Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

U.K. COURT FINDS IN FAVOR OF INSURER ON CLAIMS AGAINST ROGUE AGENTS

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A British commercial court tried claims on December 8 and 9, 2008 made by Markel International Insurance Company (“Markel”) and QBE Insurance (Europe) Limited and Amalfi Underwriting Limited as against certain allegedly rogue agents who devised a scheme to defraud the plaintiffs of premium. The agents signed a number of unauthorized bonds on behalf of the principals, and shielded the receipt of premium through a complex accounting scheme.

The court found certain of the agents more or less culpable depending on their level of involvement in the conspiracy. The court also analyzed the appropriate quantum of damages in reference to the amount of premium concealed, and declined to entertain a number of failure-to-mitigate arguments raised by the defendants as untimely, having first been raised after trial. Markel International Insurance Company Limited v. Surety Guarantee Consultants Limited, [2008] EWHC 3087 (Comm. Ct. Queens Bench Div. Dec. 17, 2008)

This post written by John Pitblado.

COURT GRANTS MOTION TO SEAL ARBITRATION AWARD

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Parties to a reinsurance agreement arbitrated a claims dispute, agreeing that the final award and all “arbitration information” be kept confidential. The prevailing party moved to confirm the award and to seal the award. The court found that there was a strong presumption of access to court records, and that the award should be sealed only if there was a showing that the material was of the kind of information that courts will protect, and that disclosure would work a clearly defined and serious injury to the party seeking closure. Evaluating the factors to be considered in evaluating a request to seal a portion of a court record set forth by the Third Circuit, the court found that the award should be sealed. Century Indem. Co. v. Certain Underwriters at Lloyd's, London, Case No. 08-219 (USDC E.D. Pa. Jan. 12, 2009).

This post written by Rollie Goss.

APPELLATE COURT HOLDS THAT SELF-INSURER GROUP IS ENTITLED TO COVERAGE THROUGH STATE INSURANCE GUARANTY ASSOCIATION

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The Louisiana Safety Association of Timbermen – Self Insurers Fund (the “Fund”) is a self-insurance group formed by member companies as a means of securing workers compensation coverage for their employees. In 1998, the Fund obtained statutorily required excess coverage from Reliance Indemnity Company, and in 2001 Reliance became insolvent. The Fund filed proofs of claim against Reliance with the Louisiana Insurance Guaranty Association (“LIGA”). LIGA denied the claims, asserting that the Fund was an insurer and the excess coverage was reinsurance, thus removing the claims from coverage by LIGA under the terms of governing state statutes. The fund brought suit to establish coverage for all past and future claims.

The trial court granted summary judgment to the Fund. The Louisiana Appellate Court affirmed, citing the terms of applicable workers compensation and insurance guaranty association statutes to support its determination that the excess coverage the Fund obtained was not “reinsurance” as that term is used under applicable statutes and that the Fund is not an “insurer” causing it to become statutorily exempt from coverage through LIGA. The Court also rejected LIGA’s argument that a statutory exclusion of coverage to any self-insured corporation with a net worth above $25,000,000 should apply to the Fund’s member companies in the aggregate. The court found that the member companies were not “affiliates” of one another as the term is used in the statute and thus held that their net worth should not be aggregated for purposes of the statutory exclusion. Louisiana Safety Assoc. of Timbermen – Self Insurers Fund v. Louisiana Ins. Guaranty Assoc., No. 43,615–CA (La. Ct. App. Dec. 3, 2008).

This post written by John Pitblado.

NEW YORK INSURANCE DEPARTMENT PROPOSES CHANGES TO REINSURANCE CREDIT REGULATION

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The New York Insurance Department has proposed a revision to Regulation No. 20 (121 NYCRR 125) – Credit for Reinsurance from Unauthorized Insurers. The Department has published a summary of the proposed amendment, and the Notice of Proposed Rule Making notes that comments will be accepted until 45 days after the publication of the Notice. We have confirmed with the Department that the comment period closes February 9, 2009. The amendment proposes to apply principle-based credit risk management standards to all licensed ceded insurers, and provides an alternative credit for reinsurance ceded to unauthorized reinsurers, which adjusts the credit that the ceding insurer may take on its financial statement based upon the financial strength of the unauthorized assuming reinsurer. The financial strength determination is based upon ratings by Standard & Poor’s, Moody’s Investor Services, Fitch Ratings, A.M. Best Company or any other rating agency recognized by the Securities Valuation Office of the NAIC.

This post written by Rollie Goss.

LEGISLATIVE UPDATE

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The following reinsurance-related legislation was recently proposed in federal and state legislative bodies:

  • On January 6, 2009, Senator John Kerry introduced S. 79, a bill to amend the Social Security Act to establish a federal reinsurance program for catastrophic health care costs proposing, among other things, to establish within the Department of Health and Human Services an office to be known as the “Office of Federal Reinsurance.” The bill was referred to the Committee on Finance.
  • That same day, Representative Ginny Brown-Waite of Florida introduced H.R. 83, to establish a program to provide reinsurance “for state natural catastrophe insurance programs to help the United States better prepare for and protect its citizens against the ravages of natural catastrophes, to encourage and promote mitigation and prevention for, and recovery and rebuilding from such catastrophes, and to better assist in the financial recover from such catastrophes.” The bill was referred to the Committee on Financial Services.
  • A bill has been introduced into the North Dakota Senate to amend and reenact portions of N.D. Code § 26.1-06.1-31, which deals with reductions in amounts recoverable by liquidators from reinsurers.
  • The Montana State Auditor requested House Bill No. 161, which was introduced to 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, and expand the scope of laws applicable to captive insurance companies.

This post written by Brian Perryman.