Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

RIGHT TO ARBITRATE DEEMED WAIVED BY COURT

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A court denied a motion to compel arbitration because the movants’ active participation in the litigation constituted a waiver of the right to arbitrate. Although assuming a contractual right to arbitrate, the court noted that such a right, like any contractual right, can be waived. The movants’ actions were inconsistent with the right to arbitrate because they consented to jurisdiction and venue, appeared before the court to set aside a default certificate and made numerous filings. They also filed a counterclaim and a third-party complaint, and never mentioned the right to arbitrate or indicated that they would be seeking an extra-judicial remedy. Seeking affirmative relief through a counterclaim or third-party claim frequyently is found to waive a right to arbitrate. Belcourt v. Grivel, S.L.R., Case No. 2:08-CV-902-TC (USDC D. Utah Nov. 6, 2009).

This post written by Brian Perryman.

DISTRICT COURT DENIES LLOYDS’ RULE 59 MOTION IN DISPUTE WITH EMPLOYERS INSURANCE; SECOND APPEAL FOLLOWS

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In our 11/9/09 post, we reported on the dispute between Employers Ins. and Lloyds of London. In the most recent development, the Lloyds-parties filed a Rule 59 Motion for Reconsideration and Clarification of the District Court’s September 28th opinion and order requesting that the court declare that Wisconsin law applies to the parties’ contracts or in the alternative that irrespective of which law is applied the arbitrators are required to be impartial and disinterested. The District Court denied Lloyds’ Motion for Reconsideration finding that Lloyds had failed to demonstrate that the order and opinion was in error and that the motion at hand failed to specify relief contemplated by Rules 59 or 60. The Lloyds-parties subsequently filed a revised notice of appeal to the Seventh Circuit to include this Order, as well as ones covered by a prior Notice of Appeal. Employers Ins. Co. of Wausau v. Certain Underwriters at Lloyds of London, Case No. 09-210 (W.D. Wisc. Oct. 23; Oct. 29, 2009).

This post written by John Black.

CAPTIVE REINSURANCE ARRANGEMENT LAWSUIT REINSTATED BY THIRD CIRCUIT

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In a putative class action by homebuyers seeking to recover treble damages under section 8(d)(2) of the Federal Real Estate Settlement Procedures Act, the Third Circuit held that the statute’s plain language permits private litigants to sue if their real estate settlement transaction involve unlawful settlement service referrals or fee splitting. Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful captive reinsurance arrangement operated by their mortgage lender and its affiliated reinsurer. Plaintiffs further alleged they had a statutory right to a real estate settlement free from unlawful kickbacks and unearned fees, and the lender’s invasion of that right gave them standing to sue. The district court dismissed the case for lack of subject matter jurisdiction (see our December 27, 2008 post), but the Third Circuit reversed, and also rejected the lender’s argument that the lawsuit was barred by the filed rate doctrine. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Brian Perryman.

ENGLISH HIGH COURT RULES THAT EQUITAS MAY USE ACTUARIAL MODELING TO RECOVER LONDON MARKET EXCESS OF LOSS SPIRAL LOSSES

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This dispute concerns indemnity for losses stemming from the Exxon Valdez oil spill in 1989 and the loss of aircraft at the Kuwait International Airport when Iraq invaded Kuwait in 1990. Equitas Ltd. (“Equitas”), as the assignee of the rights of Lloyd’s syndicates, brought claims against R&Q Reinsurance Company Ltd. (“R&Q”) under reinsurance contracts written by R&Q within the London Market Excess of Loss spiral. Equitas argued that recoverable losses were capable of being proved, Equitas had succeeded in proving these losses to a standard of the balance of probabilities through the use of actuarial modeling, and, therefore, Equitas was entitled to recovery. R&Q argued against any recovery unless Equitas could prove contract by contract, at each level of the spiral, that the sums claimed were properly due. The High Court sided with Equitas, ruling that how Equitas proved losses was one of fact or evidence. Equitas was not required to prove losses contract by contract at each level of the spiral. The High Court next ruled that actuarial modeling, although imperfect, was an acceptable solution to prove properly recoverable losses incurred by the syndicates. Equitas Ltd. v. R&Q Reins. Co. Ltd., [2009] EWHC 2787 (Comm. Ct. Nov. 11, 2009).

This post written by Dan Crisp.

FEDERAL LEGISLATIVE UPDATE – IRAN SANCTIONS

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A recent bill passed by the U.S. House of Representatives that expands U.S. economic sanctions targeted at Iran’s refined petroleum resources could have significant implications for the insurance and reinsurance industry. H.R. 2194, the Iran Refine Petroleum Sanctions Act (bill text and bill summary), which was passed on December 15, 2009 by a vote of 412-12, amends the Iran Sanctions Act of 1996 to expand sanctions against persons and entities who, with actual knowledge, provide Iran with refined petroleum resources or engage in activities that contribute to Iran’s ability to import such resources. The expanded sanctions include underwriting, insuring, reinsuring, financing or brokering any such activity. Because U.S. trade sanctions already prohibit U.S. persons and entities, including insurers and reinsurers, from doing business with Iran, the legislation appears to be targeted at foreign individuals and entities.

The Act establishes additional sanctions prohibiting specified foreign exchange, banking, and property transactions. Among other things, the Act grants the President waiver authority, and directs the President to report to the appropriate Congressional committees every six months regarding any person or entity that has violated the Act. After passing the House, the Act was referred on December 16, 2009 to the Senate Committee on Banking, Housing, and Urban Affairs.

This post written by Karen Benson.