New reinsurance-related and arbitration developments from Carlton Fields
While the human toll of the still unfolding catastrophe in Japan rightfully is on the minds of many, there undoubtedly also will be an insurance toll as a result of this disaster. Those who have a professional interest in these events may find the Bermuda-based ARTEMIS alternative risk transfer/cat bond blog to be of interest. ARTEMIS has been posting daily updates on the potential insurance impact of this disaster.
This post written by Rollie Goss.
A federal district court granted summary judgment to insurer Lexington Insurance Company because insured Untied Health Care Group failed to comply with the notice provision in United’s insurance contract, prejudicing Lexington. The contract stated that United would give notice as soon as practicable of any claim where United reserved at or above 50% of its SIR of $3 million. United litigated a lawsuit filed in May 2001 for seven years, incurring nearly $20 million in legal fees and settling in May 2008 for $8.5 million. Untied did not notify Lexington of the claim in a distinct communication until April 2008, but argued that quarterly loss run reports in which the claim appeared as one line item was sufficient notice. The court agreed that such reports could constitute notice, but the reports United submitted inaccurately indicated that the claim had been settled within the SIR in 2006. Lexington was prejudiced because it was denied its contractual right to associate in the investigation, defense, or control of the claim. The court, in its order, mistakenly described Lexington as United’s reinsurer. United has moved for reconsideration, arguing that the court’s mistake in this regard materially affects the propriety of the court’s grant of summary judgment to Lexington because an insured should be afforded more protection against forfeiture of benefits than a reinsured. Lexington Insurance Co. v. United Health Group, Inc., Case No. 09-10504 (U.S.D.C. Feb. 15, 2011)
This post written by Ben Seessel.
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:
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.
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.
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.