Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

STATE SURPLUS LINES LEGISLATIVE DEVELOPMENTS

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There are two competing proposals to implement the Dodd-Frank Act’s provisions relating to nonadmitted insurance, which are found in the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) (Title V, Subtitle B Part I of the Dodd-Frank Act).  One proposal, called the “Surplus Lines Insurance Multistate Compliance Compact” or SLIMPACT, was created by the National Conference of Insurance Legislators, and has been endorsed by the Council of State Governments (“CSG”) and the National Conference of State Legislatures (“NCSL”).  The other proposal, called the “Nonadmitted Insurance Multi-State Agreement” or NIMA, was created by the National Association of Insurance Commissioners (“NAIC”).  While the NAIC’s NIMA is basically limited to the allocation of nonadmitted insurance premium taxes, NCLOI’s SLIMPACT covers other issues relating to nonadmitted insurance as well as the allocation of premium taxes.

Since our posting of February 10, 2011, there are at least 21 States that have proposed surplus lines insurance legislation to conform to the NRRA.

Among the States that have introduced SLIMPACT or legislation authorizing the commissioner to enter into SLIMPACT:

Among the States that have introduced NIMA or reference NIMA:

Among the States that have introduced both SLIMPACT and NIMA legislation:

Among the States that have introduced surplus lines legislation authorizing the commissioner to enter into a compact or multistate agreement without specifying either SLIMPACT or NIMA:

  • Arizona — HB 2112 (passed by House on 2/17/2011)
  • California – AB 315
  • Hawaii — HB 1052 / SB 1279 (HB 1052 passed by House 3/8/2011; SB 1279 passed by Senate on 3/8/2011)
  • New Hampshire — HB 424
  • Oklahoma — HB 2073 / SB 959 (SB 959 passed by Senate on 3/7/2011)
  • South Dakota — HB 1030 (adopted and signed by the Governor on 2/17/2011
  • Utah — HB 316 (adopted on 3/11/2011)
  • Wyoming — HB 242 (adopted and signed by the Governor on 3/2/2011)

Among the States that have introduced surplus lines legislation, but do not address multistate tax compacts or agreements:

Meanwhile, CSG, NCSL and NCOIL sent a letter to Congress requesting a one year extension of the effective date of the NRAA, to allow states more time to adopt legislation to conform to the NRRA and prevent state loss of critical insurance premium tax dollars.

This post written by Karen Benson.

SECOND AND THIRD CIRCUITS DISAGREE ON PROCEDURE FOR IMPLEMENTING STOLT-NIELSEN HOLDING AND CLASS ARBITRATION WAIVERS

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The Second and Third Circuit Courts of Appeal recently issued conflicting opinions on the enforceability of class arbitration waivers. Jose Ivan Vilches brought a purported class action against his former employer, The Travelers Companies, Inc., for unpaid wages and overtime, in violation of labor laws. Travelers moved to compel arbitration on an individual basis, citing the class arbitration waiver in the employment contract. The district court granted the motion and compelled individual arbitration. On appeal, the Third Circuit held, citing Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758 (2010), that it was error for the district court to have decided whether the case could be arbitrated as a class action, finding that it should have left decision on that point to the panel. It also rejected plaintiff’s contention that the class action waiver was unconscionable, and therefore unenforceable. It vacated that portion of the district court’s decision, and ordered the parties to arbitrate the question of the applicability of the class arbitration waiver to the panel. Vilches v. The Travelers Companies, Inc., No. 10-2888 (3d Cir. Feb. 9, 2011)

Meanwhile, the Second Circuit came to precisely the opposite conclusions in a case that was remanded back to it after the U.S. Supreme Court vacated its prior decision for consideration in light of Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758 (2010). The case involved a putative class of vendors who alleged that they were improperly charged by American Express for accepting payments from its cardholders. American Express sought to have the matter arbitrated on an individual, rather than class, basis. The Second Circuit held that: (1) the issue of whether the case can be arbitrated as a class action is for the Court, not the arbitration panel to decide; and (2) the class arbitration waiver was unconscionable and therefore unenforceable because it effectively deprived the plaintiffs of a statutory right. In re: American Express Merchants’ Litigation, No. 06-1871 (2d Cir. March 8, 2011).

