Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

TWO LONDON ARBITRATION AWARDS ENFORCED

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Constellation Energy recently filed a petition in the US District Court for the Southern District of New York to confirm two London arbitration awards entered against Transfield ER Cape Ltd. Constellation also sought to enforce the awards against ER Cape’s alleged alter ego, Transfield EL Limited, which was not a party to the arbitrations. The District Court held that the arbitration awards against ER Cape should indeed be enforced, concluding that forum non conveniens did not prevent adjudication in US Court and that venue was appropriate. The Court noted that the petitioner’s choice of home forum is entitled to substantial deference, the balance of private and public interests did not strongly favor ER Cape, and that the mere existence of adequate alterative forums in insufficient to override petitioner’s choice of forum. The Court, however, ruled that Constellation had failed to plead sufficient factual content to support a claim for alter ego liability and accordingly dismissed the petition against ER Limited. Constellations’ petition for attorneys’ fees and costs was also denied. Constellation Energy Commodities Group, Inc. v. Transfield ER Cape Ltd., No. 10-cv-04434 (USDC S.D.N.Y. July 29, 2011).

This post written by John Black.

REINSURER’S REQUEST TO BELATEDLY AMEND “IMPRECISE” PLEADING DENIED DUE TO LACK OF DILIGENCE

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Employers Reinsurance Corporation was denied a request to correct “imprecise” language in its answer and counterclaim in a suit brought against it by a medical malpractice insurer for failing to fund a settlement of a lawsuit against one of the malpractice insurer’s covered physicians. ERC’s answer included a defense of “setoff” for a sum that it had paid allegedly in error in connection with the underlying malpractice lawsuit. After the court’s deadline for amending pleadings expired, ERC sought to amend its answer to seek “recoupment” in addition to “setoff” in order “to make the terminology of its pleadings more precisely fit” the facts of the case. The court held that ERC’s belated attempt to make its answer more precise showed a “lack of diligence.” The court denied ERC’s proposed amendment for failure to show the requisite good cause. Ohio Insurance Co. v. Employers Reinsurance Corp., Case No. 2:08-cv-83 (USDC S.D. Ohio July 15, 2011).

This post written by Michael Wolgin.

COURT OKAYS “BATHTUB” ALLOCATION METHOD UNDER “FOLLOW THE FORTUNES” DOCTRINE

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Lexington Insurance Company participated in a tower of coverage for Dresser Industries, a manufacturer of asbestos-containing products that was forced into bankruptcy by the multi-billion dollar exposure it faced arising from product liability litigation against it. In the context of the bankruptcy proceeding, Dresser commenced an insurance coverage action against its various liability insurers. The several insurers named as defendants, including Lexington, ultimately participated in a global settlement, at a figure determined by an outside consultant hired by the group of settling insurers. For its part, Lexington utilized its own “bathtub” method of allocation to determine which of its policies would contribute to its share of the settlement, and in what amounts. By this method, each of its exposed policies were layered (as though in a bathtub) according to their layers of coverage, and those that were “underwater” given the settlement structure were tendered to their limits. Based on this analysis, Lexington paid out the limits under two particular $10,000,000 policies. As a participating reinsurer on these two policies, Clearwater denied Lexington’s claim under the theory that Lexington’s use of the “bathtub” methodology was contrary to the recommendations of the outside consultant that determined the ultimate global settlement. Lexington sued and the parties cross-moved for summary judgment on the issue. The Court found in favor of Lexington under the “follow the fortunes” doctrine, noting that there was nothing inherently unreasonable about Lexington’s chosen allocation method. Lexington Ins. Co. v. Clearwater Ins. Co., No. 09-0234C (Mass. Super. Ct. July 26, 2011).

This post written by John Pitblado.

MOTION TO COMPEL DEPOSITION TESTIMONY ON REINSURANCE TRANSACTION DENIED

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A federal magistrate judge denied plaintiff’s motion to compel deposition testimony regarding a transaction reinsuring defendant Unum’s individual disability block of business. Plaintiff brought suit alleging that Unum breached the parties’ insurance contract by refusing to pay him total disability benefits. Plaintiff moved to compel Unum’s deposition on, among other topics, Unum’s actuarial analysis of its transaction with Northwind reinsuring its individual disability block. In support of his motion, plaintiff cited a press release by Unum’s president stating that the Northwind reinsurance arrangement created capital for Unum’s business that could be deployed for other uses. Plaintiff argued that discovery of information regarding the deal was relevant because it might show how Unum was using money set aside for claims to create capital rather than to pay claims like plaintiff’s. The court denied plaintiff’s motion, holding that Unum’s capital management strategy was irrelevant to the case. Raab v. Unum Group, Case No. 2:10-cv-00186 (USDC S.D. Ohio Aug. 8, 2011).

This post written by Ben Seessel.

COURT ORDERS PARTIES TO SELECT ARBITRATORS WITH RELEVANT REINSURANCE EXPERIENCE

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Parties have been ordered to pick proper arbitrators in a reinsurance dispute. Safety National sued Lloyd’s over a dispute pertaining to the parties’ reinsurance agreements covering certain of Safety National’s underlying workers compensation liabilities. A stay was entered to allow the parties to arbitrate. After six months of wrangling over the naming of arbitrators, Lloyd’s moved to lift the stay for the limited purpose of having the court issue an order requiring that the parties select only arbitrators with workers compensation reinsurance experience, as Lloyd’s contended the contracts required – a position which Safety National contested. Citing the policy embodied in the FAA’s provisions authorizing court involvement in the selection of arbitrators to facilitate efficient arbitration, the court ruled for Lloyd’s. It lifted the stay and ordered that the parties select arbitrators with requisite workers compensation reinsurance experience. Safety National Cas. Corp. v. Certain Underwriters at Lloyd’s, London, NO. 02-cv-1146 (USDC M.D. La. Aug. 16, 2011).

This post written by John Pitblado.