Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW NAIC SUBGROUP BEGINS STUDY OF USE OF CAPTIVES AND SPECIAL PURPOSE VEHICLES

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In November 2011, the NAIC Executive Committee charged the Financial Condition (E) Committee with studying insurers’ use of captives and special purpose vehicles to transfer third-party insurance risk in relation to existing state laws and regulations and establish regulatory requirements, including revising or creating NAIC model laws, to address concerns identified in the study. To that end, the Financial Condition (E) Committee created the “Captives & SPV Use Subgroup” with representatives from the Financial Analysis (E) Working Group, the Life Actuarial (A) Task Force, and the Reinsurance (E) Task Force. The Subgroup held its inaugural conference call on January 27, 2012, in which it issued a survey to state insurance regulators with respect to commercial insurers domiciled in their respective states that transfer risk to captives or SPVs. The survey sought comment on various issues, including the basics of each state’s laws impacting captives or SPVs, the types of products permitted to be transferred, the business purpose behind such transfers, solvency standards, credit for reinsurance, and other topics designed to provide perspective on the general legal and business environment surrounding the use of captives and SPVs. Thirty-one states responded to the survey by the February 20, 2012 deadline, and the results were discussed at the NAIC Spring National Meeting held in early March. The Subgroup plans on developing another survey targeted to companies, the results of which will be kept confidential with the exception of an aggregate summary that will be circulated for comment. Conference calls are scheduled every two-to-three weeks going forward through the Summer National Meeting in August 2012, with the goal of drafting a proposal or a white paper addressing the Subgroup’s charge. This group has a web page on the NAIC’s internet site.

This post written by Michael Wolgin.

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ARBITRATION ROUND-UP

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Manifest disregard

Bangor Gas Co., LLC v. H.Q. Energy Services (U.S.), Inc., No. 1:11-cv-457-NT (USDC D. Me. Mar. 1, 2012) (granting motion to confirm, no manifest disregard).

Total Landscaping Care, LLC v. Tower Cleaning Systems, Inc., No. 10-6542 (USDC E.D. Pa. Mar. 1, 2012) (denying vacatur, no manifest disregard).

Duferco S.A. v. Tube City IMS, LLC, No. 11-886 (2d Cir. Mar. 8, 2012) (affirming denial of vacatur, no manifest disregard).

Exceeding Scope

W & J Harlan Farms, Inc. v. Cargill, Inc., No. 1:09-CV-113-WTL-TAB (USDC S.D. Ind. Mar. 6, 2012) (granting motion to confirm, arbitrators did not exceed scope, no manifest disregard).

Primed, Inc. v. Dallas General Life Insurance Co., No. 8:11-cv-2002-T-33AEP (USDC M.D. Fla. Feb. 28, 2012) (denying vacatur, arbitrators did not exceed powers).

JPMorgan Chase Bank, N.A., No. 10-17562 (9th Cir. Feb. 29, 2012) (affirming denial of vacatur, arbitrators did not exceed scope)

Failure to hear pertinent and material evidence

LJL 33rd Street Associates, LLC v. Pitcairn Properties, Inc., No. 11-Civ-6399 (USDC S.D.N.Y. Feb. 15 2012) (denying vacatur, no failure to hear pertinent and material evidence)

Jurisdiction / Venue / Procedure

JDS Uniphase Corp. v. Finisar Corp., No. 11-1213 (USDC W.D. Pa. Mar. 5, 2012) (granting motion to dismiss, no independent subject matter jurisdiction conferred by FAA) (appeal docketed March 9, 2012).

Marlowe v. IDS Property Casualty Insurance Co., No. 2011AP2067 (Wis. Ct. App. Mar. 13, 2012) (reversing trial court, remanding to arbitrators for ruling on discovery issues).

Rain CII Carbon, LLC v. ConocoPhillips Co., No. 11-30669 (5th Cir. Mar. 9, 2012) (affirming ruling denying vacatur for lack of “reasoned award” attack on award issued without findings of fact and law).

