Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

STATE REGULATORY RULINGS RELATING TO RISK POOLING TRUST AND TRIA

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The New York State Insurance Department’s Office of General Counsel issued an opinion concluding that a New York domestic insurer may enter into a reinsurance agreement with an Illinois-based risk pooling trust and obtain credit for that reinsurance so long as the New York insurer holds funds provided by the trust in accordance with certain New York insurance law requirements. OGC Op. No. 08-10-02.

The Montana State Auditor’s office issued an advisory memorandum explaining how certain provisions in the Terrorism Risk Insurance Program Reauthorization Extension Act of 2007 may require Montana insurers to submit a filing of the disclosure notices, policy language, and applicable rates. Advisory Memorandum.

This post written by Dan Crisp.

SECOND CIRCUIT AFFIRMS DISMISSAL OF INSUREDS’ CONSTRUCTIVE TRUST COUNTERCLAIM OVER REINSURANCE BANKRUPTCY SETTLEMENT PROCEEDS

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The “Ades” and “Berg” groups of investors (the “Ades Berg Group”), were parties who joined in the bankruptcy proceedings of the Bennett Funding Group, Inc. and related companies (the “Bennett Group”), based on claims that, among other things, the Bennett Group had defrauded them in an investment scheme. The Bennett Group was insured under a reinsurance contract issued by Sphere Drake Insurance PLC (“Sphere Drake”). A settlement was reached in the course of the bankruptcy proceedings between some groups of investors and Sphere Drake. As part of the settlement, Sphere Drake made some payments to certain parties, and held remaining policy proceeds for distribution to remaining parties in the bankruptcy.

Richard Breeden, as bankruptcy Trustee of the Bennett Group, asserted declaratory claims within the context of the bankruptcy proceeding against Sphere Drake and the Ades Berg Group pertaining to the distribution of unallocated policy proceeds. The Ades Berg Group asserted a counterclaim against Mr. Breeden, seeking the imposition of a constructive trust over any remaining insurance proceeds. Mr. Breeden sought dismissal of the counterclaim, arguing that the imposition of a constructive trust would inequitably interfere with his duties as Trustee to distribute proceeds to remaining debtors in accordance with applicable federal bankruptcy law. The bankruptcy court agreed, dismissing the counterclaim, with prejudice, based in part on principles embodied in the federal bankruptcy laws. The Second Circuit Court of Appeals affirmed, finding that the New York state law equitable principles urged by The Ades Berg Group did not conflict with the purposes of the federal bankruptcy laws, and that the bankruptcy court’s ruling thus did not run afoul of recent U.S. Supreme Court precedent cited by the Ades Berg Group, which reaffirmed the principle that constructive trusts should be determined with reference to state law. In re Ades and Berg Group Investors, No. 07-3464 (2d Cir. Dec. 16, 2008).

This post written by John Pitblado.

NAIC TO HOLD PUBLIC HEARING ON ACLI PROPOSALS FOR LIFE INSURER CAPTIAL AND SURPLUS RELIEF, INCLUDING REINSURANCE COLLATERAL PROPOSAL

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The National Association of Insurance Commissioner’s consideration of proposals made by the ACLI is progressing, according to a release from the NAIC. The NAIC Executive Committee and Plenary on a January 2, 2009 conference call considered the Working Group’s recommendation, and decided to expose the recommendation for public comment (with a January 23, 2009 comment deadline) in advance of a January 27, 2009 public hearing in Washington, DC. The Working Group recommended adopting five of the ACLI’s nine proposals, including the one relating to reinsurance collateral requirements. The reinsurance proposal is now the subject of a proposed guidance letter.

This post written by Rollie Goss.

REINSURANCE AND CAPITAL MARKET INFORMATION FROM GUY CARPENTER

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If you are looking for news and research on the reinsurance market or the capital markets, you may wish to check out a web site maintained by broker/intermediary Guy Carpenter, called GC Capital Ideas. The site is presented in a blog-type format, and contains information with a financial bent, such as reinsurance rates, cat and other claims trends, and alternative risk transfer venues.

This post written by Rollie Goss.

UK COURT REFUSES TO HOLD DIRECTOR LIABLE ON JUDGMENT AGAINST INSURER

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As we previously posted in July, 2007, a UK court assessed costs against insurance broker Horace Holman & Co. (“Horace”) in an action Horace brought against Equitas Ltd. (“Equitas”) which the Court found to be “largely fruitless.” The matter was recently brought back before the Court by Equitas, which sought post-judgment enforcement of the order, insofar as Horace has not made ordered payments. Horace responded that it was in liquidation proceedings, and Equitas responded by asserting that Horace’s liability is recoverable from Mr. Arwyn Powell, who was added as a party to the proceeding. Mr. Powell was Holman’s sole shareholder and managing director, and also shareholder and director of related companies, including Camomile Management Consulting Ltd. (“Camomile”), which was a creditor of Horace in the liquidation proceedings.

The Court rejected the enforcement orders sought by Equitas. First, the Court rejected the allegation that Horace’s liquidation was a previously devised plan to avoid any judgment in the event one was obtained against it, and that Equitas thus had no further rights against Horace than as creditor in the liquidation proceedings. The court rejected claims directly against Mr. Powell as sole shareholder of Horace, finding no ground for “piercing the corporate veil.” The Court also rejected the claim that Powell, as Camomile’s shareholder, stood to benefit from liquidation, and Camomile’s position as creditor in that proceeding. Finally, the Court found it dispositive that Equitas failed to warn Powell that it would seek to recover directly against him, prior to making its application for such recovery. Equitas Ltd. v. Horace Holman & Co., Ltd. [2008] EWHC 2287 (Comm) (Oct. 3, 2008).

This post written by John Pitblado.