Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER’S CLAIM FOR SETOFF IN LIQUIDATION PROCEEDING FOR PAYMENT OF LIQUIDATED COMPANY’S OBLIGATION DENIED

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Century Indemnity Company (“CIC”) reinsured The Home Insurance Company (“Home”). Due to Home’s liquidation proceedings, which began in 2003, CIC became fully liable for a $13 million settlement of certain environmental claims for which CIC and Home were both primarily liable under the parties’ respective insurance contracts. CIC, a debtor in the Home proceedings, sought a setoff of $8 million against other obligations owed to Home, for Home’s share of the settlement that CIC paid in full. The New Hampshire Supreme Court reversed the trial court’s order permitting the setoff. Finding that the trial court’s reading of the statute governing setoff was too narrow, the Court cited the remedial nature of the statute, and the legislative purpose of obtaining “full payment from reinsurers despite an insurer’s insolvency.” In Re Liquidation of The Home Ins. Co., No. 2008-407 (N.H. May 27, 2009).

This post written by John Pitblado.

NEW SIDEBAR AREA REGARDING REINSURANCE MARKET

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Observant readers will have noticed a new addition to the right sidebar of Reinsurance Focus titled Reinsurance Market. In discussions with our clients, many have mentioned the higher reinsurance rates this season, and the particular difficulty in obtaining acceptably priced reinsurance for cat risks. Although the cat bond market basically dried up during the second half of 2008, early 2009 has seen a number of cat bonds successfully issued and sold, using a somewhat different model and cost structure than before. Since our tracking of how many readers view each of our posts reveals that a large number of our readers are interested in such topics, we have added this new area to provide links to publicly available studies and analysis of the reinsurance market and cat risk bond market. It is not our intention to provide “newsy” items in this area, but rather to bring to the attention of our readers particularly thoughtful reports and studies which might provide a basis for creative thinking to help get your company or clients through difficult times. Let us know what additional types of information might be useful to you.

This post written by Rollie Goss.

ENGLISH COURT CIRCUMVENTS ARBITRATION CLAUSE AND RETAINS JURISDICTION OVER DISPUTE BETWEEN FRENCH AND ENGLISH CO-INSURERS

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A UK appellate court recently dismissed a French insurer’s jurisdictional challenge to a lawsuit initiated against it by an English insurer. After settling a personal injury claim, the French insurer sought to recover $2.45 million from the English insurer as its proportionate share of the settlement. The English insurer, however, denied coverage for the claim, and commenced proceedings in England for a declaration of non-liability. In response, the French insurer argued that the English court lacked jurisdiction because of an arbitration clause in the insurance policy that required all disputes to be arbitrated in Paris. It further noted that European Union Regulation 44/2001 has an arbitration exclusion that precluded English jurisdiction. The lower court rejected this argument, and the French insurer appealed.

The appellate court rejected the French insurers’ jurisdictional argument, holding that—under the EU Regulation—both the subject matter of the claim and the preliminary issue of the enforceability of the arbitration clause were within the English court’s jurisdiction. The court reasoned that “the mere fact that a claim is the subject of an arbitration agreement does not deprive a court of its jurisdiction to determine the dispute.” Rather, a court has to look at the subject matter of the proceeding to decide whether it is within the scope of the arbitration agreement or the EU Regulation. Applying this standard, the court found that the English insurer’s claim did not arise from the insurance policy’s arbitration agreement; instead, it arose out of a separate liability agreement between the co-insurers. Youell v. La Reunion Aerienne [2009] EWCA Civ 175.

This post written by John Black.

ARBITRATION AWARD SUMMARILY CONFIRMED WHERE NO DISPUTE ABOUT THE AWARD EXISTED

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A petition to confirm a $187,000 reinsurance arbitration award was granted where there was no dispute that the court had jurisdiction over the parties and subject matter of the action, or that the claims at issue were properly submitted to the arbitration panel for resolution. In fact, the amount of the award had already been paid. The petitioner apparently wished the award confirmed simply to avoid any doubt in future litigation. That request was granted. Global Reinsurance Corp. v. Argonaut Ins. Co., Case No. 08-8482 (USDC S.D.N.Y. May 22, 2009).

This post written by Brian Perryman.

STATE AND FEDERAL LEGISLATIVE UPDATE

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Following are selected bills in the captive insurance area, plus one relating to catastrophe risk, that have now been adopted in the state legislatures:

• South Carolina has amended its captive insurance company law by enacting S. 323, which we previously reported, to make changes relating to incorporation, licensing, capitalization and other requirements. The bill was ratified on May 27, 2009, and it took effect when it was approved by the Governor on June 2, 2009.

• Missouri enacted House Bill No. 577 (mentioned in our May 8, 2009 post), which modifies various provisions of the state’s captive insurance company law and permits an association captive insurance company or an industrial insured captive insurance company to be organized as a reciprocal insurer. On May 29, 2009, the bill was delivered to the Governor for his signature.

• The Governor of Vermont, on May 27, 2009, signed S. 42 into law, which makes amendments to the captive provisions of the Vermont Code including, among other things, providing new captive formations a $7,500 tax credit and increasing state funding for captive regulation and examination.

• On June 1, 2009, the Texas legislature passed House Bill No. 4409, which includes provisions dealing with the reform and funding of the Texas Windstorm Insurance Association (TWIA), the state’s insurer of last resort for wind and hail coverage for certain coastal parts of the state. Among other things, the legislation provides for various layers of funding, including the imposition of certain insurance carrier assessments. Reinsurance to cover an assessment may be purchased at the insurer’s election subject to certain conditions. The bill has been delivered and is awaiting the Governor’s signature.

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

• H.R. 2555, proposes to establish a program to provide Federal support for State-sponsored insurance programs to help homeowners prepare for and recover from the damages caused by natural catastrophes, to encourage mitigation and prevention for such catastrophes, to promote the use of private market capital as a means to insure against such catastrophes, to expedite the payment of claims and better assist in the financial recovery from such catastrophes. The bill has been referred to the Committee on Financial Services.

• H.R. 2571, proposes to streamline the regulation of nonadmitted insurance and reinsurance, and for other purposes. The principal provisions of the Act: (1) regulate premium taxes for nonadmitted insurance; (2) provide that the placement of nonadmitted insurance shall be subject to regulation solely by the insured’s home state; (3) limit the ability of a state to establish eligibility requirements for US domiciled nonadmitted insurers that vary from the Non-Admitted Insurance Model Act; (4) require a GAO study of the nonadmitted insurance market; (5) regulate the extent to which a state may not recognize credit for reinsurance for an insurer’s ceded risk; (6) partially pre-empt the extraterritorial application of the law of a state to a ceding insurer not domiciled in that state; and (7) provide that in most circumstances a state that is the domicile of a reinsurer shall be solely responsible for regulating its financial solvency. This bill has been referred to the Committee on Financial Services, and in addition to the Committee on the Judiciary.

• H.R. 2589, proposes to establish the Office of Public Finance in the Department of the Treasury to make available Federal reinsurance for insurers of tax-exempt municipal bonds. This bill has been referred to the Committee on Financial Services, and in addition to the Committee on Ways and Means.

This post written by Karen Benson.