Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DENIES MOTION TO DISMISS AMENDED PLEADING, HOLDING THAT DEFECTS IN PREVIOUSLY DISMISSED COMPLAINT WERE CURED

by

In a previous post dated August 13, 2008, we noted that a federal court dismissed a complaint brought by Swiss Reinsurance America Corporation (“Swiss Re”) against the Access General Agency, Inc., Access Claims Administrators, Inc., and Access General Insurance Agency of California (“Access Entities”), alleging that the Access Entities failed to manage and administer claims properly under Swiss Re’s predecessors’ reinsurance program. The Court's opinion granted the motion to dismiss on the basis that Swiss Re’s earlier complaint failed to differentiate claims and allegations between the related but separate Access Entities.

Swiss Re amended its complaint and the defendants again filed a motion to dismiss. This time, the Court denied the defendants’ motion, finding that Swiss Re adequately cured its previous pleading by: (1) separating counts against the various Access Entities and identifying the various contracts under which claims were brought against each defendant; and (2) by pleading sufficient facts in support of its claim that the Access Entities should be jointly liable under an “alter ego” theory. Swiss Reinsurance America Corp. v. Access General Agency, Inc., Case No. 07 -3954 (USDC N.D. Ill. Jan. 26, 2009).

This post written by John Pitblado.

STOP-LOSS POLICY PREMIUMS SUBJECT TO MISSOURI’S DIRECT PREMIUM TAX

by

American National Life Insurance Company of Texas (“American National”) sells stop-loss insurance policies in Missouri, and a dispute developed as to whether premiums for such coverage were subject to the state’s direct premium tax. American National paid the tax under protest and filed a claim for refund, which was denied by the Department of Revenue, which was affirmed in an administrative hearing. The Missouri Supreme Court reviewed the decision because the case involved the construction of state revenue laws. American National argued that the stop-loss policies are reinsurance and not subject to the direct premium tax. The court looked to Black’s Law Dictionary and other sources and concluded that a tax on “direct premiums received” is a tax imposed upon consideration paid by an insured to an insurer for a contract of insurance. The court rejected American National’s reinsurance argument, affirming the decisions below. American National Life Insurance Co. of Texas v. Director of Revenue, Case No. SC89064 (Mo. Nov. 4, 2008).

This post written by Dan Crisp.

COURTS RULE ON ARBITRATION PROCEDURE ISSUES

by

Courts have recently ruled on various issues of arbitrability:

  • A party which commenced, and lost, an arbitration sought vacation of the award on the basis that the arbitration clause was unconscionable. The court rejected the claim, finding the party judicially stopped to make the argument since he had invoked the clause to commence the arbitration after the insurer filed a declaratory judgment action against him. Pegues v. Progressive Northern Ins. Co., No. 2008AP1500 (Wisc. Ct. App. Feb. 25, 2009).

  • A court compelled arbitration, rejecting an argument that mandatory arbitration provisions in an employment contracted were unconstitutional under the due process provisions of the Fifth Amendment to the Constitution because the claimant did not have the same procedural and discovery rights in arbitration that she would have had in litigation, were procedurally and substantively unconscionable and violated her Seventh Amendment right to a jury trial. Forbes v. A. G. Edwards & Sons, Inc., Case No. 08-552 (USDC S.D.N.Y. Feb. 18, 2009).

  • A court denied a motion to compel arbitration, finding that providing an arbitration agreement to a new employee for agreement by e-mail was valid, but that there was insufficient proof that the employee had agreed to the provision. Kerr v. Dillard Store Services, Inc., Case No. 07-2604 (USDC D. Ks. Feb. 17, 2009).

  • An appellate court affirmed the denial of a motion to compel arbitration since the plaintiff did not agree to arbitrate, and the contract containing the arbitration provision did not cover the parties to the action. Ins. Corp. of N.Y. v. Kenning Mgmt. of Ct., LLC, 2009 NY Slip Op 01541 (N.Y. App. Div. Mar. 3, 2009).

This post written by Rollie Goss.

