills are at varying stages in the legislative process, with the Georgia bill farthest along, having been passed by both chambers and sent on April 5, 2012 for the Georgia governor’s signature. We will report on whether the still-pending bills and rules become law in a later post.

This post written by Michael Wolgin.

See our disclaimer.

TRAVELERS AND R&Q RE SETTLE REINSURANCE ACTION RELATED TO ASBESTOS CLAIMS

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Travelers and R&Q Reinsurance recently settled and agreed to voluntarily dismiss their ongoing dispute in the US District Court for the District of Connecticut. The action arose out of a series of reinsurance contracts between Travelers and R&Q Reinsurance (successor in interest to INA Re). The reinsurance contracts were part of Traveler’s Blanket Excess of Loss program, incepted in 1962, and covered a period between April 1, 1976 through April 1, 1979. The contracts covered asbestos related claims which were indemnified by Travelers. In this action, Travelers filed a Complaint alleging breach of contract, contending that it had properly indemnified an asbestos producer but that INA Re wrongfully had refused to pay in violation of the reinsurance agreements between the parties. Travelers Casualty and Surety, Co. v. R&Q Reinsurance Co., Case No. 10-01946 (USDC D. Conn. Jan. 31, 2012).

This post written by John Black.

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