Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

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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.

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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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CIVIL SUBPOENAS ISSUED BY ARBITRATOR AGAINST OUT-OF-STATE NONPARTIES HELD UNENFORCEABLE

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The Colorado Supreme Court vacated a district court’s order enforcing subpoenas issued by an arbitrator against out-of-state nonparties. The court held that a district court has the same authority to enforce subpoenas in civil actions regardless of whether arbitration is involved or not, and that Colorado courts have no authority to enforce civil subpoenas against out-of-state nonparties. The court rejected the argument that Colorado’s long-arm statute gives a Colorado court the authority to enforce such subpoenas. It further stated that, under the Uniform Interstate Depositions and Discovery Act (“UIDDA”), which Colorado and other states had recently adopted, a subpoena issued for discovery in the “trial state” must be submitted to the clerk of court in the “discovery state” at which time the clerk in the discovery state re-issues the subpoena. Colorado Mills, LLC v. SunOpta Grains & Foods, Inc., No. 11SA82 (Colo. Feb. 6, 2012).

This post written by Ben Seessel.

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COURT REJECTS REPETITIVE CHALLENGE TO CLASS ARBITRATION UNDER STOLT-NIELSEN

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After losing on essentially the same issue in an appeal to the Fourth Circuit Court of Appeals, the defendants in an ongoing class arbitration Amerix Corporation and Genus Credit Management initiated an action on the eve of termination of the class arbitration attacking the propriety of class arbitration, alleging that the arbitrator was exceeding the scope of his authority as defined in Stolt-Nielsen and Concepcion. They also filed a motion under Fed. R. Civ. P. 60(b) seeking review of the court’s decision declining to vacate the arbitrator’s initial Clause Construction Award. The class claimants moved to dismiss this new action, filed an opposition to the Rule 60(b) motion, and moved for attorneys fees.

The District Court concluded that res judicata could apply to bar reconsideration of the clause construction, which the court declined to vacate. Further, the court explained that Stolt-Nielsen did not present a sufficient change to revisit prior issues, and thus, the law of the case doctrine precluded relitigating the construction of the arbitration clause. Finally, the court held that Stolt-Nielsen itself provided another ground for dismissing the new action. Specifically, the court ruled that the arbitrator’s decision was based on applicable law and contract principles, so his determination to allow class arbitration did not run afoul of Stolt-Nielsen. Unlike Stolt-Nielsen, the agreement was not silent as to the parties intent, which the arbitrator was able to determine in the instant case. Thus, the new action was dismissed. Additionally, the court denied further review under Rule 60(b) and denied the motion for attorneys fees. Amerix Corp. v. Jones, Case No. 11-02844 (USDC D. Md. Jan. 17, 2012).

This post written by John Black.

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