Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT HOLDS THAT REINSURANCE TRUST FUND WAS NOT AN “INSURER” THAT OBTAINED “REINSURANCE” FOR ITS MEMBERS

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The Alabama Supreme Court has held that the Alabama Reinsurance Trust Fund, established by several self-insured employer groups to provide workers compensation coverage in excess of the members’ self-insured levels, is not an “insurer” and thus could not have obtained “reinsurance” for its members. The issue arose when the Reinsurance Trust Fund procured an excess coverage policy from a carrier that later became insolvent. The Reinsurance Trust Fund submitted a claim on behalf its member to the Alabama Insurance Guaranty Association (the “AIGA”). The AIGA denied coverage, arguing that the definition of a “covered claim” under the Guaranty Act excluded payments to an “insurer.” The court held that the Reinsurance Trust Fund did not act as an “insurer” because it was not in the business of entering into insurance contracts and that the Reinsurance Trust Fund had not obtained “reinsurance” for its members because, among other reasons, “reinsurance” is defined as “insurance for insurance companies.” Ala. Ins. Guar. Ass’n v. Ass’n of Gen. Contractors Self-Insurer’s Fund, No. 05-450 (Ala. Nov. 24, 2010)

This post written by Ben Seessel.

COURT DECLINES ATTORNEYS FEES AWARD TO PREVAILING PARTY IN ARBITRATION

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Western Technology Services initiated an arbitration against Cauchos Industriales under the parties’ licensing and service agreements, and was awarded the preliminary injunction it sought terminating the contracts. Cauchos moved to vacate that award, and Westech moved for sanctions, asserting Cauchos’ motion to vacate was frivolous. Both motions were denied. However, after a final arbitration award in its favor, Westech thereafter sought to confirm the award in court, and also sought attorneys fees for its enforcement action, based alternatively on the FAA, as well as the parties’ contract. The court rejected both arguments, finding that Cauchos’ earlier attempt to vacate the award was not frivolous under the FAA’s standard for obtaining attorneys fees in an enforcement action, and finding that entitlement to attorneys fees under the contract had been considered and rejected by the arbitration panel, which decision was entitled to deference. Western Tech. Svcs. Int’l., Inc. v. Cauchos Industriales, S.A., Case No. 09-1033 (USDC N.D. Tex. Nov. 16, 2010).

This post written by John Pitblado.

BANKRUPTCY COURT AWARDS PRE- AND POST-JUDGMENT INTEREST ON REINSURER’S CLAIM FOR UNPAID PREMIUM

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Granite Reinsurance Company won an award for unpaid premiums from Acceptance Insurance Company (in rehabilitation) in a bankruptcy adversary proceeding. The unpaid premiums amounted to $9 million on a $15 million dollar policy that was purchased to cover Acceptance for five years. The parties had agreed to a $3 million per year premium payment schedule, due at the beginning of each of the five years covered under the reinsurance agreement. However, a dispute arose as to the calculation of pre-judgment interest on the award. The bankruptcy court awarded Granite Re pre-judgment interest calculated from the date each $3 million dollar premium payment became due (a different date for each of the three unpaid premium payments), and also awarded post-judgment interest from the date of judgment. In Re Acceptance Ins. Cos., Inc. No. BK-of-80059 (USDC Bankr. D. Neb. Jan. 19, 2011).

This post written by John Pitblado.

LOCATION OF MAJORITY OF BOARD OF DIRECTORS AND MEETINGS IS INSUFFICIENT EVIDENCE OF A CORPORATION’S “NERVE CENTER”

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In a suit between an insurer and Louisiana-based reinsurance intermediaries over the return of an excess deposit on a reinsurance contract, the court sua sponte found that the insurer failed to demonstrate diversity of citizenship under the recently established “nerve center” test and dismissed for lack of subject matter jurisdiction. While the insurer had alleged in the complaint that it was domiciled in Nevada, it failed to allege the location of its principal place of business. The court found that information regarding where the majority of the insurer’s board of directors is located and holds meetings is insufficient under the “nerve center” test. Rather, the court held, the nerve center was the “single place” where direction, control and coordination originates. The evidence showed that to be Louisiana, the state where the insurer’s president, secretary, and director were located. Health Facilities of California Mutual Insurance Co., Inc. v. British American Insurance Group, Ltd., Case No. CV 10-3736 (USDC C.D. Cal. Jan. 11, 2011).

This post written by Michael Wolgin.