Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

EQUITAS BUSINESS TRANSFER SCHEME SANCTIONED

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A UK court has entered judgment in an application brought by Equitas Ltd. and Equitas Insurance Ltd. for an order under section 111 of the Financial Services and Markets Act 2000 sanctioning a scheme for the transfer to Equitas Insurance Ltd. of the 1992 and Prior Business carried on at Lloyd’s. Section 111 is concerned with business transfer schemes. Per the court, the scheme is intended to bring finality to a process which began with a reconstruction and renewal plan promoted and implemented by Lloyd’s in the second half of 1996. In the Matter of the Names at Lloyd’s for the 1992 and Prior Years of Account, Represented by Equitas Ltd., [2009] EWHC 1595 (Ch. Ct. July 7, 2009).

This post written by John Black.

RELIANCE INSURANCE RECEIVES COURT APPROVAL FOR TWO MORE SETTLEMENTS

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We reported on September 3 of the court approval of a settlement and commutation between Reliance Insurance Company (in liquidation), and Munich Reinsurance America. The liquidation court has also approved settlement/commutation agreements betwen Reliance and the Clarendon group of companies and with XL Reinsurance. The benefit to the estate of the agreement with the Clarendon group of companies is $9.498 million; the benefit to the estate of the agreement with XL Re is $6.325 million. Ario v. Reliance Insurance Co., Case No. 269 M.D. 2001 (Pa. Commw. Ct. July 16, 2009).

This post written by Rollie Goss.

CASE UPDATE: JUDGMENTS REVERSED BY HOUSE OF LORDS IN APPEALS ASKING WHETHER COVERAGE UNDER A PROPORTIONAL FACULTATIVE REINSURANCE CONTRACT IS COEXTENSIVE WITH COVERAGE UNDER THE INSURANCE CONTRACT

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In an April 8, 2008 post, we reported on a UK Court of Appeals decision, Wasa International Insurance Co. v. Lexington Ins. Co., [2008] EWCA Civ. 150 (Feb. 29, 2008), reversing a lower court’s decision denying reinsurance coverage despite a follow the fortunes provision, based on a finding that the damages occurred outside the coverage period of the reinsurance, and despite the conclusion of a US court on the underlying claim finding liability for damage occurring outside the coverage period of the underlying policy. The Court of Appeals found that the coverage provision of the reinsurance should be interpreted in the same manner as the coverage provision in the underlying insurance. The Court of Appeals agreed that the insurance and reinsurance contracts were not entirely “back-to-back” in terms of the coverage periods, but concluded that although there were some differences in the contracts, the parties intended that they should have the same effect, so the reinsured’s settlement of the insurance claim did fall within the terms of the reinsurance contract.

The UK House of Lords allowed consolidated appeals from the Court of Appeals. These appeals raised the question of the extent to which the coverage under a proportional facultative reinsurance contract is, or should be construed as being, coextensive with the coverage under the insurance contract. The House of Lords, as articulated by Lord Collins, found that the reinsurer takes a proportional share of the premium and bears the risk of the same share of any losses. Normally reinsurance of that kind is back-to-back with the insurance, and the reinsurer and the original insurer enter into a bargain that if the insurer is liable under the insurance contract, the reinsurer will be liable to pay the proportion which it has agreed to reinsure. Any loss within the coverage of the insurance will be within the coverage of the reinsurance. In the view of Lord Phillips, the result of the appeals was dictated by the fact that the subject reinsurance contract was governed by English law and by the principle under English law that a reinsurance contract in relation to property is a contract under which the reinsurers insure the property that is the subject of the primary insurance; “it is not simply a contract under which the reinsurers agree to indemnify the insurers in relation to any liability that they may incur under the primary insurance.” Lexington Insurance Co. v. AGF Insurance Ltd., [2009] UKHL 40 (July 30, 2009).

This post written by John Black.

ARBITRATION CLAUSE IN EMPLOYMENT AGREEMENT FOUND ENFORCEABLE NOTWITHSTANDING THE INVALIDITY OF A “NO APPEAL” CLAUSE

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The plaintiff sued the successor corporation of his former employer in state court alleging claims arising from the termination of his employment. The plaintiff asserted a claim for breach of contract and a tort “whistleblower” claim for wrongful discharge in violation of public policy. The defendant removed the action to federal court and filed a motion to stay proceedings and compel arbitration. The plaintiff opposed the motion, contending the arbitration provision in his employment agreement was invalid and unenforceable because it eliminated a right of judicial appeal, which provision was not severable from the agreement. The plaintiff also argued that even if the arbitration provision is enforceable, his whistleblower/public policy tort claim was not subject to mandatory arbitration.

The court found that the “no appeal” clause in the arbitration provision, to the extent it attempts to preclude any court access, was invalid. Parties seeking judicial enforcement of an arbitration provision or to enforce arbitration awards through confirmation judgments may not divest the courts of their statutory and common law authority to review both the substance of the awards and the arbitral process for compliance with the Federal Arbitration Act. However, the court concluded the “no appeal” clause could be severed, leaving intact the provision’s other portions. The court also found that the arbitration provision was broad, and covered the tort claim. The tort claim “touches the contract,” since it raised the issue of whether the plaintiff was terminated because, as asserted by the defendant, he violated the employment agreement or because, as asserted by the plaintiff, he was retaliated against for whistleblowing. As the court found the arbitration provision enforceable and that all the plaintiff’s claims were arbitrable, the defendant’s motion was granted. Strom v. First American Professional Real Estate Services, Inc., Case No. CIV-09-0504-HE (USDC W.D. Okla. July 24, 2009).

This post written by Brian Perryman.

COMMUTATION, SETTLEMENT AGREEMENT, AND RELEASE BETWEEN INSURER (IN LIQUIDATION) AND REINSURER APPROVED

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A Pennsylvania state court recently approved a Commutation, Settlement Agreement, and Release (“Settlement Agreement”) between Reliance Insurance Company (“Reliance”) and Munich Reinsurance America, Inc., formerly known as American Re-Insurance Company (“Munich Re”). Under the Settlement Agreement, Munich Re agreed to pay the Reliance estate $73,250,000 to terminate and commute the Reinsurance Agreement and release Munich Re from all liability under the Reinsurance Agreement. The court approved the Settlement Agreement, accepting representations that the Settlement Agreement constituted a fair and reasonable settlement of Munich Re’s past, present, and future obligations to the Reliance estate. Ario v. Reliance Ins. Co., No. 269 M.D. 2001 (Pa. Commw. Ct. July 15, 2009).

This post written by Dan Crisp.