Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT COMPELS INSURER TO PRODUCE REINSURANCE AGREEMENTS AS PART OF FRCP 26 INITIAL DISCLOSURES

by

In a dispute between a credit union and CUMIS Insurance Society, Inc., the credit union sought discovery on whether CUMIS had a reinsurer that could indemnify the parties for certain losses at issue in the action. CUMIS objected to disclosing its reinsurer on the grounds of relevancy, and the credit union moved to compel. The court granted the credit union’s motion and ordered CUMIS to produce its reinsurance agreements. The court held that when an insurer is a party to an action, reinsurance agreements to which the insurer is a party must be produced with the insurer’s Initial Disclosures, as required by Federal Rule of Civil Procedure 26(a)(1)(A)(iv). The court further held that the Rule was absolute and does not require a showing of relevance. The court found support in the Advisory Committee Notes to Rule 26, which explain that disclosure of insurance coverage enable counsel to make a “realistic appraisal of the case” for settlement and litigation strategy. Suffolk Federal Credit Union v. CUMIS Insurance Society, Inc., Case No. CV 10-0001 (USDC E.D.N.Y. Oct. 19, 2010).

This post written by Michael Wolgin.

THIRD CIRCUIT AFFIRMS VACATUR OF REINSURANCE CLAIM ARBITRATION AWARD

by

Platinum Underwriters appealed to the Third Circuit the vacatur of an arbitration award in Platinum’s dispute against PMA Capital over a “deficit carry forward” provision in a reinsurance agreement. The Third Circuit affirmed the District Court’s decision, finding that the arbitrators had exceeded their powers under the Federal Arbitration Act in awarding Platinum $6 million, which effectively eliminated the “deficit carry forward” provision, in violation of the standard that an award must be “rationally derived from the agreement between the parties or from the parties’ submissions to the arbitrators.” The Court found that “this relief exceeded the arbitrators’ powers because it was not sought by either party, and was completely irrational because it wrote material terms of the contract out of existence.” The Court agreed with the District Court that the “honorable engagement” language in the contract did not justify the elimination of the agreed upon contractual provision. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-3963 (3d Cir. Nov. 8, 2010).

This post written by John Black.

SAFECO GRANTED COLLATERAL SECURITY BUT MUST SUBTRACT CLAIMS ACTUALLY PAID

by

The case involves the interpretation and enforcement of a collateral security provision of an indemnification agreement relating to Safeco’s service as a surety on construction contracts. Following the District Court’s grant of plaintiff Safeco’s motion for summary judgment regarding its right to collateral security and the Second Circuit’s subsequent dismissal of an appeal for lack of jurisdiction, defendant M.E.S. filed a motion for reconsideration on the grant of summary judgment. M.E.S. argued that a recent document production showed that plaintiff’s collateral security demand is not based on estimated loss exposure, but rather on “actual claimed losses,” which are treated differently under the terms of the parties’ indemnity agreements.

The court cited a number of authorities, including reinsurances cases, which dictate that where claims have actually been paid, Safeco has an adequate remedy at law in the enforcement of the indemnification clause and is not entitled to the equitable remedy of specific performance of the collateral security provision. The District Court directed Safeco to provide the Court with its collateral security demand in an amount net of paid claims. Safeco Ins. Co. of Am. v. M.E.S., Inc., Case No. 09-3312 (E.D. N.Y. Oct. 4, 2010).

This post written by John Black.

FLORIDA OIR REACHES REDUCED COLLATERAL AGREEMENT WITH THREE BERMUDA-BASED REINSURERS

by

Recently, the Florida Office of Insurance Regulation issued a press release announcing that it had reached separate agreements with three Bermuda-based reinsurers. The reinsurers – Ace Tempest Re, Hiscox Insurance Co., and Partner Re – are now authorized to participate in Florida’s insurance marketplace under modified regulatory terms, including lower collateral requirements. The Florida OIR has now authorized a total of six reinsurance companies to operate in Florida under similar modified terms.

This post written by John Black.

SUPREME COURT HEARS ORAL ARGUMENT ON THE RELATIONSHIP BETWEEN THE FAA AND STATE LAW REGARDING UNCONSCIONABILITY OF CLASS ARBITRATION WAIVERS

by

On November 9, the Supreme Court heard oral argument in AT&T Mobility LLC v. Concepcion, an appeal from an opinion of the Ninth Circuit. The issue, as framed in the briefs, is whether the Federal Arbitration Act (“FAA”) preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. The Supreme Court’s docket reflects the filing of 25 amicus briefs. It is hoped that this case will clarify the relationship between the Federal Arbitration Act and state laws and opinions holding certain arbitration provisions to be unenforceable as unconscionable. The transcript and audio recording of the oral argument are both available. Some vote counters at the oral argument suggested that the questioning by the Justices indicated deference to state law as opposed to the FAA. AT&T Mobility v. Concepcion, No. 09-893 (U.S.).

This post written by Rollie Goss.