Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NORTH KOREA INSURANCE CLAIM DISPUTE FINALLY COMES TO A CONCLUSION

by

The saga of Korea National Insurance Corporation’s claim to its reinsurers (profiled several times in posts on this blog), arising out of a helicopter crash, apparently has finally come to an end. The insurers’ action to enforce a judgment obtained in a North Korean court went to trial last month. During the trial, the court struck certain of the reinsurers’ fraud-related defenses as being non-justiciable. Korea National Ins. Co. v. Allianz Global Corporate & Specialty AG [2008] EWHC 2829 (Comm. Nov. 18, 2008). The Court declined to stay the trial pending an appeal, and the trial continued while the reinsurers appealed the decision. The Court of Appeals allowed the appeal, reversing the decision. The parties then settled the case, with the reinsurers paying the equivalent of 95% of the amount claimed. Korea National Ins. Co. v. Allianz Global Corporate & Specialty AG [2008] EWCA 1355 (Ct.App. Dec. 2, 2008).

This post written by Rollie Goss.

COURT DETERMINES THAT INTERPRETATION OF COURT SELECTION PROVISIONS OF ARBITRATION AGREEMENT IS FOR ARBITRATORS TO RESOLVE

by

Founders Ins. Co. entered a Reinsurance Agreement with primary insurer Lyndon Property Ins. Co. which required Founders and Lyndon to arbitrate any insurance-related disputes. A dispute regarding coverage arose, and the parties submitted to arbitration in Boston. The arbitration panel issued a ruling requiring Founders to post a sum in prejudgment security. Lyndon subsequently filed suit in the District of Massachusetts asserting that Founders had failed to comply with the panel’s order and had evidenced no intent to do so. The parties disputed the choice of the District of Massachusetts as an appropriate forum under seemingly conflicting provisions of the Reinsurance Agreement. The arbitration provision provided for the enforcement of arbitration awards in any court of competent jurisdiction, while a choice-of-law and submission-to-jurisdiction provision named Missouri law as controlling and courts in Missouri as being appropriate.

The court held that while “gate keeping” decisions relating to arbitration may be made by courts, disputes regarding the procedure to be followed in the arbitration were to be decided by the arbitrators. Because the issue here was a procedural one – the proper interpretation of the Agreement’s choice of forum clauses – the interpretation was left to the arbitrators. The court determined that the holding in Richard C. Young & Co., Ltd. v. Leventhal, 389 F.3d 1 (1st Cir. 2004), was dispositive in the instant case as it proclaimed that a dispute between the parties over the location of the arbitration raised not a question of arbitrability but a procedural question and was appropriate for the arbitrator and not the court. The case was dismissed so that the arbitrators could decide the dispute. Lyndon Property Ins. Co. v. Founders Ins. Co., Ltd., Case No. 08-11359 (USDC D.Mass. Nov. 20, 2008).

This post written by John Black.

JURY AWARDS $23.87 MILLION VERDICT IN DAMAGES RESULTING FROM PARTIAL RESCISSION OF REINSURANCE OBLIGATIONS

by

A court entered an Order on a jury verdict of $23.87 million in favor of several of the United National group of insurance companies and against Aon Limited and certain of its predecessors. The verdict was composed of $16.87 million in damages and $7 million in attorneys’ fees.

United National brought the action seeking indemnification from Aon for damages it sustained as a result of an arbitration award that partially rescinded the reinsurance obligations of an Italian reinsurer, Riunione Adriatica di Sicurta, to United National. The partial rescission was made in connection with a program providing insurance coverage to United States contractors and allied trades for risks arising out of residential and commercial construction projects. The arbitration award stemmed out of Aon’s improper conduct in soliciting RAS’s participation in this program without disclosing to RAS material information relating to, among other things, the program’s loss reserve methodology, premium discounts, and the frequency of claims. In the arbitration, RAS alleged that the program – which was placed and managed by Aon as the agent for United National – had been misrepresented by Aon to RAS as a successful program with low loss ratios. RAS also alleged that Aon failed to disclose until after the negotiations over RAS’s participation in the program were complete that RAS’s underwriter had solicited a $250,000 kickback from Aon. Due to the partial rescission, United National was obligated to pay RAS’s damages. United National then brought the indemnity suit against Aon to recover not only those damages United National paid to RAS, but also its attorneys’ fees and costs paid in defending the arbitration initiated by RAS. United National Insurance Co. v. Aon Limited, Case No. 04-CV-539 (USDC E.D. Pa. Dec. 4, 2008).

This post written by Brian Perryman.

UK COMMERCIAL COURT DENIES BROKER’S APPLICATION TO WITHDRAW ADMISSIONS REGARDING MARKET ISSUES

by

We previously reported on problems in the London Personal Accident Reinsurance market in the 1990s, including an extensive Commercial Court opinion involving Sphere Drake Insurance Limited and its broker, Stirling Cooke Brown. In the present action, American Reliable Insurance Company, one of the participants in that market, sued its reinsurance broker in the UK Commercial Court, seeking to recover damages. Prior to the case management conference, after admitting certain factual findings made by the court in the prior Sphere Drake case, the defendant broker, Willis Limited (“Willis”), sought to withdraw some of those admissions, including admissions regarding the nature of the Personal Accident Reinsurance market. Willis had also been sued by another one of its former clients, CNA Insurance Company Limited, and had made admissions in that case which were inconsistent with those it had made in the American Reliable case.

The Court denied Willis’ application to withdraw its admissions. In support of the denial, the Court explained that Willis neither presented new evidence nor made any positive challenges to the prior admissions. This opinion demonstrates some of the substantial differences between civil case management in US and UK courts. American Reliable Insurance Company v. Willis Limited [2008] EWHC 2677 (Comm. Oct. 24, 2008) (Note: Carlton Fields has represented American Reliable Insurance Company in disputes in the Personal Accident Reinsurance market).

This post written by Dan Crisp.

HAWAII DEPARTMENT PROPOSES AMENDMENTS TO ITS DISCLOSURE OF MATERIAL TRANSACTIONS REGULATION

by

The Hawaii Insurance Department has proposed two amendments to its Disclosure of Material Transactions regulation in chapter 16-170, Hawaii Administrative Rules. The amendments include a definition of “material transaction” as used in chapter 16-170 and requiring material new ceded reinsurance agreements affecting in force life insurance business as specified in section 16-170-3 to be subject to the reporting requirements of section 16-170-1.

This post written by Dan Crisp.