Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

STATE NONADMITTED AND REINSURANCE REFORM 2012 LEGISLATIVE UPDATE

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In connection with the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act (the “NRRA”), the legislatures of Wisconsin (SB 378), Colorado (HB 1215), Wyoming (HB 15), and Hawaii (SB 2168) have introduced bills to establish requirements that are consistent with the federal law for surplus lines insurers doing business in each of these states. Although California has not yet enacted similar legislation, the California Senate has introduced a bill (SB 716) declaring “the intent of the Legislature to reconcile California surplus lines and reinsurance law with the recent changes to federal law to minimize any possibly adverse effects of preemption” by the NRRA.

While Wisconsin’s and Colorado’s bills do not reference the surplus lines proposals approved by the National Conference of Insurance Legislators and National Association of Insurance Commissioners (SLIMPACT and NIMA, respectively), Hawaii’s bill is expressly modeled after SLIMPACT, stating the legislature’s intent to become the tenth state to enact SLIMPACT legislation. Upon passage of SLIMPACT by ten states, the compact would be effectuated for tax clearinghouse and rulemaking purposes. Additionally, Wyoming and Hawaii already participate in multi-state cooperatives under NIMA for the purpose of collecting surplus lines insurance premium taxes and fees and distributing those taxes and fees to the proper states.

On a related note, the Oklahoma House (HB 2458) and Senate (SB 1617) have introduced bills amending Oklahoma’s surplus lines legislation enacted last year to, among other things, specify that the insurance commissioner “is not compelled” to join NIMA or any other multistate premium-tax sharing agreement. We will report on whether these bills are passed into law in a later post.

This post written by Michael Wolgin.

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NINTH CIRCUIT CONCLUDES AT&T v. CONCEPCION PREEMPTS CALIFORNIA STATE LAW

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Plaintiffs brought a putative class action alleging violations of California’s Unfair Competition Law in connection with student loans. Each of the loan contracts contained an arbitration clause, which the district court declined to enforce. The Ninth Circuit granted review to consider whether the US Supreme Court’s recent decision in AT&T Mobility, Inc. v. Concepcion that the FAA preempts California’s state law rule prohibiting the arbitration of claims for broad injunctive relief. The District Court had denied the motion to compel arbitration largely in discretion to California’s policy prohibiting the arbitration of claims for public injunctive relief, despite the parties’ agreement to arbitrate. It is notable that the District Court’s decision was made nearly two years before the Supreme Court issued its Concepcion decision. The Ninth Circuit held that Concepcion does indeed preempt the California state law rule and that the arbitration clause in the parties’ contracts must be enforced because it was not unconscionable. The Ninth Circuit thus overruled the District Court’s denial of KeyBank’s motion to compel arbitration, vacated the judgment entered, and remanded to the District Court with instructions to stay the case and compel arbitration. Kilgore v. KeyBank, N.A., No. 09-16703 (9th Cir. Mar. 7, 2012).

This post written by John Black.

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NAIC REINSURANCE TASK FORCE PROCEEDS WITH IMPLEMENTATION OF REVISED CREDIT FOR REINSURANCE MODELS

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At the recent NAIC Spring Meeting, the E Committee’s Reinsurance Task Force exposed for comment drafts of two documents relating to the implementation of the recently revised credit for reinsurance Model Act and Model Regulation: (1) a memorandum discussing implementation issues; and (2) a discussion of changes to the accreditation criteria.

This post written by Rollie Goss.

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INSURER PRECLUDED FROM ENFORCING POLICY ARBITRATION CLAUSE IN GARNISHMENT ACTION BROUGHT BY INSURED’S ASSIGNEE

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Penford Products entered into a contract with C.J. Schneider Engineering (“CJS”) for the construction of an ethanol plant. Penford demanded arbitration under the contract, asserting that the plant was defectively designed and constructed. CJS tendered its defense to Lexington Insurance Company, CJS’s professional liability insurer. After Lexington claimed no coverage and refused to defend, CJS assigned all of its rights against Lexington to Penford. Shortly thereafter, a seven-million dollar arbitration award was issued in Penford’s favor and against CJS. After judgment on the award was entered, Penford initiated garnishment proceedings against Lexington in Iowa state court to collect on the judgment. Lexington moved to compel arbitration, arguing that Penford must abide by the arbitration clause in the Lexington insurance policy issued to CJS. The trial court rejected Penford’s request and the appellate court affirmed holding that, while Penford “stands in the shoes” of CJS for purposes of the garnishment action, Penford was not bound by the arbitration clause in the Lexington/CJS policy. Penford Prods. Co. v. C.J. Schneider Eng’g. Co., No. 1-575/10-1754 (Iowa Ct. App. Dec. 21, 2011).

This post written by Ben Seessel.

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COURT COMPELS INDIVIDUAL ARBITRATION UNDER CONCEPCION

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Anna Tractenberg filed a class action suit against Citigroup, Inc. Citigroup moved to compel individual arbitration. The court awaited decision from the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, 563 U.S. —- (2011), and then, based on its holding, granted Citigroup’s motion to compel individual arbitration. On Tractenberg’s motion for reconsideration, the Court rejected her arguments that the language in her contract with Citigroup differed materially from the language at issue in Concepcion. Anna Tractenberg v. Citigroup, Inc., No. 10-3092 (USDC E.D. Pa. Sept. 1, 2011) (see Dec. 22, 2011 Order denying motion for reconsideration of Orders dated September 1, 2011 and denying request for 1292(b) appeal certification and earlier Order denying motion to opposing arbitration and seeking discovery).

This post written by John Pitblado.

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