Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO COMPEL DISCOVERY OF IRRELEVANT REINSURANCE AGREEMENTS

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In a dispute involving the interpretation of an excess policy issued by TIG Insurance Company, insured Grinnell Corporation moved to compel TIG to produce underwriting manuals, information relating to its reinsurance agreements, and reserve information. The court granted Grinnell’s request with respect to TIG’s underwriting manuals but rejected the insured’s request for information relating to TIG’s reinsurance agreements as irrelevant. The court held that “what TIG and its reinsurers may agree a term means . . . is not, ipso facto, probative of what that term means in the subject policy” and TIG’s coverage with its insureds was not necessarily co-extensive with the coverage TIG secured from reinsurers. The court also denied Grinnell’s request for reserve information, finding that TIG’s consideration of possible policy interpretations in setting reserves “is of little value in determining the meaning of a policy term or terms.” TIG Ins. Co. v. Tyco Int’l, LTD., Case No. 3:08-1584 (U.S.D.C. M.D. Pa. Nov. 12, 2010).

This post written by Ben Seessel.

REINSURANCE BROKER’S SALES COMMISSIONS ARE AN “IDENTIFIABLE CHATTEL” AND SUPPORT A CONVERSION CLAIM

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In a dispute between reinsurance brokers, Guy Carpenter sued its competitor, Lockton, arising from broker fees alleged owed to Guy Carpenter as a result of its placement of reinsurance on behalf of two reinsurers, whose business went (after placement) to Lockton when one of Carpenter’s brokers switched his employment to Lockton. Carpenter asserted that the broker fees, which were established and became payable upon placement of the reinsurance at issue, were improperly withheld by Lockton after they were received from the reinsurers. Lockton moved to dismiss all three claims asserted by Carpenter, including conversion, tortious interference with contract, and unjust enrichment. The court denied the motion (save for its dismissal of the unjust enrichment claim), notably holding that the monies owed to Carpenter constitute an “identifiable chattel” and thus supported the conversion claim. The court also held that Lockton’s alleged withholding of money owed pursuant to the broker agreement between the reinsurers and Carpenter adequately stated a tortious interference with contract claim. Guy Carpenter & Co., LLC v. Lockton Re, LP, No. 10-Civ-4932 (USDC S.D.N.Y. Nov. 4, 2010)

This post written by John Pitblado.

REINSURANCE COLLATERAL, CREDIT AND SURPLUS LINES REGULATORY UPDATE

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There has been a flurry of activity on the regulatory front on a variety of issues that the Dodd-Frank Act deferred to the states:

  • The New York Department of Insurance has approved a reinsurance collateral regulation (effective 1/1/2011) which is somewhat similar to Florida’s regulation. The Department’s final review of comments submitted on the proposed regulation is also available. We will post a Special Focus piece on this new regulation soon.
  • The NAIC: (1) has reinsurance collateral recommendations pending, which are being framed as accreditation issues; (2) has a proposal under consideration for a surplus lines interstate compact; and (3) may consider amendments to the model acts and regulations regarding reinsurance credit. According to some media reports, there has been some disagreement within the NAIC as to the scope of the NAIC’s surplus lines initiative, with some states seeking to limit the scope to premium tax issues and a larger number seeking to broaden the scope to cover other areas of surplus lines operation mentioned in Dodd-Frank. The proponents of the narrower premium tax only approach apparently are prevailing
  • NCOIL recently approved a proposal addressing various surplus lines issues, but has not been active on the reinsurance collateral issue. Unlike the relatively narrow NAIC approach, NCOIL’s surplus lines proposal addresses not only premium tax issues, but also other issues, including some related to eligibility, brokerage and placement activities.

This post written by Rollie Goss.

SECURITIES FRAUD ACCOUNTING RULE CLASS ACTION AGAINST REINSURER DISMISSED

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A federal district court dismissed a securities fraud class action against Swiss Re brought by a pension fund on behalf of all purchasers of Swiss Re’s shares. In addition to other claims, plaintiff alleged that Swiss Re committed securities fraud by failing to disclose its exposure to losses associated with its issuance of credit default swaps insuring mortgage-related securities against default. The case was dismissed notwithstanding Swiss Re’s admitted failure to disclose its credit default swap obligations in conformity with GAAP Financial Accounting Standards Board Interpretation No. 45, which requires a guarantor to disclose the nature and amount of any guarantee, even if the likelihood of the guarantor’s having to make payments under the guarantee is remote. The court reasoned that, although such an admission could be evidence of an intent to defraud, the stronger inference was that Swiss Re “missed the applicability of FIN 45,” because the provision generally does not apply to reinsurers, and there was a scarcity of other evidence of scienter. Plumbers’ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., Case No. 08-1958 (USDC S.D.N.Y. Oct. 4, 2010).

This post written by Ben Seessel.

COURT ORDERS ARBITRATION UNDER “FOLLOW FORM” AGREEMENT TO ARBITRATE IN EXCESS LIABILITY POLICY

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C.B. Fleet Company, Inc., a manufacturer of certain FDA-regulated over-the-counter medication, sued one of its excess liability carriers, Aspen Insurance UK Ltd., alleging it breached the excess policy by refusing to provide coverage for underlying products liability suits against Fleet. Aspen moved to stay the lawsuit in favor of arbitration. Fleet contested the existence of an agreement to arbitrate, and, even if there was one, Fleet asserted that Aspen waived its right to invoke it by engaging in the litigation process. The court rejected both arguments, finding that a valid, binding arbitration agreement was incorporated by reference into the Aspen excess policy, because the underlying policy to which Aspen’s policy “followed form” contained an arbitration agreement. The court also held that Aspen’s limited engagement in the litigation process prior to demanding arbitration did not constitute waiver of the right to arbitrate, citing the policy underlying the FAA which heavily favors arbitration of disputes. Aspen had only engaged in limited discovery pertaining to whether an agreement to arbitrate existed, filed an answer raising an affirmative defense pertaining to arbitration, and then demanded arbitration ten days later. C.B. Fleet Company, Inc. v. Aspen Insurance UK, Ltd., No. 6:09-cv-00062 (USDC W.D. Va. Oct. 15, 2010).

This post written by John Pitblado.