Grynberg Production Corp. v. Susman Godfrey, LLP, No. 10-1248 (10th Cir. Feb. 16, 2012) (affirming denial of motion to compel re-arbitration of matters encompassed by original award).

Bridgepoint Ventures, LLC v. PanAm Management Group, Inc., No. 11-10021 (11th Cir. Mar. 2, 2012) (affirming proper subject matter jurisdiction of trial court that granted motion to confirm where complete diversity existed at time of filing).

Local 36 Sheet Metal Workers’ International Association AFL-CIO v. Whitney, No. 11-1781 (8th Cir. Mar. 6, 2012) (reversing denial of vacatur where non-appearing party in arbitration challenged jurisdiction for lack of contract between parties for first time in proceeding to enforce the award).

This post written by John Pitblado.

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INSURER THAT FILED JOINT COMPLAINT WITH FORMER AFFILIATE AGAINST REINSURER CANNOT SEVER ITS CLAIMS

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Seaton Insurance Company and Stonewall Insurance Company jointly filed a lawsuit against Clearwater Insurance Company asserting breach of contract claims based on Clearwater’s alleged failure to comply with the terms of certain facultative reinsurance certificates issued to the insurers in the 1970s. Seaton moved to sever its claims from Stonewall’s or for a separate trial. Seaton argued that, at the time the lawsuit was filed, Seaton and Stonewall were commonly owned and managed but had since parted ways and, furthermore, that the insurers’ claims were being brought under different reinsurance certificates reinsuring entirely different underlying policies. The federal district court denied Seaton’s request, holding that severing the claims or permitting a separate trial would not simplify or streamline the proceedings. Seaton Insurance Co. v. Clearwater Insurance Co., Case No. 09-516 (USDC D.R.I. Feb. 2, 2012).

This post written by Ben Seessel.

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COURT AFFIRMS DISMISSAL OF CLAIM OF FAILURE TO SECURE “BEST TERMS” AGAINST REINSURANCE BROKER

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Reinsurance broker Guy Carpenter placed a “finite quota share reinsurance agreement” for Workmen’s Auto Insurance Company with PMA Capital Insurance Company. After dispute arose over the terms of the agreement, Workmen’s brought suit against Guy Carpenter, alleging, among other things, that Guy Carpenter failed to obtain the “best terms” it could have in the reinsurance market. The court granted summary judgment on the failure-to-secure-best-terms claim. After losing at trial on breach of fiduciary duty and price-fixing claims, Workmen’s appealed, arguing that summary judgment was inappropriate because the quota share agreement did not qualify as “reinsurance” at all. The appellate court affirmed, however, finding that Workmen’s improperly raised the issue on appeal, and improperly relied on trial evidence on appeal of a summary judgment ruling. It also affirmed defense verdicts for Guy Carpenter on the breach of fiduciary duty and price-fixing claims. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., Inc., No. B211660 (Cal. Ct. App. Mar. 1, 2012).

This post written by John Pitblado.

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REINSURANCE POLICY REQUIRES EXCESS CARRIER TO PURSUE SUBROGATION RIGHTS AGAINST PRIMARY CARRIER

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Excess carrier United Heritage Property and Casualty Company asserted claims for breach of duty to defend and breach of duty to indemnify in a subrogation action against primary carrier Farmers Alliance Mutual Insurance Company (“FAMI”). FAMI moved to exclude evidence of United Heritage’s alleged damages, i.e., the amount that United Heritage had paid the insured under its excess policy. FAMI argued that United Heritage had been reimbursed for the payments by its reinsurer and that obtaining a further recovery would constitute a “windfall” for United Heritage. FAMI further contended that the reinsurance policy did not require United Heritage to reimburse FAMI for any recovery it might obtain in the lawsuit. The court disagreed and denied FAMI’s motion, finding that United Heritage’s reinsurance policy required it to pursue subrogation claims and to credit the proceeds of any such claims to the reinsurer. United Heritage Property & Casualty Co. v. Farmers Alliance Mutual Insurance Co., Case No. 10-cv-00456 (USDC D. Idaho Feb. 27, 2012).

This post written by Ben Seessel.

See our disclaimer.