Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER ENTITLED TO A PREMIUM OFFSET AND THE RECOVERY OF A NON-RENEWAL CHARGE

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This dispute centered around a reinsurance contract between Imagine Insurance Company (“Imagine”) and American Superior Insurance Company (“American Superior”). In August of 2004, three months after the effective date of the contract and after only one premium payment, American Superior suffered a major hurricane loss and almost immediately experienced insolvency. A month later, pursuant to a consent order of rehabilitation, the Florida Department of Financial Services (the “Department”) was appointed as the receiver of American Superior. Imagine then gave 30 days’ notice of intent to terminate the contract pursuant to the special terminations provisions and advised that a non-renewal charge was due from American Superior. In December of 2004, the Department was appointed as the receiver for liquidation purposes. Shortly thereafter, in February of 2005, Imagine asserted the right to recover and retain the non-renewal charge. The Department denied this charge was payable and demanded repayment of unearned premium previously deducted by Imagine. The trial court denied Imagine’s motion for summary judgment, granted the Department’s motion for summary judgment, and concluded that Imagine wrongfully retained the premium offset and could not recover the non-renewal charge.

Applying a de novo standard of review, the appellate court analyzed the contract language applicable to the premium offset and determined that the trial court misinterpreted the word “outstanding” as meaning past due. According to the dictionary and in light of the phrase “due for the Contract Year,” the correct meaning was uncollected or paid. Thus, against any loss payments, Imagine would offset the uncollected or unpaid premium installments remaining for the contract year. Next, the appellate court looked to the non-renewal charge language that states: “Should the Reinsurer elect to decline to offer renewal terms as described above, the Reinsurer shall forfeit the Non Renewal Charge.” The trial court had used the language to find that Imagine was not entitled to a non-renewal charge, but the appellate court reasoned that the reference to contract renewal terms “as described above” implicated the contract renewal section, which was not applicable to the case. Furthermore, the plain language of the contract established Imagine’s entitlement to the non-renewal charge. The appellate court thus reversed the summary judgment order and found that Imagine properly offset the remaining premium installments from the loss payment and was entitled to the non-renewal charge. Imagine Insurance Co., Ltd. v. State of Florida ex rel. The Department of Financial Services, Case No. 1D07-6027 (Fla. Dist. Ct. App. December 16, 2008).

This post written by Dan Crisp.

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.