Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

EFFORTS TO COMPEL ARBITRATION OF COMMUTATION AGREEMENT FAIL

by

A group of reinsurers recently lost both their application for a partial stay of litigation pending arbitration and application to appoint an umpire pursuant to the Federal Arbitration Act. The underlying dispute between the parties concerned a disagreement regarding whether the parties’ commutation agreement covered certain reinsurance contracts purchased from various non-party insurance companies. The plaintiff (CNA) filed an action for a declaratory judgment, alleging that the commutation agreement did not apply to the non-party reinsurance contracts. The reinsurers (collectively, SCOR) argued that the commutation settled and terminated those reinsurance contracts, and that the dispute over one of the reinsurance contracts was already the subject of pending arbitration between the parties. The court declined to order a stay in the case since CNA’s claim – a request for a declaration of rights under the commutation agreement – did not fall within any enforceable agreement to arbitrate. The commutation itself did not include an agreement to arbitrate. The court also declined to appoint an umpire since both the existence of an enforceable arbitration agreement between SCOR and CNA as well as the commutation of one of the reinsurance contracts was disputed. The court observed that appointing an umpire before determining whether the parties are required to arbitrate would be premature. Continental Casualty Co. v. Commercial Risk Re-Ins. Co., Case No. 07-6912 (USDC N.D. Ill. Apr. 16, 2009).

Prior to this ruling, the court had also denied the defendant's Motion to Stay Discovery pending its ruling on the afore-mentioned matters.

This post written by Brian Perryman.

COURT DENIES MOTION TO COMPEL ARBITRATION FINDING AMBIGUITY AS TO WHETHER ARBITRATION WAS EXCLUSIVE REMEDY

by

On April 14, 2009, the United States District Court for the District of New Jersey denied Consolidated Services Group’s motion to compel arbitration under the terms of its agreement with plaintiff, Creative Marketing Alliance. The Court determined that although the contract contained an arbitration clause, the agreement was ambiguous as to whether arbitration was the exclusive remedy for all disputes. The Court noted that the agreement acknowledged the possibility of litigation by vesting the District of New Jersey with “sole and exclusive jurisdiction to resolve and interpretation, construction, breach, dispute or other controversy arising” out of the agreement. The arbitration provision failed to state “in clear and unmistakable terms” that the parties elected arbitration for all disputes and waived their right to litigation. Creative Mktg. Alliance, Inc. v. Consolidated Servs. Group, Inc., Case No. 09-518 (D. N.J. April 14, 2009).

This post written by John Black.

REINSURER’S CLAIMS SURVIVE (IN PART) EARLY DISPOSITIVE MOTION

by

A court granted in part and denied in part a motion for judgment on the pleadings in a case involving claims by a reinsurer of automobile insurance policies (Lincoln General) against its cedent (U.S. Auto) and the cedent’s affiliates for allegedly intentionally miscalculating amounts owed under certain agreements between Lincoln General and U.S. Auto. Lincoln General argued that it had been underpaid, and was owed millions of dollars from U.S. Auto, and that the affiliates were also liable for U.S. Auto’s actions under various theories of direct and vicarious liability. The court denied that part of the defendants’ motion arguing that Lincoln General failed to set forth facts forming the basis of a viable veil-piercing claim; Lincoln General’s complaint adequately pled an alter ego theory. The court also allowed a tortious interference with contract claim to proceed against some of the defendants. However, the court granted that part of the motion arguing that non-signatories to the guaranty agreements between Lincoln General and U.S. Auto could not be held liable as guarantors, and that Lincoln General’s unjust enrichment claim failed as to those defendants who had written agreements with Lincoln General. Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., Case No. 07-1985 (USDC N.D. Tex. Apr. 29, 2009).

This post written by Brian Perryman.

