Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

INSURERS IN COVERAGE SUIT COMPELLED TO PRODUCE DISCOVERY ON REINSURANCE

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Olin Corporation sought a declaratory judgment that it was covered for damages to its industrial plant under a policy issued by a consortium of property insurers. Olin sought to discover information on the property insurers’ reinsurance coverage. The property insurers moved for a protective order and Olin moved to compel. The magistrate judge held that, pursuant to Federal Rule 26(a)(1)(A)(iv), the insurers must produce any reinsurance agreement that might be used to satisfy a judgment or indemnify or reimburse the insurers for payments made to satisfy a judgment. The court further held that communications with the reinsurers were also discoverable because they might contain information relevant to the property insurers’ affirmative defenses relating to their analysis of the sufficiency of Olin’s proof of loss and satisfaction of contractual prerequisites. Olin Corp. v. Continental Casualty Co., Case No. 10-CV-623 (USDC D. Nev. Aug. 30, 2011).

This post written by Ben Seessel.

NAIC ADOPTS REINSURANCE COLLATERAL REDUCTION AMENDMENTS TO CREDIT FOR REINSURANCE MODEL LAW AND MODEL REGULATION

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On November 6, 2011, the NAIC Executive Committee-Plenary adopted revisions to the NAIC’s Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786). The revisions, as finally adopted, are substantially in the form covered in our Special Focus analysis of the revisions adopted in September by the Financial Condition (E) Committee, with one notable addition. The Model Law, in new Section 2(J), now imposes certain notification requirements on a ceding company when its reinsurance recoverables from a single reinsurer (or group of assuming companies) exceed specified levels of the ceding company’s surplus or gross written premium. Note: The redlining in these documents is from the NAIC, and apparently shows the differences between the just adopted versions and the previously existing text of the model law and model regulation.

This post written by Anthony Cicchetti.

REINSURER LIMITED TO COMPLAINT’S REQUEST FOR APPOINTMENT OF NEUTRAL UMPIRE

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A dispute arose between Century Indemnity Company and Everest Reinsurance Company over reinsurance coverage for certain asbestos claims. The parties each selected an arbitrator pursuant to the procedure set forth in their reinsurance treaty. Unable to reach agreement on the selection of a neutral umpire, Everest filed an action seeking appointment of an umpire or, in the alternative, to compel Century to participate in an ARIAS neutral umpire selection process. After Everest filed its complaint, however, Century agreed to the ARIAS process as part of a global agreement involving the arbitration (the “Formosa Arbitration”), and two other pending arbitrations (the “Congoleum Arbitration” and the “Flintkote Arbitration”), mooting the issue. Everest thereafter moved to enforce the global agreement, complaining that Century had sought to consolidate the Congoleum Arbitration with another arbitration that was not part of the agreement, and in which a panel of arbitrators had already been selected, circumventing the agreed-upon panel selection process. The court denied Everest’s motion on the basis that it was outside the complaint’s scope, which merely sought appointment of a neutral umpire in the Formosa Arbitration. To obtain relief regarding the Congoleum Arbitration, Everest could file a motion with the Congoleum Arbitration panel or in the court where other motions relating to that proceeding were pending. Everest Reinsurance Co. v. Century Indemnity Co., Case No. 11-2789 (USDC D.N.J. Oct. 31, 2011).

This post written by Ben Seessel.

BANKRUPTCY COURT VALUES CAPTIVE REINSURANCE SUBSIDIARY OF WASHINGTON MUTUAL

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Recently, the US Bankruptcy Court for the District of Delaware denied the request of Washington Mutual and WMI Investment Corp. (collectively the Debtors) for confirmation of the Modified Sixth Amended Joint Plain of Affiliated Debtors. Among a number of issues, the Bankruptcy Court determined that the valuation of a captive reinsurance subsidiary (WM Mortgage Reinsurance Company – currently in run-off), which would serve as the most valuable asset of the proposed reorganized debtor was flawed. The Court valued the company at the high end of the range the debtors’ expert had concluded, assuming no new business would be generated or acquisitions made. The Court noted that the expert used an incorrect figure for the weighted average cost of capital, which had fallen by 5-10 percentage points, increasing the value of the company. Further, the expert gave little weight to the value of precedent transactions, accorded the most weight to discounted cash flow analysis, and failed to apply the proper historical (or current) returns on equity for similar businesses. For these and a number of other reasons, the Court denied confirmation of the plan, and directed the parties to mediation. In re: Washington Mutual, Inc., No. 08-12229 (D. Del. Bankr. Sept. 13, 2011).

This post written by John Black.

FIFTH CIRCUIT AFFIRMS ARBITRATION AWARD IN FAVOR OF FATHER AGAINST SON

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After being fired by his father, losing the arbitration related to his termination, and having his motion to vacate the award denied, Charles Wanken appealed the motion to vacate to the Fifth Circuit Court of Appeals. Concluding Mr. Wanken’s total defeat, the Fifth Circuit affirmed the trial court’s denial of the motion to vacate and affirmed Mr. Wanken’s father’s motion to confirm. The Fifth Circuit ruled that (a) the award had not been procured by the father’s fraud, (b) there was no evidence to support Wanken’s claim that the arbitration panel failed to consider material evidence, (c) the panel was not improperly biased, (d) the panel did not exceed its powers, and (e) the district court properly considered the motion to vacate and gave proper notice to Mr. Wanken. Wanken v. Wanken, No. 11-10219 (5th Cir. Sept. 29, 2011).

This post written by John Black.