Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

LEGISLATIVE UPDATE

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Following are legislative developments relevant to state captive insurance laws:

  • The Montana State Auditor requested House Bill No. 160, which was adopted by the Montana legislature to revise captive insurance laws, authorize the Insurance Commissioner to waive RBC reports for captive risk retention groups, clarify collection of the premium tax, change the calculation of the tax on direct premiums, revise investment requires for captive insurers, and expand the scope of laws applicable to captive insurance companies. The effective date of the legislation is July 1, 2009.

  • SP 520 has been introduced in the Maine Senate, which amends the State's laws regulating captive insurance companies to encourage the formation of new captive insurance companies in the State. The amendments are modeled after laws relating to captive insurance companies in Vermont. The bill has been referred to the Committee on Insurance and Financial Services.

Following are legislative and regulatory developments relevant to reinsurance:

  • Senate Bill No. 442 has been introduced in the Maine Senate to repeal the Maine Individual Reinsurance Association and enact the Health Insurance Individual Small Group Reinsurance Fund to provide reimbursement of certain high-cost claims for persons covered under individual and small group health plans.

  • North Dakota SB 2181 was recently signed into law. The law amends and reenacts portions of N.D. Code § 26.1-06.1-31, which deals with reductions in amounts recoverable by liquidators from reinsurers.

There are three Congressional bills of interest:

  • H.R. 1583 proposes to repeal the insurance industry's antitrust exemption through amendment of the McCarran-Ferguson Act. The bill has been referred to the Committee on the Judiciary, and in addition to the Committees on Energy and Commerce, and Financial Services

  • H.R. 83 (referred to the Committee on Financial Services) (bill text and bill summary) proposes a program to provide reinsurance for State natural catastrophe insurance programs, and S. 505 (referred to the Committee on Banking, Housing, and Urban Affairs) proposes the establishment of a National Catastrophe Risks Consortium and a National Homeowners' Insurance Stabilization Program.

This post written by Karen Benson.

UPDATE ON ANALYSIS OF NAIC CONSIDERATION OF REINSURANCE REGULATORY MODERNIZATION AND COLLATERAL CHANGES

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On April 13, 2009 we posted about the actions of the NAIC, at its recent meetings, to move forward on the regulation of reinsurance, collateral for reinsurance agreements and the modification of credit for reinsurance rules. Our partner Tony Cicchetti has posted a more detailed analysis of the regulatory and collateral proposals on several occasions, and he has updated that analysis to provide a comprehensive view of these issues.

This post written by Tony Cicchetti.

PLAINTIFF WAIVED CONTRACTUAL RIGHT TO ARBITRATE AFTER SUBSTANTIALLY LITIGATING MATTER IN COURT

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This case arose out of a severance agreement, containing an arbitration clause, between an employer and employee. Following the employee's death, his widow, who was aware of the agreement's arbitration provision, sued the employer in court alleging that the employer breached the severance agreement. After ten months of litigating in court, the plaintiff moved to compel arbitration. The district court denied her motion, finding that she waived her right to arbitrate by having invoked the judicial process to such an extent as to have prejudiced the employer. The plaintiff appealed the decision, but the Fifth Circuit Court of Appeals affirmed, finding that, while disfavored, a court may nonetheless find that a party has waived its contractual right to arbitration by substantially invoking the judicial process to its opponent’s detriment, despite awareness of its contractual right to arbitrate, and that the trial court therefore did not abuse its discretion in denying the motion to compel arbitration. Nicholas v. KBR, Inc., No. 08-20140 (5th Cir. April 15, 2009)

This post written by John Pitblado.

JURY RETURNS DEFENSE VERDICT FOR AON RE, INC. IN SIX-YEAR BATTLE WITH RELIASTAR LIFE INSURANCE COMPANY

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Reliastar Life Insurance Company (“Reliastar”) sued Aon Re, Inc. (“Aon”) in state court, alleging, under various legal theories, that Aon misled Reliastar to believe that Reliastar continued to be reinsured through a reinsurance pool (“the Pool”), when in fact it had less coverage than it had been led to believe. Reliastar alleged that Aon, and an individual broker working with Aon, were Reliastar’s agents responsible for administering Reliastar’s reinsurance needs through the Pool, and fraudulently misrepresented the level and extent of reinsurance protecting Reliastar.

Aon’s defense was two-fold. First, it asserted that another broker exclusively handled Reliastar’s reinsurance placement, and thus Aon was not Reliastar’s agent relative to the conduct at issue in the suit, and thus Aon had no duty to ensure Reliastar had any particular reinsurance protection through the Pool. Second, Aon contended that Reliastar was an active participant in the administration of reinsurance through the Pool, and as such was fully aware that certain other Pool members had withdrawn from participation, leaving Reliastar with a greater share of the overall risk. After a lengthy trial, the jury returned a verdict in favor of Aon. Reliastar Life Insurance Company v. Aon Re, Inc., No. 3916-03 (N.J. Super. Ct. March 26, 2009). Details of the case are available in the Final Joint Pre-Trial Order.

This post written by John Pitblado.

NEW YORK DEPARTMENT OF INSURANCE PROPOSES MANDATORY CATASTROPHE RESERVES FOR P&C COMPANIES

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The New York Insurance Department has proposed Regulation 189 – Mandatory Catastrophe Reserves for Property/Casualty Insurance Companies. The rule proposal would require every authorized property/casualty insurer issuing a policy of insurance or contract of reinsurance covering losses resulting form a catastrophe to property located in New York, and receiving New York subject premiums, to establish a New York mandatory contingent catastrophe reserve, which shall only be used toward the payment of claims from qualifying losses. In developing this rule proposal, the Department reviewed the research of the NAIC – Catastrophe Insurance Working Group, Casualty Actuarial Society, and performed outreach to property/casualty insurers, consumer groups, and other interested parties. The Department has published the text of the proposed regulation, and the Notice of Proposed Rulemaking notes that comments will be accepted until 45 days after the publication of the Notice. The comment period closes May 26, 2009.

This post written by Karen Benson.