New reinsurance-related and arbitration developments from Carlton Fields
The NAIC’s Financial Condition (E) Committee has adopted revisions to the NAIC Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786). In this edition of Special Focus, Tony Cicchetti discusses the revisions’ ramifications for reinsurance regulation.
This post written by Anthony Cicchetti.
The full Senate has confirmed former Kentucky regulator S. Roy Woodall for a voting position on the Financial Stability Oversight Council. The FSOC is tasked with monitoring the country’s financial system to protect against the failure of large bank holding companies and financial institutions. The Dodd-Frank Act requires that the FSOC have one voting member with insurance background among its ten voting members, which includes the Treasury Secretary and the Federal Reserve Chairman. The Council also includes five non-voting members, two of whom are insurance representatives. Mr. Woodall gave testimony to the Senate Banking Committee on July 26, 2011.
This post written by John Black.
Louisiana Generating LLC faced an action by the U.S. government seeking injunctive relief and civil penalties for its alleged violations of the Clean Air Act. It sought a defense and coverage under a Custom Premises Pollution Liability Insurance Policy issued to it by Illinois Union. Illinois Union denied coverage. Louisiana Generating brought a declaratory judgment action in federal court to establish coverage. The court entered a scheduling order allowing the parties discovery on the dispositive legal issue of Illinois Union’s duty to defend. Louisiana Generating sought information pertaining to Illinois Union’s reinsurance, pursuant to the “any insurance agreement” language of F.R.C.P. 26(a)(1)(iv), as well as information pertaining to prior coverage provided to other policyholders with Clean Air Act liabilities, among other things. Illinois Union objected, contending that the information was irrelevant to the purely legal issue of the duty to defend, to be determined as a matter of law solely by reference to the terms of the policy and the allegations of the underlying complaint. The court agreed with Illinois Union, denied the motion, and ordered Louisiana Generating to pay $2,000 to Illinois Union for its efforts in defending against the motion, which the court found to be “not substantially justified.” Louisiana Generating, LLC v. Illinois Union Ins. Co., No. 10-516 (USDC M.D. La. Aug. 8, 2011).
This post written by John Pitblado.
Weeks Marine, a member of non-profit mutual insurance association, American Club, brought suit seeking a declaration that it had complied with the terms of its insurance contract and seeking damages. One of Weeks’s former employees had suffered a concussion at work and sued Weeks. Weeks defended the claim on its own; American Club only learned of it after a jury rendered a $3.7 million plaintiff’s verdict. The certificate evidencing the relationship between Weeks and American Club provided that Weeks was responsible for investigation, settlement, and defense of claims, but required Weeks to give prompt notice of claims to American Club.
American Club defended against Weeks’s coverage suit, arguing that governing New York law provided that Weeks’s late notice, even absent a showing of prejudice, vitiated the contract. This late notice rule, however, did not apply to reinsurance agreements. Weeks argued that its relationship with American Club was like a reinsurance contract because Weeks had the duty to investigate and resolve claims and, further, Weeks had self-insured the first million dollars of risk. The court rejected this argument, reasoning that the contract was not sufficiently like a reinsurance contract for the exception to the late notice rule to apply. The court therefore granted summary judgment for American Club, based upon Weeks’s late notice of the claim. Weeks Marine, Inc. v. Am. Steamship Owners Mut. Prot. & Indem. Ass’n, Inc., Case No. 08-9878 (USDC S.D.N.Y. Aug. 25, 2011).
This post written by Ben Seessel.
A federal district court dismissed Lexington Insurance Company’s unjust enrichment claim against reinsurer Tokio Marine, holding that the parties’ dispute was governed by their reinsurance contract. Lexington had issued two layers of excess property coverage to the Port Authority, which owned the World Trade Center. Tokio Marine reinsured 100% of the risk. Tenants of the World Trade Center successfully argued to a jury that the September 11, 2001 attacks constituted two separate occurrences and the judgment was affirmed by the Second Circuit. Lexington paid its policy limits for one occurrence and was fully reimbursed by Tokio Marine. After engaging in coverage litigation over whether the Port Authority could recover for a second occurrence, Lexington and the primary carrier, American Home, settled with the Port Authority for a second payment. Lexington sued Tokio Marine after it rejected Lexington’s claim as to the second payment, arguing that the primary carrier should have paid a larger share. The court held that Lexington’s dispute was governed by the parties’ reinsurance agreement and not properly brought as an unjust enrichment claim. The breach of contract claim is still pending. Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., Case No. 11-391 (USDC S.D.N.Y. Sept. 7, 2011).
This post written by Ben Seessel.