Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

PLAINTIFFS ORDERED TO SUBMIT FRAUD CLAIMS TO ARBITRATION IN BERMUDA

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In October, 2007, Alternative Re Holdings Ltd. (“ARH”) commenced separate arbitrations in Bermuda against each of the plaintiffs seeking funds pursuant to Shareholder Agreements. In December, 2008, the plaintiffs brought suit in the Southern District of New York alleging that a 2005 Settlement Agreement was fraudulently induced in that the plaintiffs’ liability for reinsurance more than doubled. Arch Insurance Co. subsequently moved to stay the litigation pending arbitration. ARH and Alternative Re Ltd. also moved to stay, and to compel the plaintiffs to submit their fraud claims to arbitration pursuant to an arbitration clause in the Shareholder Agreements requiring “all disputes” between the parties to be submitted to arbitration in Bermuda. The plaintiffs opposed, arguing that their complaint fell within the parameters of the Settlement Agreement, which specified that the U.S. District Court for the Southern District of New York was the exclusive forum and venue for dispute resolution. The district court summarily granted the defendants’ motions, staying the lawsuit and ordering that arbitration proceed in Bermuda. TPG Group v. Alternative Re Holdings Ltd., Case No. 08-11244 (USDC S.D.N.Y. Sept. 22, 2009).

This post written by Dan Crisp.

THIRD CIRCUIT AFFIRMS DECISIONS COMPELLING ARBITRATION AND CONFIRMING RESULT IN RETROCESSION DISPUTE

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Century Indemnity Company (“Century”) made claim under certain retrocession agreements between it and Certain Underwriters at Lloyd’s, London (“Lloyd’s”) for a portion of the payment Century made to its reinsured, Argonaut Insurance Company (“Argonaut”) in connection with underlying asbestos coverage litigation expenses. Lloyd’s denied the claim, asserting that Century’s payment to Argonaut was not warranted under the reinsurance treaties. Century sued to recover the approximately $2 million in dispute. Lloyd’s moved to compel arbitration. Although it was undisputed that the retrocession agreements did not contain an arbitration clause, the trial court agreed with Lloyd’s that the retrocession agreements incorporated the underlying reinsurance treaties by reference, which treaties did contain arbitration provisions, and therefore granted the motion to compel arbitration. The parties arbitrated, and the three-member panel found in Lloyd’s favor, finding the reinsurance treaties did not obligate Century to pay Argonaut, and therefore Lloyd’s was not obligated to pay Century any portion of the payment to Argonaut. Century moved to vacate the award, contending that the arbitral panel had manifestly disregarded the law and failed to admit evidence which should have been admitted. The district court denied the motion. Century appealed to the Third Circuit Court of Appeals, which affirmed both the decision to compel arbitration, and the decision denying the motion to vacate the award. Century Indemnity Company v. Certain Underwriters at Lloyd’s, London, No. 08-2924 (3d Cir. Oct. 15, 2009).

This post written by John Pitblado.

DISTRICT COURT FINDS FRAUDULENT ASSET TRANSFERS, PIERCES CORPORATE VEIL

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In the latest development in the action arising out of a Strategic Alliance Agreement between Continental Casualty Company and IFG Insurance Company relating to a federal crop reinsurance program, the US District Court for the Southern District of Indiana held that CCC (along with 1911 Corp) demonstrated that the counterdefendants (the IFG parties along with IGF Holdings, SIG, Goran Capital, Granite Re, Pafco Gen. Ins. Co., Superior Ins. Co., Gordon Symons, Alan Symons, and Douglas Symons) fraudulently transferred assets in violation of the Indiana Fraudulent Transfer Act, and that the counterdefendants were alter egos of one another. Accordingly, the court pierced the corporate veil as to those parties. However, the court ruled that 1911 Corp failed to introduce evidence supporting its breach of contract claim against IGF Holdings, therefore ruling in favor of IGFH as to that claim. A separate judgment is forthcoming in the case. IGF Ins. Co. v. Continental Casualty Co., Case No. 01-cv-799 (USDC S.D. Ind. Oct. 19, 2009).

This post written by John Black.

COURT DECLINES TO RECONSIDER ORDER DISMISSING SUIT TO ENFORCE ARBITRATION AWARD FOR LACK OF JURISDICTION

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A court has denied reconsideration of its earlier order holding that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. We reported on the earlier order in an August 20, 2009 post. The American Postal Workers’ Union brought a suit alleging that the United States Postal Service breached a collective bargaining agreement by failing to comply with an arbitration award finding liability. On July 14, 2009, the court dismissed the case for lack of jurisdiction. The Union moved for reconsideration, principally arguing that that it should be permitted to move forward to enforce the award because it had been granted final injunctive relief. The court found that the Union was simply regurgitating its earlier, unsuccessful argument. Therefore, the motion for reconsideration was denied. American Postal Workers’ Union v. United States Postal Service, Case No. 08-2200 (USDC D.D.C. Sept. 2, 2009).

This post written by Brian Perryman.

LEGISLATIVE AND REGULATORY UPDATE

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FEDERAL LEGISLATIVE UPDATE

Congress has recently introduced two bills relevant to reinsurance or catastrophe funds. These bills are as follows:

  • On November 4, 2009, the Guaranteed Access to Health Insurance Act of 2009 (H.R. 4020) was introduced in the U.S. House of Representatives. The bill proposes to enable states to establish reinsurance programs or high risk pools to ensure that high risk individuals are able to access health insurance. The bill was referred to the House Committee on Energy and Commerce on the same day.
  • The same day, the Catastrophe Obligation Guarantee Act of 2009 (H.R. 4014) was introduced in the U.S. House of Representatives. The bill proposes to establish a program to provide guarantees for debt issued by state catastrophe insurance programs to assist in the financial recovery from natural catastrophes. The bill was referred to the House Committee on Financial Services on the same day.

STATE REGULATORY UPDATE

State regulatory developments relevant to reinsurance include the following:

  • The Office of the General Counsel of the New York Insurance Department issued an opinion dated September 30, 2009, No. 09-09-06, which addressed whether the requirements in New York Insurance Law Section 1401(b) apply to investments of insurance companies deposited under a reinsurance trust pursuant to New York Regulation 114 (11 NYCRR § 126). The OGC responded in the affirmative stating that Section 1401(b) requires any financial requirement (such as the rating of a given security) to be measured as of the date of the acquisition of the security, absent any express legal or regulatory authorization to the contrary. Because nothing in Regulation 114 or elsewhere in New York Insurance Law specifies otherwise, the OGC concluded that any assets contributed to a Regulation 114 trust must meet any applicable statutory rating requirement as of the asset’s acquisition date.
  • On October 5, 2009, the Washington Office of Insurance Commissioner proposed rulemaking aimed at clarifying when licensed reinsurance intermediaries must report changes to the information contained in their original application for licensing and what changes must be reported. If adopted, proposed rule, WAC 284-13-715, would require a licensed reinsurance intermediary to notify the Commissioner within 15 business days after occurrence of material changes to the information that was included in the application for licensing (such as changes to the reinsurance intermediary’s legal name, registered address, formation documents if it is a business entity, etc.). Also, proposed rules, WAC 284-13-750 and 284-13-760, would require a licensed reinsurance intermediary, or a pending applicant, to notify the Commissioner within 15 business days of disciplinary action taken by another governmental jurisdiction and conviction of certain felonies, respectively. The comment period for the proposed rulemaking expired on November 9, 2009, and a hearing was held on November 10, 2009.

This post written by Karen Benson.