Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

APPEALS COURT DISMISSES CLAIMS AGAINST REINSURER AS UNRIPE

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New Hampshire Insurance Company brought suit in the Turks and Caicos Islands against its reinsurer, Magellan Reinsurance Company, claiming that Magellan failed to properly fund a trust set up by the parties with a Texas bank, for the deposit by Magellan of all unearned premium reserves plus outstanding loss reserves at the end of each quarter. The premiums derived from a book of vehicle service contract reimbursement policies. New Hampshire, under the terms of the reinsurance agreement, was entitled to withdraw the funds for certain purposes specified in the reinsurance agreement. New Hampshire claimed that Magellan underfunded the trust by approximately $1.4 million. Reversing the holding of the Chief Justice of the Privy Council, the Court of Appeals held that New Hampshire lacked standing to presently pursue the claim, essentially on grounds of ripeness, insofar as it failed to establish any legal right to withdrawal of the amount of funds it claimed were improperly withheld, for any of the specific purposes of withdrawal set forth in the reinsurance agreement. Rather, it merely established that such legal claim of right to those funds would accrue in the future. The appeal was thus dismissed. New Hampshire Ins. Co. v. Magellan Reinsurance Co. Ltd., [2009] UKPC 33 (July 15, 2009)

This post written by John Pitblado.

SELF-INSURER GROUP NOT ENTITLED TO COVERAGE THROUGH STATE INSURANCE GUARANTY ASSOCIATION

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On February 9, 2009, we reported on a Louisiana appellate court holding that the Louisiana Safety Association of Timbermen Self-Insurers Fund (the “Fund”) was entitled to coverage because the Fund was not an insurer and the excess coverage obtained by the Fund from Reliance Indemnity Company, which became insolvent in 2001, was not reinsurance. In this case, the Supreme Court of Louisiana reversed the judgment of the appellate court. First, the court held that the Fund was an insurer based on the court’s interpretation of state statutes and the Fund’s formative documents, which undertook to indemnify members for the full amount of workers’ compensation claims, which members paid premiums and assessments to the Fund for that purpose. Second, in finding that the excess coverage was reinsurance, the court determined that the contractual relationship between the Fund and the insolvent insurer presented a classic instance of reinsurance. Louisiana Safety Assoc. of Timbermen Self-Insurers Fund v. Louisiana Ins. Guaranty Assoc., Case No. 2009-0023 (La. June 26, 2009).

This post written by Dan Crisp.

FEDERAL LEGISLATIVE UPDATE

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• On July 21, 2009, Florida Senators Bill Nelson and Mel Martinez introduced S. 1486, a bill to amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds by property and casualty insurance companies for the payment of policyholders’ claims arising from future catastrophic events. The bill was referred to the Senate Committee on Finance.

• That same day, Florida Senators Bill Nelson and Mel Martinez introduced S. 1487, a bill that establishes a bipartisan commission on catastrophic disaster risk and insurance. The bill was referred to the House Committee on Banking, Housing, and Urban Affairs.

• On July 30, 2009, Representative Richard E. Neal of Massachusetts introduced H.R. 3424, a bill to amend the Internal Revenue Code of 1986 to disallow the deduction for excess non-taxed reinsurance premiums with respect to the United States risks paid to affiliates. The bill was referred to the House Committee on Ways and Means.

This post written by Karen Benson.

SELF-INSURED EMPLOYERS HELD NOT TO BE “INSURERS” FOR PURPOSES OF INSURANCE GUARANTY LAWS

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The Nevada Supreme Court held that two employers (MGM and Steel Engineers), who operated as self-insured employers under the state’s workers’ compensation act, were not barred from recovering reimbursement from the Nevada Insurance Guaranty Association because they were not “insurers” for purposes of the act. Thus, they could recover payment for their covered workers’ compensation claims payable by their insolvent excess insurance carrier, for which the Association was otherwise liable. If MGM or Steel Engineers had been deemed “insurers,” their claims would have been outside the scope of “covered claims,” and the Association would not have covered them. Uncertain as to the meaning of the term “insurer,” the Association sought a declaration of its obligations. The trial court held that MG and Steel Engineers were “insurers” and precluded them from seeking reimbursement. But the Supreme Court reversed and remanded, holding that the term “insurer” has a plain meaning, and that MGM and Steel Engineers did not fall within a reasonable connotation of the term, since they were mere employers, and did not engage in the business of insurance. MGM Mirage v. Nevada Insurance Guaranty Association, No. 49445 (Nev. June 25, 2009).

This post written by Brian Perryman.

IN PARI DELICTO DOCTRINE BARS DERIVATIVE CLAIMS AGAINST ALLEGED AIG CO-CONSPIRATORS

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The AIG Consolidated Derivative Litigation continues – this time the court grants a motion to dismiss claims against alleged co-conspirator defendants. We covered a prior ruling on a motion to dismiss in our April 29, 2009 post, where the court found that the plaintiffs had stated well-pled breach of fiduciary duty claims against certain high-ranking AIG officers who were allegedly involved in two conspiracies, viz., a “bid-rigging” conspiracy and a “fake reinsurance writing” conspiracy, as well as other illegal activities. The question raised in the most recent ruling was: “may AIG sue its co-conspirators for the harm that AIG suffered as a result of two alleged, illegal conspiracies involving AIG and those third-party conspirators?” The court answered the question in the negative, holding that the in pari delicto doctrine bars this type of suit. A primary purpose of the doctrine is to prevent courts from having to engage in “inefficient” and “socially unproductive” accountings between conspirators. Rather than assessing the conspiracy and shifting responsibility, the court held that it would leave the conspirators as they are, potentially jointly and severally liable for the harms caused by their alleged conspiratorial acts. American International Group, Inc. Consolidated Derivative Litigation, Case No. 769-VCS (Del. Ct. Chanc. June 17, 2009).

This post written by Brian Perryman.