Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ILLINOIS INSURANCE DIRECTOR NAMED HEAD OF NEW FEDERAL INSURANCE OFFICE

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Michael McRaith, Director of the Illinois Division of Insurance, has been named by Treasury Secretary Geithner to be the initial Director of the new Federal Insurance Office, which was created last year by the Dodd-Frank Act. Director McRaith spent 15 years in private practice in Chicago prior to being appointed as Director of the Illinois Division of Insurance in 2005. Among his clients while in private practice were financial institutions, including insurance companies. He has been active in the NAIC, presently serving as secretary-treasurer. He has served as chair and vice-chair of the NAIC’s Property and Casualty Insurance (C) Committee. Director McRaith will serve as a non-voting member of the Financial Stability Oversight Council. Significantly for our readers, both Director McRaith and Missouri Insurance Director John Huff (a non-voting member of the FSOC appointed by the NAIC) have been members of the NAIC’s Reinsurance Task Force. The “insurance expert” voting member of the FSOC remains to be appointed by President Obama.

This post written by Rollie Goss.

MCCARRAN-FERGUSON ACT “REVERSE-PREEMPTS” FEDERAL JURISDICTION IN INSURANCE REHABILITATION CASE

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A Wisconsin federal district court has held that it may not interfere with an insurance rehabilitation case proceeding in state court. On January 18, 2011, the federal court ruled that it lacked jurisdiction to consider the legality of a state court’s order made in the context of an insurance rehabilitation proceeding. The state court enjoined the United States from taking certain actions against the claims-paying assets of the segregated accounts of Ambac Assurance. Shortly thereafter, the United States commenced a collateral attack against the state court and others, seeking to enjoin the state court from enforcing its rehabilitation plan or any injunction insofar as it affected the United States. The federal court once again ruled it lacked jurisdiction, holding that the McCarran-Ferguson Act “reverse-preempted” I.R.C. § 7401 (which authorizes injunctions for enforcement of internal revenue laws), the federal-question statute, and the federal-tax-issue jurisdiction statute. An injunction would “impair” or “supersede” state laws authorizing the state court to issue rehabilitation orders. The court also rejected the United States’ argument that the McCarran-Ferguson Act cannot preempt sovereign immunity. The case was dismissed for lack of subject matter jurisdiction. United States v. Wisconsin State Circuit Court for Dane County, Case No. 11-99 (USDC W.D. Wis. Feb. 18, 2011).

This post written by John Black.

NINTH CIRCUIT: DISTRICT COURTS HAVE REMOVAL JURISDICTION OVER CASES RELATED TO CONVENTION ON FOREIGN ARBITRAL AWARDS

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In a recent opinion, the Ninth Circuit Court of Appeals ruled on the novel question of whether a district court had removal jurisdiction under 9 U.S.C. § 205 where a defendant raises an affirmative defense relating to an arbitral award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The case arose from a dispute over medical licensing rights between entities from the British Virgin Islands, Israel, and California. After an arbitration decision finding that Infuturia Global had a valid license to develop, market, and use certain medical techniques, a California federal district court lifted an existing litigation stay on a related state court action. Infuturia moved to remand, arguing that removal was improper under 9 U.S.C. § 205 because defendants were not party to the foreign arbitration agreement. On appeal, the Ninth Circuit affirmed the district court’s ruling, holding that because an arbitration agreement or award falling under the Convention “relates to” an action’s subject matter if it could conceivably affect the action’s outcome, a district court does indeed have jurisdiction. Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., Case No. 09-16378 (9th Cir. Feb. 7, 2011).

This post written by John Black.

ARBITRATION TERMINATING RETROCESSIONAL INSURANCE RULED INADMISSIBLE IN RELATED SUIT AGAINST REINSURANCE BROKER

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On April 21, 2009, we reported on a case in which reinsurance broker Aon Re prevailed at trial against reinsurer Reliastar Life. Reliastar claimed Aon failed to disclose the potential termination of the reinsurance pool’s retrocessional insurance by its retrocessionaires. An appellate court has now affirmed the judgment for Aon. The appellate court rejected Reliastar’s arguments for reversal, including the argument that the trial court erred by excluding the arbitration decision that ultimately terminated the pool’s retrocessional insurance. The arbitration decision was irrelevant and inadmissible hearsay because Aon was not a party to the arbitration. The court further reasoned that only the timing of when the retrocessionaires considered their agreement ineffective, and not the fact that an arbitration eventually terminated the agreement, was relevant to Reliastar’s claim. The arbitration decision could have mislead the jury by imputing “guilt by association” to Aon for the retrocessional insurance’s termination. Reliastar Life Insurance Co. v. Roger Smith & Aon Re, Inc., Case No. A-4484-08T2 (N.J. App. Div. Mar. 1, 2011).

This post written by Michael Wolgin.