Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ANOTHER NAME AT LLOYDS’ MOUNTS AN UNSUCCESSFUL ENFORCEABILITY CHALLENGE TO A JUDGMENT AGAINST HIM

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The Second Circuit has affirmed the dismissal of another of a rash of lawsuits by Names at Lloyd’s challenging the enforceability of judgments obtained against them by Lloyd’s in the United Kingdom. The plaintiff Richard A. Tropp, a Name at Lloyd’s, brought a suit in federal district court to declare that a judgment obtained against him by Lloyd’s was unenforceable, as well as for an accounting from Lloyd’s. Tropp invested $160,000 of his retirement savings in the market but, due to its collapse, became liable to Lloyd’s on a $900,000 judgment entered by a UK court. Lloyd’s moved to dismiss for improper venue, since Tropp agreed in the “Choice Clause” of his contract with Lloyd’s to litigate all disputes in England, and for failure to state a claim. Tropp’s primary argument was that this forum selection clause is unenforceable because UK law deprived him of any remedy. The district court rejected this, because a “close reading” of the UK litigation revealed Tropp was not denied any remedy, but “simply was not victorious on the merits of his claims.” The UK courts provided due process. Tropp v. Corporation of Lloyd’s, Case No. 07 Civ. 414 (USDC S.D.N.Y. Mar. 26, 2008).

In a summary order, the Second Circuit affirmed, principally reasoning that, although Tropp was unsuccessful in his attempts to assert defenses and counterclaims against Lloyd’s in the UK courts, “his experiences do not cause us to revisit our holding that the Lloyd’s forum selection clauses (of which this is one) are valid because UK remedies are available.” Tropp v. Corporation of Lloyd’s, No. 08-2332 (2d Cir. July 19, 2010).

This post written by Brian Perryman.

NO MANIFEST DISREGARD IN AWARD AGAINST TEAMSTERS’ UNION

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A federal court in New Jersey granted an employer’s motion to dismiss a complaint filed by the union representing a terminated employee. The union sought to vacate an arbitrator’s award in an employment dispute pertaining to the employee’s termination. The court noted the “narrow” standard in overturning an arbitrator’s award, and that even “improvident” or “silly” factfinding by the arbitrator would not constitute a “manifest disregard” of the law. The court analyzed whether the collective bargaining agreement containing the arbitration clause was valid, for lack of signature by an authorized employer representative, but ultimately agreed with the arbitrator’s decision on that point and others, finding the decision “well-reasoned” and “supported by the record.” Int’l Brotherhood of Teamsters, Local 701 v. Stroehmann Bakeries, No. 09-6205 (USDC D.N.J. June 22, 2010)

This post written by John Pitblado.

PARTICIPATION IN EEOC INVESTIGATION DOES NOT WAIVE RIGHT TO ARBITRATE

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A federal district court recently dismissed a Title VII discrimination suit and compelled the parties to arbitration, finding that the employer did not waive its right to arbitrate by participating in an EEOC investigation. The court held that the mere involvement of an administrative agency in the enforcement of a statue did not preclude arbitration. The court noted that the employer specifically advised the EEOC that its participation should not be considered as a waiver of arbitration and that the employee would not be prejudiced by arbitration. The court concluded that the EEOC’s provision of 90 days for the employee to file suit against the company in court was subject to the arbitration agreement. Henry v. Turner Construction Co., No. 09-9366 (USDC S.D.N.Y. June 14, 2010).

This post written by Michael Wolgin.

FEDERAL LEGISLATIVE UPDATE – NEW IRAN SANCTIONS COVER INSURERS AND REINSURERS

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H.R. 2194, the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”) (bill text and bill summary) was passed by Congress on June 24, 2010 and signed into law by President Obama on July 1, 2010. An earlier iteration of the bill, the Iran Refined Petroleum Sanctions Act of 2009, was reported in our posting of December 22, 2009.

CISADA strengthens existing trade sanctions, authorizes new ones and supports the US’s multilateral diplomatic strategy to address Iran’s nuclear program. Among other things, CISADA amends and expands the Iran Sanctions Act of 1996 (“ISA”) to impose enhanced sanctions against Iran, which to an extent covers insurers and reinsurers, unless otherwise excepted by the new legislation.

CISADA, as it expressly applies to insurance and reinsurance, requires the President to impose three or more mandatory sanctions against a person that knowingly sells, leases, or provides to Iran goods, services, technology, information or support with a fair market value exceeding $1 million, or $5 million or more over a 12-month period, that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products. CISADA defines the phrase “goods, services technology, information or support” to include underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services technology, information, or support.

CISADA, however, includes an exception for underwriters and insurance providers exercising due diligence. In order to avoid sanction, the President must determine that the underwriter or insurance provider has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that it does not underwrite or enter into a contract to provide insurance or reinsurance for the sale, lease or provision of goods, services, technology, information or support that is prohibited by CISADA.

On a related note, while the California Insurance Commissioner continues to call for divestment of insurance company investments in multinational companies that do business in Iran, insurers licensed to do business in California are questioning the authority of the Commissioner. CISADA expressly authorizes state and local governments to provide for divestment of its assets from, or prohibit the investment of their assets in, companies with investment activities in Iran’s energy sector. Such authorization, however, does not appear to cover insurance-related divestment measures of the type being taken by the California Insurance Commissioner; although, CISADA does not contain any express language that would appear to preempt measures like the one being taken by California.

This post written by Karen Benson.

SPECIAL FOCUS: DODD-FRANK REGULATORY MODERNIZATION ACT

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On July 15, 2010, the Senate passed the Dodd-Frank Act (“DFA”), the financial regulatory modernization act that has been in the process of development and consideration by the Congress for over a year. Rollie Goss presents a Special Focus analysis of the potential impact of the DFA on the insurance and reinsurance industries and markets.

Carlton Fields will present a free webinar for Reinsurance Focus subscribers and Carlton Fields clients on the DFA’s potential impact on the insurance and reinsurance industries and markets. The webinar also will cover the potential impact of the DFA on actions by New York, Florida and potentially other states with respect to the requirement of collateral for reinsurance transactions, and the NAIC’s proposals for the regulation of reinsurance. Webinar login information will be sent to Reinsurance Focus subscribers by e-mail. To subscribe and participate in this webinar, go to our subscription page.

This post written by Rollie Goss.