Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURANCE HELD NOT EXCLUDED FROM COVERAGE BASED ON LIABILITY LIMIT AND CLAIM REPORTING PROVISIONS

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In a dispute arising between Anthem Insurance (now known as Wellpoint) and what the court described as one of its excess reinsurers, Twin City Fire Insurers, Anthem sought defense and indemnification for several state and federal lawsuits alleging improper denial of reimbursement. Twin City denied coverage, arguing that those suits “related back” to the claim preceding its policy period and were accordingly excluded from coverage. An Indiana trial court agreed with Twin City, and Anthem subsequently appealed to the state appeals court. The Indiana Court of Appeals reversed and remanded, holding that none of the subject policy provisions operated to exclude such coverage. The court held specifically that the reinsurance agreement covered “claims made” and found no basis to read the agreement as excluding coverage retrospectively based on notice of claims preceding the inception of coverage. The court additionally found inapplicable Twin City’s attempt to superimpose the “prior notice exclusion” onto the agreement. Wellpoint, Inc. v. National Union Fire Ins. Co., No. 05-2011 (Ind. Ct. App. July 20, 2011).

This post written by John Black.

NEW YORK DEPARTMENT APPROVES REINSURERS FOR REDUCED COLLATERAL WRITING

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Effective January 1, 2011, New York’s Tenth Amendment to 11 NYCRR 125 (Regulation 20) effected a ratings-based framework allowing ceding insurers to take full statutory financial statement credit for reinsurance ceded to certain unauthorized reinsurers without the reinsurers posting full collateral. (See our previous Special Focus article on the amended Regulation 20) New York maintains a list of “Certified Reinsurers” that have met the regulation’s requirements for reduced collateral. The published list (available at http://www.ins.state.ny.us/insurers/certified-reinsurer.pdf) included nine Certified Reinsurers as of August 1, 2011. Recent press accounts, however, have reported that three companies, Tokio Millennium Re Ltd., Alterra Capital Holdings Ltd. and Lloyd’s, were added in July, bringing the number of New York Certified Reinsurers to at least 12. Of these 12, three achieved a Secure-2 rating, meaning they would be required to post collateral at a 10% level to allow the ceding company to take full reserve credit. The other twelve Certified Reinsurers achieved a Secure-3 rating, which puts the collateral requirement at 20%. The collateral requirements prescribe the minimum levels allowed; parties to a transaction are free to negotiate for higher collateral requirements in their contracts.

This post written by Anthony Cicchetti.

COURT OF APPEALS HOLDS THAT DISTRICT COURT CORRECTLY CONFIRMED AN ARBITRATION AWARD NOTWITHSTANDING PARTY FRAUD

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A federal court of appeals affirmed the confirmation of an arbitration award in favor of an employee who had committed fraud in connection with an arbitration, because, as the district court had held, the fraud was not material to the outcome of the proceeding. Michael Mickens, an employee of trucking company CBF, was terminated for allegedly failing to complete an assigned run. At meetings with CBF and union members that Mickens surreptitiously recorded, Mickens insisted that he had completed the run. After Mickens was terminated, the union demanded arbitration during which Mickens explained for the first time that he had not completed his assignment because a guard had purportedly relayed instructions from CBF not to complete the run. CBF introduced the minutes of the meetings which showed Mickens’s initial and false story, but the arbitrator concluded that Mickens was wrongfully terminated and ordered reinstatement with full back pay.

Mickens’s tapes of the meetings, which had been the subject of discovery requests during the arbitration but had not been disclosed or produced, were produced to CBF in subsequent litigation. When the union filed an action in district court to confirm the award, CBF moved to vacate on the grounds that the award had been procured by fraud. The district court confirmed the award, holding that the employee had lied and secretly withheld the tapes, thereby committing fraud, but that the fraud was not material to the outcome of the arbitration because the arbitrator was already aware of the essential facts on the tapes—that the employee had lied about completing the trucking run—because the minutes of the meetings had been introduced. The court of appeals agreed and affirmed. Int’l Brotherhood of Teamsters v. CBF Trucking, Inc., No. 10-3044 (3d Cir. July 28, 2011).

This post written by Ben Seessel.

REINSURANCE DISPUTE REGARDING WATER REVENUE BONDS RESOLVED

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A dispute over rural water district revenue bonds has reached an end. CIFG commenced an action in the Supreme Court for New York County to recover for payments it made to its insured, Xenia Rural Water District, under a financial guarantee insurance policy which allegedly should have been made by defendant Assured Guaranty pursuant to a reinsurance agreement. CIFG further contended that failure to pay constitutes a breach of the parties’ administrative services agreement. CIFG moved for summary judgment. The Supreme Court granted the motion, finding that the reinsurance agreement clearly allows for exclusion of policies with investment ratings below certain thresholds, even if the policy was inadvertently listed as meeting the threshold requirement at the time. The court, however, also granted summary judgment to Assured on CIFG’s allegation that Assured acted in bad faith. Finally, the court dismissed several of Assured’s affirmative defenses and its counterclaims.