This post written by John Pitblado.

GRANITE RE ENTITLED TO PRE- AND POST-JUDGMENT INTEREST IN BANKRUPTCY ACTION

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Following a $9 million judgment in its favor, Granite Re was further awarded pre- and post-judgment interest on that judgment. Granite Re filed a proof of claim in Acceptance Insurance’s bankruptcy action for the amount of $10.9 million, the balance of the premium due under a reinsurance contract plus interest. Acceptance disputed the claim, arguing it no longer needed reinsurance, and filed a separate adversary proceeding against Granite Re alleging unjust enrichment. The Eighth Circuit’s Bankruptcy Appellate Panel reversed the bankruptcy court’s ruling in favor of Acceptance. The Eighth Circuit affirmed the Bankruptcy Appellate Panel’s ruling. Granite Re moved for an entry of judgment, requesting $9 million under the claim plus 1.5% pre- and post-judgment interest. The bankruptcy court ruled that because the exception for unilateral performance applied, Acceptance’s repudiation did not accelerate premium payments and thus Granite Re was entitled to pre-judgment interest. Likewise, Granite Re was entitled to post-judgment interest at the rate specified by federal statute. In re Acceptance Insurance Co., Case No. 05-80059 (Bankr. D. Neb. Jan. 20, 2011).

This post written by John Black.

MERGER CLAUSE IN ONE REINSURANCE AGREEMENT DOES NOT PRECLUDE OFFSET OF AMOUNTS OWED UNDER ANOTHER REINSURANCE AGREEMENT

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In a suit surrounding the application of an offset provision in one reinsurance agreement to amounts allegedly owed under a second reinsurance agreement, a court narrowly construed a merger clause in the first agreement, denying a motion to dismiss. American Medical and Life Insurance Company and Guarantee Trust Life Insurance Company entered into two separate reinsurance agreements. In the first, the former would reinsure the latter with respect to certain insurance business. In the second, the latter would reinsure the former with respect to other insurance. After GTL allegedly failed to perform under the second agreement, American Life used an offset provision in the first agreement and refused to pay its share of claims under the first agreement. GTL then sued for breach of the first agreement and American Life counterclaimed for breach of the second agreement. GTL moved to dismiss American Life’s counterclaim, contending the first agreement’s merger clause prohibited linking the second agreement with the first agreement. The court denied GTL’s motion, holding that the offset provision, which permitted offset based on “any other agreement between the parties,” could not be barred by the merger provision in that same contract. Further, the merger provision applied only to “the business reinsured hereunder,” so unrelated business reinsured under a separate agreement would fall outside that provision’s reach. Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co., Case No. 10 C 2125 (USDC N.D. Ill. Feb. 3, 2011).

This post written by Michael Wolgin.

ENGLISH COURT UPHOLDS ENGLISH JURISDICTION OVER EXCESS LOSS REINSURANCE DISPUTE

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Glacier Re unsuccessfully appealed the decision of an English court allowing Gard Marine and Energy to bring proceedings under their participation in a contract of excess of loss reinsurance. Gard invoked English jurisdiction under the Lugano Convention, contending it brought claims against a London-domiciled participant and that the risk of irreconcilable judgments favored bringing all claims together at once. Glacier argued that its participation in the agreement was governed by Swiss law, so there was no risk of irreconcilable judgments. The appellate court determined that the parties to the excess loss reinsurance contract had chosen English law, and that the reinsurance arose out of Glacier’s participation in the London market. The underlying policy also was governed by English law. Further, the court determined that it did not make commercial sense for one portion of the contract to be considered under English law, and another under Swiss law. For these reasons, the appeal was dismissed. Gard Marine and Energy, Ltd. v. Tunnicliffe, Case No. A3/2009/2376; EWHC 2388 Comm (Ct. App. Q.B. June 10, 2010).

This post written by John Black.