Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISTRICT COURT AWARDS SWISS RE REPAYMENT OF FUNDS ASSOCIATED WITH DEFENSE OF UNDERLYING LITIGATION

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On cross-motions for summary judgment, a federal court in Minnesota ruled that an indemnitor, SuperValu, was in breach of an indemnity agreement it had entered with the now-defunct Amwest Surety Insurance Company. The suit arose out of a multi-million dollar jury verdict obtained against Tidyman’s Management Services on whose behalf Amwest issued an appeal bond of over $5 million. Swiss Re subsequently entered into a reinsurance agreement to secure and guaranty Amwest’s performance of the appeal bond obligations. At issue was whether Swiss Re was entitled to be reimbursed by SuperValu for payments to the persons who obtained the original jury verdict. Swiss Re was entitled to recover over $100,000, but was not entitled to attorneys’ fees. Amwest’s insolvency did not change the fact that the claims were made “relative to the bond,” the equities favored Swiss Re’s recovery, and Swiss Re acquired Amwest’s right by assignment. Swiss Reinsurance America Co. v. SuperValu, Inc., Case No. 09-3083 (USDC D. Minn. Oct. 15, 2010).

This post written by John Black.

COURT COMPELS ARBITRATION OF PAST DISPUTE UNDER ARBITRATION CLAUSE COVERING FUTURE TRANSACTIONS

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In a suit over an energy developer’s alleged failure to pay for energy services, a court has granted a motion to compel arbitration based on an arbitration clause in a contract that was made after the transaction in dispute, and despite the contract’s express application to future transactions between the parties. The court reasoned that, despite the bulk of the agreement’s application to future contingencies and dealings, some of the agreement’s provisions, including the arbitration clause, evidenced a present agreement that would take effect immediately. The court further held that, given that the arbitration clause at issue was a broad one and that federal and Oklahoma policies favor arbitration, the clause would apply “despite the fact that the dealings giving rise to the dispute occurred prior to the execution of the agreement.” Warrior Energy Services Corp. v. Last Run, LLC, Case No. CIV-10-0961 (USDC W.D. Okla. Dec. 1, 2010).

This post written by Michael Wolgin.

REINSURANCE DISPUTE DISMISSED FOR LACK OF PERSONAL JURISDICTION

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A federal district court recently granted two individual corporate officer defendants’ motion to dismiss against plaintiff Capitol Insurance. Capitol sued a number of individuals and corporations for alleged losses arising from a reinsurance agreement Capitol entered into with Aldrostar, S.A. The defendants included, among others, Alison Dvorak and Charles Dvorak who allegedly represented themselves as “officers, employees, agents, or servants of the corporate defendants.” The court found that Capitol failed to establish the court’s personal jurisdiction over the Dvoraks. The court held that Alison did not have the requisite minimum contacts with Pennsylvania and that the action against Richard did not arise out of his contracts with the state. Capitol also failed to demonstrate why the corporate shield would not protect the Dvoraks in their individual capacities. Accordingly, Capitol’s assorted claims were dismissed. Capitol Ins. Co. v. Dvorak, Case No. 10-01195 (USDC E.D. Pa. Oct. 29, 2010).

This post written by John Black.

STATE CAPTIVE INSURANCE UPDATE

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Following are some updates on the regulation of captive insuers by New Jersey and Nevada.

New Jersey

On October 25, 2010, the New Jersey Assembly passed unanimously A2360, which creates a regulatory and licensing scheme for captive insurers in the state. This bill, as amended, is identical to SB168. It provides, among other things, that a captive insurer must meet certain requirements, including those relating to formation, capital and surplus, examination, local office presence, ability to meet policy obligations, payment of certain fees and taxes, and annual reporting.

Following passage of A2360 by the New Jersey Assembly, the bill was referred to the New Jersey Senate Commerce Committee and Senate Budget and Appropriations Committee. On December 6, 2010, the Senate Commerce Committee reported favorably on the legislation, with amendments (bill text and committee report). The amendments to the bill: (1) clarify that, in addition to an insured or affiliate of a captive insurance company, a claimant thereof shall not receive a benefit from a plan, pool, association, or guaranty or insolvency fund; and (2) eliminate the transfer of 10% of the premium tax revenues collected under the bill to the commissioner for the regulation of the captive insurance companies. A2360 was also reported favorably out of the Senate Budget and Appropriations Committee (committee report) two days after the Senate Commerce Committee’s December 6th report. The legislation remains pending in the New Jersey Senate.

Nevada

On December 15, 2010, SB46 (bill text) was prefiled in the Nevada Senate. The bill allocates a portion of revenue from the premium tax on captive insurance to the Commission on Economic Development for promotion of the captive insurance industry in Nevada. The bill was referred to the Committee on Revenue.

This post written by Karen Benson.

ARBITRATION BY BISHOPS NOT UNCONSCIONABLE

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The Catholic Bishop of Northern Alaska (CBNA) has been directed to arbitrate an insurance dispute. The CBNA filed for chapter 11 bankruptcy relief as a result of sexual abuse lawsuits against it. In the course of its bankruptcy proceeding, it sought a declaratory judgment as against its insurer, Catholic Mutual Relief Society of America, concerning the scope of coverage for the abuse claims. Catholic Mutual asserted that CBNA’s settlement of the underlying claims was without Catholic Mutual’s consent as required by the policies, and therefore voided the policies, relieving Catholic Mutual of any coverage obligation. The policy for one year contained an arbitration provision, and Catholic Mutual moved to compel arbitration of the dispute with respect to all claims potentially covered under that particular policy. CBNA resisted arbitration, claiming the arbitration provision was unconscionable, as it required submission of any dispute to Catholic Mutual’s president, and thereafter, by appeal to the chairman of Catholic Mutual’s board, who would then select a committee from amongst board members, each of whom are archbishops or bishops. The Court held this provision was not unconscionable, since the board members were as likely to align, in terms of any potential biases, with Catholic Mutual’s policyholders, who are also bishops and archbishops, as with the insurer of which they are board members. In re Catholic Bishop of Northern Alaska, No F08-00110-DMD (USDC Bankr. Alaska Dec. 13, 2010).

This post written by John Pitblado.