Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISMISSAL REVERSED IN NEW YORK RETROCESSIONAL REINSURANCE CASE

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Global Re filed a suit in the New York Supreme Court alleging that Equitas (and a number of co-defendants) were the hub of a conspiracy in violation of New York state antitrust law. The market in question is a worldwide market for non-life retrocessional reinsurance coverage, including the purchase, sale, and service of such coverage. Following a dismissal of the action for lack of an antitrust injury, plaintiff appealed. The Supreme Court Appellate Division reversed the dismissal, finding plaintiff’s allegations sufficient to survive a motion to dismiss. The Court specifically held that Global Re sustained antitrust injury because the quality of what it purchased (retrocessional coverage) was adversely affected by an agreement eliminating competition over claims handling. Global Reinsurance Corp. v. Equitas Ltd., Case No. 600815/07 (N.Y. Sup. Ct. Jan. 18, 2011).

This post written by John Black.

LOUISIANA WAIVES ITS RIGHT TO ARBITRATE DISPUTE OVER AUCTION RATE SECURITIES DUE TO LITIGATION INVOLVEMENT

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A federal appeals court affirmed that Louisiana Stadium & Exposition District and the State of Louisiana (“LSED”) waived their right to arbitration by expressing the intent to litigate a dispute with Merrill Lynch, Pierce Fenner & Smith Inc. (“MLPFS”) concerning auction rate securities. LSED, which owns the Superdome, structured $240 million in municipal debt as auction rate securities to finance repairs after Katrina, based on MLPFS’s allegedly misleading advice. After the auctions failed in 2008, LSED filed lawsuits against MLPFS. Following eleven months of litigation, LSED moved to compel arbitration before FINRA. The appeals court affirmed that LSED had waived its right to arbitration by expressing its intent to litigate, finding that MLPFS would be prejudiced because, among other reasons, it would forfeit procedural victories it had won in litigation, including having the cases consolidated with other auction rate securities actions, and lose the opportunity to file a dispositive motion, which are disfavored in FINRA arbitrations. Louisiana Stadium & Exposition District v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 10-889 (2d Cir. Nov. 22, 2010).

This post written by Ben Seessel.

ALABAMA COURT OF CIVIL APPEALS AFFIRMS CONFIRMATION OF ARBITRATION AWARD

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Three prospective buyers of certain multi-million dollar beach condo properties, who paid twenty percent down, but later refused to purchase the condos due to alleged deficiencies, brought suit against the owner/builder, who allegedly improperly retained a portion of the down payment. The parties arbitrated their dispute pursuant to the arbitration provision in the purchase agreement, and the plaintiffs were awarded compensatory and punitive damages on a conversion claim. However, disputing the damages calculation, the plaintiffs brought an action in court seeking to vacate the damages award in favor of a higher figure. The trial court generally confirmed the arbitration award, with only a slight modification based on a computational error. The appellate court affirmed, reiterating the principles of deference codified in the Federal Arbitration Act, and rejecting “manifest disregard of the law” as a proper basis on which to challenge an arbitration award. Kitchens v. Turquoise Properties Gulf, Inc., No. 2090791 (Ala. Civ. App. Nov. 12, 2010) (opinion not available without charge).

This post written by John Pitblado.

STATE SURPLUS LINES REGULATION AND REINSURANCE ACCOUNTING CHANGES

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The following are selected State bills and regulations that were recently introduced or adopted on the topic of reinsurance.

Nonadmitted and Reinsurance Reform: In response to the mandates of the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act, the legislatures of Connecticut (Bill No. 50), Kentucky (Bill No. 167), and North Dakota (Bill No. 1123) have introduced bills to establish requirements that are consistent with the federal law for surplus lines insurers doing business in the state. Kentucky’s bill is modeled after the surplus lines proposal approved by the National Conference of Insurance Legislators (“NCOIL”). At this time, it is unclear based on what has been published whether the Connecticut or North Dakota bills follow the surplus lines proposal approved by NCOIL, the proposal approved by the National Association of Insurance Commissioners or are unlike either of those proposals.

Reinsurance Covering Title Insurance Policies: Proposed legislation (Bill No. 322) relating to the requirements for reinsurance contracts covering title insurance policies was introduced in the Texas Senate. The proposed legislation amends Section 2551.302 of the Texas Insurance Code to remove the requirement that prior approval of the form of reinsurance contract be obtained from the Insurance Department. The proposed legislation also repeals Section 2551.303 concerning additional requirements regarding the approval and form of reinsurance contract.

Reinsurance and Accounting Practices and Procedures Manual: Pursuant to emergency rulemaking, the New York Insurance Department adopted amendments to New York Insurance Regulation No. 172 (11 NYCRR 83) to incorporate by reference the NAIC Accounting Practices and Procedures Manual as of March 2010, except as provided in 11 NYCRR 83.4. The Manual includes a body of accounting guidelines referred to as Statements of Statutory Accounting Principles (“SSAPs”). Section 83.4 sets out “Conflicts and Exceptions” to the Manual, and makes clear that in instances of conflict or deviation, New York statutes and regulations control. Section 83.4 is amended, as it relates to reinsurance, to adopt paragraph 25 of SSAP No. 61, “Life, Deposit-Type and Accident and Health Reinsurance,” with the following addition:

If a ceding insurer that receives credit for reinsurance by way of deduction from its reserve liability remits the associated reinsurance premiums for coverage beyond the paid-to-date of the policy, the ceding insurer may record an asset for the portion of the gross reinsurance premium that provides reinsurance coverage for the period from the next policy premium due date to the earlier of: (1) the end of the policy year or (2) the next reinsurance premium due date. The asset shall be admitted as a write-in asset to the extent that the reinsurer must refund premiums to the ceding insurer in the event of either the termination of the ceded policy or the termination of the reinsurance agreement.

This post written by Karen Benson.

COURT ISSUES PROTECTIVE ORDER OVER DIRECT INSURER’S REINSURANCE CLAIM AND RESERVE INFORMATION

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Teck Metals Ltd. sued London Market Insurance in a direct insurance coverage action arising from alleged environmental pollution claims asserted by Federal, State, and Tribal authorities against Teck. London Market declined coverage for the claims under certain umbrella liability policies. Among a morass of various discovery issues in the case (some of which are the subject of a pending interlocutory appeal to the Ninth Circuit), Teck sought information from London Market pertaining to its notification of the claims to its reinsurers, as well as certain reinsurance claims and reserve information. A Magistrate recommended that the date, method of transmittal, and author of London Market’s first communication to its reinsurers is relevant to late notice issues and should be provided, but that reinsurance reserves and claim information was not relevant. The district court adopted the magistrate’s recommendations with some agreed-upon compromises, including a protective order regarding the reinsurance information. Teck also made a request under the Hague Convention to obtain the depositions of three London Market-affiliated foreign nationals, including two claims administrators and an underwriter. Teck Metals, Ltd. v. London Market Insurance, Case No. 05-411 (USDC E.D. Wash. Nov. 19, 2010).

This post written by John Pitblado.