Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO MODIFY CONFIDENTIALITY ORDER PROTECTING INSURER’S AND REINSURER’S TRADE SECRETS FROM DISCLOSURE

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Pursuant to a confidentiality order entered by the federal district court, Everest National Insurance Company and Everest Reinsurance Company produced trade secrets, claims data, and other confidential information to Centrix Consolidated LLC and other parties to the litigation. Centrix, concurrently involved in liquidation proceedings in bankruptcy court, was served with a document request by the liquidating trustee for all documents produced in the Everest case, including all documents designated as confidential under the court’s protective order. Centrix looked to the court that had issued the confidentiality order for guidance on how to proceed. The court refused to modify its confidentiality order, finding that Everest had a legitimate business interest in maintaining the confidentiality of the requested documents. Everest Nat’l Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J. Oct. 28, 2010).

This post written by Ben Seessel.

YOU SNOOZE YOU LOSE: “ACCOUNT STATED” DOCTRINE BARS RECOUPMENT OF PAST AMOUNTS PAID UNDER VOIDED FACULTATIVE AGREEMENT

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Seaton Insurance Company sued its reinsurer, Yosemite Insurance Company, for breach of contract. Seaton alleged that Yosemite breached two facultative reinsurance agreements the parties entered into in the 1970s. Yosemite paid claims under the agreements until 2008, when it notified Seaton of its belief that the agreements were void because Seaton had violated the agreements’ retention warranties. When Seaton sued, Yosemite counterclaimed, seeking repayment of funds paid since inception. Both parties moved for summary judgment. The court agreed with Yosemite as to one of the facultative agreements, finding that Seaton breached the retention warranty, voiding that agreement and precluding any future payments due. Disputed factual questions, however, impacted proper interpretation of the other agreement, so summary judgment was improper. However, citing California’s “account stated” doctrine – a waiver principle applied to certain contractual arrangements – the court denied that aspect of Yosemite’s counterclaim seeking repayment of past amounts paid under both agreements, noting that “acquiescence to the debt arises from a failure to object within a reasonable time such that the law implies an agreement that the account is correct as rendered.” Yosemite did not identify any issue with its liability until 2007, and thus could not recoup payments made under either agreement before that time. Seaton Ins. Co. v. Yosemite Ins. Co., No. 08-542-S (USDC D.R.I. Nov. 4, 2010).

This post written by John Pitblado.

CAL. CT. APP. OVERTURNS CONFIRMATION OF AWARD DUE TO NONDISCLOSURE OF PERTINENT BUSINESS RELATIONSHIP BETWEEN ARBITRATOR AND PARTY

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Nancy Hurwitz Kors appealed to the California Court of Appeals an order confirming an arbitration award in favor of the law firm Benjamin, Weill & Mazer in a dispute over attorneys’ fees. Kors argued that the confirmation must be reversed because the chief arbitrator failed to disclose business relationships casting doubt on his ability to be impartial, as required by the California Arbitration Act. Shortly after the issuance of the arbitration award, Kors’ counsel discovered that the chief arbitrator was counsel for the defendant law firm in a recent case in which the law firm had sought to arbitrate a fee dispute with another client, had filed a brief on behalf of the law firm with the California Supreme Court shortly before his appointment as chief arbitrator in the present dispute and argued the case to the Supreme Court on behalf of the law firm while serving as chief arbitrator in this matter. The California Court of Appeals reversed the order confirming the award finding that the circumstances of the chief arbitrator’s business relationship with the law firm could cause a person to “entertain a doubt that the proposed neutral arbitration would be able to be impartial.” Benjamin, Weill & Mazer v. Kors, No. 07-00939 (Cal. Ct. App. Oct. 12, 2010).

This post written by John Black.

SHOULD REINSURERS BE SUBJECT TO SYSTEM RISK REGULATION UNDER THE DODD-FRANK ACT?

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The Financial Stability Oversight Council has been receiving comments on the implementation of the systemic risk provisions of the Dodd-Frank Act. Many property and casualty companies and trade associations for both property and casualty and life insurers (e.g., the Property Casualty Insurers Association of America and the American Council of Life Insurers) have submitted comments contending that companies in that industry should not be subject to such regulation. The Reinsurance Association of America has submitted a comment supporting those submissions, and arguing that the reinsurance industry does not present a potential for systemic risk to the economy, and hence should be exempted from such regulation. The RAA bases its argument, in part, on analyses from the Group of 30 and the International Association of Insurance Supervisors, which have been the subject of posts to this blog. The popular wisdom seems to be that the regulators, being concerned of being under inclusive, are erring on the side of being over inclusive in this definition effort, which will make any industry-wide exemption difficult to obtain.

This post written by Rollie Goss.

CALIFORNIA SUES ITSELF OVER IRAN INVESTMENT POLICY

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In response to the determination by the Office of Administrative Law (“the Office”) that the California Insurance Department’s “request” for a “moratorium” on investments in Iran’s energy industry (see our November 4 post), the Insurance Commissioner has sued the Office in a Petition for Writ of Mandate. While most insurance companies had complied with the request, which practically amounts to a divestiture requirement, several trade associations challenged it as an “underground regulation,” and those trade associations were named in the Commissioner’s lawsuit. Commissioner Poizner, who is about to leave office, ‘retained” Attorney General (and soon to be Governor) Brown to represent it against the small 20 employee Office. The Director of the Office has written to the Deputy Attorney General who signed the Petition pointing out that there is a conflict of interest because Attorney General Brown is representing the Office in other “underground regulation” cases, stating that the Office declines to waive the conflict. The letter invites an exchange of legal authorities and discussion of the issue, concluding with “[n]o matter what agency is involved and no matter what praiseworthy objective the agency has in mind, nevertheless, the law calls for the proper procedure to be utilized.” The Petition contends that the directive is a valid implementation of the Commissioner’s authority to regulate insurance company investments due to the political, economic and reputational risk that companies take on in such investments, and that “[t]he action taken by the Commissioner is similar to statutes passed by the California legislature and Congress to force companies to divest in Iranian companies.” How the Commissioner may take action similar to legislative action without the benefit of the rulemaking process is not alleged. The Office found out that it was about to be sued by the receipt of a request from the Deputy Attorney General for the Office’s administrative record in the determination matter. So much for inter-departmental courtesies. The position of the incoming Commissioner and Attorney General with respect to this issue is unknown. Insurance Commissioner Steve Poizner v. Office of Administrative Law, et al., Cal. Super. Ct.

This post written by Rollie Goss.