REINSURANCE LEGISLATIVE UPDATE

by

As the state legislative session nears an end, there continues to be activity in the following three areas: (1) reinsurance, (2) captive insurers, and (2) catastrophe funds. There is also continuing interest in a proposed federal bill.

Reinsurance. Oregon House Bill No. 2755 was introduced to require the Department of Consumer and Business Services to conduct a study of reinsurance alternatives for individual and small employer group health insurance markets and submit proposals to the Legislative Assembly by October 1, 2010. Two work sessions regarding the bill were held on April 10 and 24, 2009. Massachusetts Senate Bill No. 495 was also introduced to establish a reinsurance program to protect consumers of small group health insurance.

Captive Insurers. Missouri House Bill No. 577 was introduced to modify various provisions of Missouri’s captive insurance company law and permit an association captive insurance company or an industrial insured captive insurance company to be organized as a reciprocal insurer. Two companion bills (SB 269 and SB 464) to HB 577 were introduced in the Missouri Senate. There is also a bill (SB 323) pending in the South Carolina Senate that would make several changes to the state’s captive insurance company law relating to incorporation, licensing, capitalization and other requirements.

Catastrophe Funds. The New York Consumers Catastrophe Preparedness and Protection Act (SB 4188) was introduced in the New York Senate. This Act would establish the New York state catastrophe fund and an advisory council, comprised of experts from many professions related to disaster preparedness and mitigation, that is specifically charged with developing disaster prevention and mitigation standards and developing a consumer education program. A companion bill (AB 7781) to SB 4188 was introduced in the New York State Assembly. A bill (SB 295) was also introduced in the Louisiana Senate, which would create a Louisiana state catastrophe fund and implement the Louisiana Consumers Catastrophe Preparedness and Protection Act.

Federal legislation. On December 29, 2008, we posted about a proposed bill relating to the tax treatment of related party reinsurance premiums which was exposed for comment by the Senate Committee on Finance. As of this date, the bill has not been introduced, and over 50 comments have been submitted to the Committee and posted to its Web site. The comments come from individuals, law firms, trade associations, companies, Germany, Switzerland and the European Union. One interesting comment submitted by the Risk and Insurance Management Society is a study by The Brattle Group, prepared on behalf of foreign reinsurers, titled The Impact on the US Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic Analysis. While this post does not take a position as to the appropriateness or desirability of this proposed bill, this document contains an interesting description of the US reinsurance market, which is interesting reading independently of the proposed bill.

This post written by Karen Benson.

RULE 60(B) MOTION NOT AVAILABLE TO CIRCUMVENT OR EXPAND THE FAA’S GROUNDS FOR VACATUR OF AN ARBITRATION AWARD

by

On October 6, 2008, we reported on a Texas district court entering orders, over a period of several months, confirming two arbitration awards, granting partial final judgment under Rule 54(b), denying a stay without bond, and denying a Rule 59 motion to set aside the partial final judgment.

Halliburton Energy Services, Inc. (“Halliburton”) has since moved for relief under Rule 60(b), for discovery relating to its Rule 60(b) motion, and for a protective order on discovery into its assets. Halliburton claimed that documents recently discovered in its own files conclusively establish a key issue determined in the arbitration and sought discovery into the opposing party’s knowledge of these documents. The court, after declining to rule on the issue of the motion’s timeliness, denied the motion for relief under Rule 60(b), holding that Rule 60(b) was not available to vacate the award and, on the merits, finding that Halliburton presented no evidence of fraud or misconduct, could not show that these documents would have changed the proceedings, could not show that the judgment was inequitable, had the opportunity to fully and fairly present its case, and could not show due diligence in its search for documents. Finally, the court denied the motion for discovery related to the Rule 60(b) motion and granted the motion for a protective order, finding that discovery into Halliburton’s assets was not supported by the record. Halliburton Energy Servs., Inc. v. NL Indus., Case No. 05-4160 (USDC S.D. Tex. Mar. 31, 2009).

This post written by Dan Crisp.