Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARROWOOD AND COVENANT SETTLE REINSURANCE PREMIUM BATTLE

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Arrowood Indemnity Co., as reinsurer, sued The Covenant Group, a reinsurance program administrator, alleging that Covenant agreed to hold harmless and indemnify Arrowood for Covenant’s “failure to collect all premium audits arising under insurance policies issued pursuant to certain” agreements. The complaint sought payment for $363,669.10 in premiums never remitted to Arrowood in breach of a reinsurance agreement. Covenant counterclaimed for $157,181.79 in alleged unpaid premiums. The parties stipulated to dismissal of the action with prejudice on February 23, 2009, after they agreed to settle all claims. The terms of the settlement are confidential. Arrowood Indem. Co. v. The Covenant Group, Case No. 08-1414 (USDC D.Conn. Feb. 23, 2009).

This post written by John Black.

VARYING RULINGS WITH RESPECT TO ARBITRATION AWARDS

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Courts Confirm Awards Finding Sufficient Support In Record: New Jersey Reg'l Council of Carpenters v. Patock Constr. Co., Case No. 08-4952 (USDC D.N.J. Mar. 11, 2009) (sufficient basis to find that respondent improperly subcontracted with a non-signatory subcontractor and lost work opportunity damages were proper); Tlumacki v. CAN Ins. Cos., No. A-4024-05T5 (N.J. Super. Ct. App. Div. Mar. 31, 2009) (sufficient evidentiary basis for the award existed and no showing of impartiality).

Confirming Awards Based On Arbitrator’s Interpretation Of Agreement: Blair Commc'ns, Inc. v. Int'l Bhd. of Elec. Workers, Local Union No. 5, Case No. 07-162 (W.D. Pa. Mar. 26, 2009) (“work preservation” agreement in collective bargaining agreement did not violate public policy); Global Reinsurance Corp. of Am. v. Argonaut Ins. Co., Case No. 07-7514 (USDC S.D.N.Y. Mar. 23, 2009) (arbitrator employed a plausible construction of reinsurance treaties’ definition of “loss occurrence,” and properly applied “follow the fortunes” doctrine).

Requests To Vacate: McQueen-Starling v. UnitedHealth Group, Inc., Case No. 08-4885 (USDC S.D.N.Y. Mar. 20, 2009) (remanding to arbitrator for clarification of unaddressed “retaliation claim” in discrimination case); Int'l Longshoremen’s Ass'n (Local 1575) v. Horizon Lines, Inc., Case. No. 08-1530 (USDC D.P.R. Mar. 16, 2008) (award “does not suffer from inanition or manifest errors of law”); Jones v. PPG Indus. Inc., Case No. 07-1537 (USDC W.D. Pa. Mar. 13, 2009) (no manifest disregard of law); Williams v. Mexican Rest. Inc., Case No. 05-841 (USDC E.D.Tex. Mar. 18, 2009) (confirming award since errors of fact did not justify vacating awards; see March 25, 2009 post); Kesterson v. NCO Portfolio Mgmt. Inc., Case No. 08-182 (USDC N.D. Ind. Mar. 27, 2009) (adopting Report and Recommendation that petition to vacate award be granted following entry of default judgment for defendant’s failure to appear).

Miscellaneous: A. Bauer Mech. Inc. v. Joint Arbitration Bd. of the Plumbing Contractors’ Ass'n, No. 06-3936 (7th Cir. Mar. 25, 2009) (affirming default judgment for failure to respond to counterclaim to enforce arbitration board’s ruling; Caraballo v. City of Chicago, Case No. 07-2807 (USDC N.D. Ill. Mar. 18, 2009) (requiring plaintiffs to arbitrate consolidated FLSA claims); Laundry, Dry Cleaning Workers & Allied Indus. Health Fund v. Jung Sun Laundry Group Corp Case, No. 08-2771 (USDC E.D.N.Y. Mar. 16, 2007) (adopting Report and Recommendation that award be confirmed; respondent failed to appear at arbitration and confirmation proceedings and no manifest disregard of law).

This post written by Brian Perryman.

COURT BINDS INSURER TO ARBITRATION AWARD EVEN THOUGH NOT A PARTY TO THE ARBITRATION AND IT HAD NO DUTY TO DEFEND

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On February 20, 2009, the California Court of Appeals handed down an opinion considering whether an arbitration award and resulting judgment could be considered a “loss” under the terms of an insurance policy. This action arose out of an insurance agreement issued by Executive Risk Indemnity, Inc. (“ERII”) to STARS Holding Company (“STARS”). A former client (“Jones”) of STARS initiated an arbitration proceeding against the firm for faulty investment advice. Though it was aware of the proceedings, ERII chose not to participate in the arbitration. An award was levied against STARS, and the California Court of Appeals determined that ERII was bound by that decision. This appeal arose out of the ensuing coverage action between Jones (to whom STARS assigned its rights under the underlying insurance policy) and ERII.

The court determined that because ERII was bound by the results of the arbitration proceeding between its insured, STARS, and the injured party, Jones, it could not now contest the validity of STARS’s liability to Jones or the amount of damages established by the judgment. The court concluded that “when an insurer (1) is duly notified of the underlying claim against the insured; and (2) is given a full opportunity to protect its interests, the resulting judgment – if obtained without fraud or collusion – is binding against the insurer in any later coverage litigation on the claim involving its insured.” This rule applied despite the fact that ERII had no contractual duty to defend under the indemnity-only policy at issue. Thus, the court reversed and remanded for further proceedings to determine if ERII was required to indemnify STARS. Executive Risk Indem., Inc. v. Jones, Case No. 05-444352 (Cal. Ct. App. Feb. 20, 2009).

This post written by John Black.

NAIC CONSIDERATION OF REINSURANCE REGULATORY MODERNIZATION AND COLLATERAL CHANGES PROCEEDS

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At the spring meeting of the NAIC, the Reinsurance Task Force (meeting summary) voted not to proceed with a proposed reinsurance collateral model bulletin, but voted to expose a proposed reinsurance collateral guidance memo for a comment period ending April 23, 2009. The Task Force also voted to expose for a comment period a draft of a federal statute for a reinsurance regulatory modernization framework (comment period expires April 23, 2009). The desire is to submit the proposed bill for consideration by Congress in the current session. The Finance (E) Committee adopted the report of the Task Force (meeting summary).

This post written by Rollie Goss.

COURT ORDERS PLAINTIFF TO PRODUCE CLAIMS FILES AND REINSURANCE POLICIES

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Plaintiff Clarendon National Insurance Company (“Clarendon”) sued Atlantic Risk Management, Inc. (“Atlantic”), its third party claims administrator (“TPA”), based in part on its contention that it consistently relied on Atlantic’s coverage recommendations to its detriment. The trial court denied Atlantic’s motions to compel production of Clarendon’s claim files and copies of its reinsurance policies. The Appellate Division reversed, ordering Clarendon to produce all of its claims files for which Atlantic served as TPA, as well as copies of its reinsurance policies. The Court held that the claims files were relevant to plaintiff’s claims handling practices at issue, and that the reinsurance policies are required to be disclosed under New York’s procedural rule requiring production of all insurance policies which potentially cover the subject liability. Clarendon Nat’l Ins. Co. v. Atlantic Risk Mgmt. Inc., Nos. 5303N, 5303NA, 5303NB and 5303NC (N.Y. App. Div. Feb. 19, 2009).

This post written by John Pitblado.