Shortly following the Supreme Court’s order, the parties announced in a press release that they had reached a settlement dismissing the action altogether. Under the settlement agreement, Assured will reinsure 100% of the Xenia policy, and CIFG and Assured will seek to novate the policy to Assured according to the terms and procedures adopted by the parties with respect to the novation of other CIFG policies covered by the reinsurance agreement. CIFG Assurance North America, Inc. v. Assured Guaranty Corp., No. 651090/10 (N.Y. Sup. Ct. June 15, 2011).

This post written by John Black.

ARBITRATION ROUND-UP

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Timeliness:

Ohio Farmers Insurance Co. v. City of Akron, Case Nos. 25642, 25725 (Ohio Ct. App. July 20, 2011) (affirming confirmation of award; panel properly found “good cause” for delay in seeking confirmation; rule providing one year to seek confirmation deemed not a statute of limitations).

Partiality:

Grego v. Nexagen USA LLC, Case No. 10-02691 (USDC N.D. Ohio July 15, 2011) (confirming award; denying motion to vacate; allegedly unfair amount of briefing opportunities was a “far cry” from “evident partiality”).

Authenticity of Agreement:

Klima v. Evangelical Lutheran Good Samaritan Society, Case No. 10-01390 (USDC D. Kan. June 21, 2011) (denying motion to dismiss or compel arbitration; ordering trial to determine authenticity of signature on arbitration agreement).

Scope of Agreement:

Adol Owen-Williams v. BB&T Investment Services, Inc., Case No. 06-00948 (USDC D.D.C. July 18, 2011) (denying reconsideration of order confirming award; noting “manifest disregard” is unsettled law in D.C. Circuit);

McGowan Working Partners, Inc. v. Eland Energy, Inc., Case No. 10-02472 (USDC N.D. Tex. July 6, 2011) (confirming award; denying motion to vacate; noting “manifest disregard” no longer viable in Fifth Circuit; panel did not exceed authority for determining issues outside scope of arbitration agreement);

Pocono Medical Center v. SEIU Healthcare Pennsylvania CTW, CLC, Case No. 10-01334 (USDC M.D. Pa. July 14, 2011) (granting SEIU’s motion for summary judgment; award drew essence from collective bargaining agreement; employee wrongly terminated without “just cause”; upholding challenge to application of corporate policy).

Standard of Review:

Roofers Local No. 30 Combined Pension Fund v. D.A. Nolt, Inc., Case Nos. 10-3753, 10-3854 (3d Cir. July 22, 2011) (affirming confirmation of award; de novo standard of review for arbitrator’s legal conclusions; where a court’s “denial of a motion to reconsider is based upon the interpretation of legal precepts” the review of the court’s decision is plenary)

FINRA Awards:

Ruggiero v. Richert, Case No. 10-23539 (USDC S.D. Fla. July 18, 2011) (granting motion for summary judgment; denying petition to vacate FINRA award and sanctions; panel was entitled to schedule hearing and require telephonic attendance, notwithstanding petitioner’s travel schedule);

Aviles v. Charles Schwab & Co., Case No. 10-12216 (11th Cir. July 20, 2011) (affirming confirmation of FINRA award and denial of motion to vacate; noting “manifest disregard” law no longer viable in Eleventh Circuit; no evident partiality);

Mid-Ohio Securities Corp. v. Estate of Burns, Case No. 10-01975 (USDC D. Nev. June 14, 2011) (confirming FINRA award; denying motion to vacate; finding no manifest disregard; panel had authority to interpret FINRA rule relating to timeliness of arbitration, akin to statute of limitations; no record of plaintiff citing law to panel);

Bayme v. Groupargent Securities, LLC, Case No. 10-06213 (USDC S.D.N.Y. July 19, 2011) (denying petition to vacate FINRA award; finding no “manifest disregard” for determination that panel lacked jurisdiction based on finding that petitioner was employed by non-FINRA member);

Kulchinsky v. Ameriprise Financial, Case No. 11-00319 (USDC E.D. Pa. July 13, 2011) (confirming FINRA award; denying motion to vacate; noting validity of “manifest disregard” law still undetermined in Third Circuit; no manifest disregard where no evidence that party informed panel of law).

This post written by Michael Wolgin.