EMERGING TRENDS IN SEALING ARBITRATION AWARDS?

by

A trend seems to be emerging in favor of allowing arbitration awards to be sealed. Two district courts recently granted Swiss Re’s and Nationwide Mutual’s respective motions to seal petitions to confirm arbitration awards. In the first instance, Swiss Re argued, and the court agreed, that the existence of a confidentiality agreement between the parties was a sufficient basis to seal the records relating to the award. Swiss Reinsurance Co. v. Lincoln National Reinsurance Co. Ltd, Case No. 1109-036 (USDC N.D. Ind. February 6, 2009). Similarly, the Northern District of Indiana granted Nationwide Mutual’s motion to seal in an effort to comply with a confidentiality order entered by the panel that entered the award. Nationwide Mutual Ins. Co. v. Westchester Fire Ins. Co., Case No. 08 -673 (USDC W.D. Wisc., February 3, 2009). (See also February 10, 2009 post “Court Grants Motion to Seal Arbitration Award” and December 2, 2008 post “Arbitration Award Allowed to be Filed Under Temporary Seal”).

Just last year, however, the Southern District of New York held that despite the confidential nature of arbitration proceedings, a party seeking to confirm an arbitration award in court must establish some justifiable reason as to why the award and any documents filed in conjunction with the petition to confirm should remain confidential in order to overcome the strong judicial presumption against sealing judicial records. The New York court concluded that the risk of impairing the exchange of information between parties to a reinsurance agreement due to fear of ultimate disclosure could not overcome the strong presumption of access afforded to documents filed in court. Global Reinsurance Corp. v. Argonaut Ins. Co., Case No. 07-8196 and 07- 8350 (USDC S.D.N.Y. April 18, 2008). (For full details see May 6, 2008 post “Reinsurance Claims Rejected; Court Refuses to Seal Confirmation.”)

This post written by Lynn Hawkins.

REINSURANCE COMPANIES VICTORIOUS IN SECURITIES FRAUD CLASS ACTIONS ARISING OUT OF CAT LOSSES

by

Two reinsurance companies have prevailed on motions to dismiss in shareholder securities law putative class actions over the restatements of loss levels from cat events, illustrating that the process of estimating cat losses accurately may be challenging, and that companies are not guarantors of the completeness and accuracy of that process. PXRE prevailed in a lawsuit alleging a scheme to understate losses arising out of a series of hurricanes that devastated the Gulf Coast in 2005, restating the amount of losses several times. Judge Sullivan granted PXRE’s motion to dismiss, finding that plaintiffs “failed to plead that defendants were reckless in not knowing about the flaws in PXRE’s calculation of its loss estimates.” In re PXRE Group, Ltd., Securities Litigation, No. 06 CIV 3410 (S.D.N.Y. March 5, 2009). Judge Sullivan issued an order in a similar individual case filed against PXRE implying that he will follow the same course in that action. Anegada Master Fund Ltd v. PXRE Group Ltd., No. 08 Civ 10584 (S.D.N.Y. March 5, 2009).

Quanta Capital Holdings Ltd. (“Quanta”) issued several estimated loss projections relating to Hurricanes Katrina and Rita that ranged from $42-$68.5 million, resulting in multiple rating downgrades, forcing Quanta to cease writing new insurance and reinsurance business and to sell its remaining insurance and reinsurance portfolios. Noting the conjectural nature of insurance reserves established for losses that have been incurred but not yet reported, the court ruled that the Complaint did not put forth sufficient factual allegations such that the court could plausibly find that the loss estimate included in the offering documents was a material untruth at the time it was made, especially since the adjusted estimate was based on a single business interruption claim. The district court also held that the Complaint did not meet applicable heightened pleading requirements, and that some of the claims failed because the $68.5 million preliminary loss estimate was protected by the “bespeaks caution” doctrine. Zirkin v. Quanta Capital Holdings Ltd., Case No. 07-851 (USDC S.D.N.Y. Jan. 22, 2009).

This post written by Rollie Goss.