Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT OF APPEAL ADDRESSES PRECLUSIVE EFFECT OF COLLUSIVE FOREIGN COURT JUDGMENT AND PROCESS FOR DETERMINING ARBITRABILITY OF DISPUTE

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It is not unusual for there to be parallel or serial legal proceedings in arbitration disputes, and the preclusive effect of the first matter to go to a final decision has resulted in a number of opinions addressing the application of the doctrines of res judicata and collateral estoppel in arbitration proceedings. In Telnor Mobile Communications AS v. Altimo Holdings & Investments Limited, 07-4974 (2d Cir. Oct. 8, 2009), the Court held that: (1) the district court did not err in not holding a trial to determine whether a dispute before it was arbitrable based upon a dispute as to whether the person who signed the contract containing an arbitration provision had apparent authority to sign the document on behalf of a corporate party, when the factual record clearly demonstrated that the signer had apparent authority to do so; and (2) the district court did not act in manifest disregard of law by confirming an arbitration award that failed to give preclusive effect to a collusive judgment of a Ukrainian court adjudicating an issue before the arbitration panel.

This post written by Rollie Goss.

SCOTTISH COURT DISAPPROVES A SOLVENT SCHEME OF ARRANGEMENT

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The Scottish Court of Session Decisions has nixed a scheme of arrangement under the UK Companies Act of 2006, stating it could not be judicially sanctioned without the assent of all creditors. A scheme of arrangement is a reorganization device in which, with the approval of at least three-quarters of a company’s creditors, the company may compromise the claims of all its creditors. A somewhat analogous device might be a “cram-down” under U.S. bankruptcy law, with the important distinction that a scheme of arrangement may be used even by a solvent company. This procedure has been criticized by US insurance companies. There are three stages to a scheme of arrangement. First, there must be an application to the court for an order that a meeting of creditors be summoned. Second, the scheme proposals are put to the meeting and are approved (or not) by the requisite majority. Third, if approved at the meeting, there must be a further application to the court to obtain the court’s sanction to the arrangement.

In the case before the Court of Session Decisions, Scottish Lion Insurance Company had been in runoff since late 1994, and in 2008 had proposed a scheme of arrangement to terminate its exposures under short- and long-tail policies. The scheme was opposed by various U.S.-based creditors which were insureds under general liability or general aviation insurance policies with Scottish Lion. The court, noting it was not bound to sanction a scheme which had achieved the statutory majority at the creditors’ meeting, declined to exercise its discretion to approve the scheme. Scottish Lion was solvent and appeared to have made provision to meet its potential liabilities in the future. Thus, the court asked rhetorically, “in a situation where the Company is sound financially, why should one group of creditors who might wish to enter into a commutation agreement with the Company be entitled to force other creditors to participate against their will?” In such a case, sanctioning a solvent scheme smacked of “unreasonableness” to the minority. In the Petition of Scottish Lion Insurance Company, Ltd. [2009] CSOH 127.

This post written by Brian Perryman.

NAIC PROPOSES CHANGE TO REINSURANCE ACCOUNTING FOR RUN-OFF SITUATIONS

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On June 13, 2009, the NAIC exposed for comment Issue Paper No. 137, which proposed changes to Statement of Statutory Accounting Principle No. 62 – Property and Casualty Reinsurance (SSAP No. 62). The proposed change provides an exception to accounting principles for retroactive reinsurance agreements for reinsurance and/or retrocession agreements that meet the criteria of property and casualty run-off agreements described in the issue paper. This proposal has progressed to the stage that a proposed amendment to SSAP No. 62 has been exposed for comment. The comment period expires October 28, 2009. A public hearing will be held on the proposal, and interested parties may submit written comments and/or seek to speak at the hearing. For more information, go to the web pages of the NAIC’s Statutory Accounting Principles Working Group.

This post written by Rollie Goss.