Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FURTHER DEVELOPMENTS IN STATE CAPITAL AND SURPLUS RELIEF FOR LIFE INSURERS

by

We have been following requests for relief by life insurance companies with respect to capital and reserve requirements in the current difficult economic situation. Following the NAIC’s rejection of proposals by the ACLI, individual insurers began to apply for relief to their domiciliary regulators, and two more state departments have published positions with respect to such issues. The Delaware Insurance Department has adopted two regulations (1212 and 1215) by Emergency Orders, which address the valuation of life insurance policies and the recognition of preferred mortality tables for use in determining minimum reserve liabilities. The Illinois Division of Insurance has promulgated Company Bulletin 2009-02, which rejects blanket relief, but which states that the Division would consider relief on a company-by-company basis. Posted to the Division’s web site are letters to eight companies relating to such requests. The first such letter, approving a request from Allstate Life Insurance Company relating to the accounting and valuation methodology for market value adjusted annuities, may be viewed here.

Of more industry-wide interest, the NAIC has posted a detailed chart which purports to summarize various permitted and prescribed practices, taken from annual statements submitted by various companies.

This post written by Rollie Goss.

SUPREME COURT “LOOKS THROUGH” FAA § 4 PETITION TO UNDERLYING DISPUTE TO DETERMINE JURISDICTION

by

Last week, in a decision authored by Justice Ginsburg, the Supreme Court announced that a federal court may “look through” a Federal Arbitration Act § 4 petition to determine whether it is predicated on a controversy that arises under federal law. Under the well-pleaded complaint rule, a suit “arises under” federal law when the plaintiff’s statement of the cause of action shows that it is based on federal law. The Court held that the language of § 4 (“save for the arbitration agreement…”) directs federal courts to “look through” the petition itself to determine proper jurisdiction. Justice Ginsburg stated that federal courts should assume the absence of the arbitration agreement and determine jurisdiction based on the parties’ underlying dispute.

With this in mind, the Court held that the underlying controversy between Vaden and Discover Bank did not support federal jurisdiction. The controversy arose from Vaden’s alleged debt and not any federal law or other basis for federal jurisdiction. The Court thus declined federal jurisdiction. Chief Justice Roberts filed an opinion concurring in part and dissenting in part. Vaden v. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009).

This post written by John Black.

APPELLATE COURTS SPLIT ON CONTINUED VIABILITY OF “MANIFEST DISREGARD OF LAW” DOCTRINE

by

We have posted several times about the manifest disregard of law doctrine for vacating arbitration awards, and on the implications for that doctrine of the Supreme Court’s holding last year that the grounds for vacating or modifying arbitration awards set out in the FAA are the “exclusive grounds” upon which federal courts may modify or vacate such awards. Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008). Hall Street left open the question of whether courts, as opposed to parties, could create different standards for vacating arbitration awards. In two recent opinions, the Fifth and Ninth Circuits have reached different conclusions about the impact of Hall Street on the judicially created “manifest disregard of law” doctrine.

In January, the Ninth Circuit issued an opinion stating that “in this circuit, an arbitrator’s manifest disregard of the law remains a valid ground for vacatur of an arbitration award under § 10(a)(4) of the Federal Arbitration Act.” Comedy Club, Inc. v. Improv West Assoc., No. 05-55739 (9th Cir. Jan. 29, 2009). This holding was predicated upon the Ninth Circuit characterizing the manifest disregard doctrine as an example of Section 10(a)(4) of the FAA, situations in which the arbitrator exceeds his/her authority. Recently, however, the Fifth Circuit concluded that Hall Street “unequivocally” restricted the grounds for vacatur to those set forth in the FAA, and that the “manifest disregard of law” doctrine is not a valid basis for vacating an arbitration award under the FAA. Citigroup Global Markets Inc v. Bacon, No. 07-20670 (5th Cir. March 5, 2009). These opinions demonstrate an increasing split of authority as to the continuing viability of the doctrine.

This post written by Lynn Hawkins.

COURT GRANTS IN PART AND DENIES IN PART PLAINTIFF REINSURER’S MOTION TO COMPEL DISCOVERY RESPONSES FROM DEFENDANT REINSURER

by

Plaintiffs Trenwick American Reinsurance Corporation (“Trenwick Re”) and Unum Life Insurance Company of America (“Unum”) brought an action against reinsurer IRC Re, Limited (“IRC Re”) and others arising from a claims dispute under an alleged reinsurance contract under which IRC Re purportedly agreed to reinsure a portion of a risk also partially reinsured by Trenwick Re. Specifically, Trenwick Re alleges that IRC Re agreed to continue to reinsure a 19% portion of a managed workers compensation insurance program (the “Compcare Program”) which IRC Re had previously reinsured, when Trenwick Re and various other parties entered into a quota share reinsurance treaty covering the Compcare Program.

The plaintiffs filed a lengthy Memorandum arguing that the defendants failed to satisfy their discovery obligations by (1) failing to provide responsive documents to certain requests, despite having claimed to have provided them in a 50,000 page purported “document dump;” (2) failing to provide documents under the defendants’ custody or control in the possession of defendant IRC Re’s “management and administrative services provider,” Beecher Carlson, a Bermuda company; (3) failing to produce documents alluded to by defendants’ designated 30(b)(6) deposition witness; and (4) failing to provide complete answers to interrogatories and failing to specify objections beyond “boilerplate” assertions. Defendants filed a Memorandum in opposition. The Court, in a three-sentence electronic order, granted portions of plaintiff’s motion pertaining to points (1) and (4) above, and noted that defendants would not be permitted to rely on any documents not produced in response to plaintiff’s requests. Trenwick American Reinsurance Corp. v. IRC Inc., Case No. 07 -12160 (USDC D. Mass. Dec. 17, 2008).

This post written by John Pitblado.

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.