Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT RULES ON MOTIONS IN LIMINE IN CASE AGAINST REINSURANCE BROKER FOR NEGLIGENT MISREPRESENTATION

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On April 24, 2008, we reported on a reinsurance broker’s failed bid to take an interlocutory appeal from a federal district court’s denial of its motion for summary judgment in a case alleging that the broker negligently presented misinformation to the plaintiff reinsurer. Since that time, the parties filed, and the court ruled on, a number of motions in limine to exclude certain evidence at trial:

(1) The broker’s motion to preclude evidence of “pure omissions” and evidence of alleged misrepresentations not presented at a prior arbitration was denied. Among other things, the court rejected the argument that the information supplied by the broker was necessarily complete in itself. It was for the jury to decide whether the information was misleadingly incomplete.

(2) The broker’s motion to preclude the use of an expert’s supplemental report as untimely disclosing all the expert’s underlying data was also denied. The court, however, did allow the broker the opportunity to allow a supplemental deposition on the new data.

(3) The record of a prior arbitration between the plaintiff and a non-party, including the reports of two experts submitted in the arbitration, was precluded in part because it appeared to be hearsay not covered by an exception.

(4) The plaintiff’s motion to preclude the testimony of an expert who intended to ruminate on what the arbitral panel might have been thinking was excluded as purely speculative.

(5) A motion to exclude two English legal decisions as inadmissible hearsay was denied. The broker successfully argued that its expert properly referenced the foreign decisions as establishing the basis of industry practices and was therefore admissible under Federal Rule of Evidence 703.

United National Insurance Co. v. Aon Ltd., Case No. 04-539 (USDC E.D. Pa. Aug. 7, 2008).

This post written by Brian Perryman.

BILL INTRODUCED TO DISALLOW DEDUCTION FOR CERTAIN EXCESS NON-TAXED REINSURANCE PREMIUMS

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On September 18, Congressman Neal of Massachusetts introduced H.R. 6969, which proposes to amend the Internal Revenue Code to disallow the deduction for excess non-taxed reinsurance premiums with respect to United States risks to affiliates. The bill (which can be read here) was referred to the Committee on Ways and Means.

This post written by Brian Perryman.

UNDERLYING INSURED DENIED RIGHT TO SEEK DISCOVERY FROM FORMER REINSURER

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A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

COURT PERSISTS IN PUSHING ARBITRATION AWARDS TOWARDS FINALITY

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There have been a series of interesting orders entered in a case involving the allocation of response and remedial costs in an environmental contamination case. On March 31, 2008, the Court entered a 99 page order confirming two arbitration awards in a bifurcated arbitration proceeding, rejecting arguments that the arbitrators had acted in manifest disregard of both substantive and procedural laws, made procedural errors and that there was arbitrator misconduct. Noting uncertainty as to whether the Supreme Court’s opinion in Hall Street Associates eliminated the manifest disregard of law doctrine, in part because of uncertainty as to whether the doctrine was or was not a non-statutory ground for vacatur, the court considered the manifest disregard of law standard as both a non-statutory ground for vacatur and as a summary of statutory grounds for vacatur, finding no manifest disregard under either standard.

Next, on July 2, 2008, the court entered an order granting partial final judgment under FRCivP 54(b), entering judgment on the arbitration awards and leaving for further adjudication issues relating to other parties relating to the pollution sites. On the same day, the court entered a separate order denying a stay without a bond and providing for a stay upon the posting of a bond in an amount in excess of $14.3 million. The bond was posted that day.

Finally, on August 4, 2008, the court entered an order denying a Rule 59 motion to set aside the partial final judgment, rejecting Halliburton’s argument that the court’s ruling on manifest disregard of law violated its constitutional due process rights and essentially constituted manifest legal error.

Halliburton Energy Services, Inc. v. NL Industries, Case No. 05-4160 (USDC S.D. Tex.).

This post written by Rollie Goss.

COURT ORDERS THE PRODUCTION OF DOCUMENTS RELATING TO ANTICIPATED LATE NOTICE DEFENSE FROM REINSURER’S CLAIM FILE, DESPITE CLAIMS OF PRIVILEGE AND WORK PRODUCT

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AIU Insurance Company (“AIU”) sued its reinsurer, TIG Insurance Company (“TIG”), for breach of contract arising from underlying coverage litigation pertaining to asbestos claims. After AIU, an excess carrier, settled claims, it provided written notice to TIG under the reinsurance contracts. Suspecting the possibility of a late notice defense to AIU’s claim, TIG undertook an investigation, including an audit under the “access-to-records” clause of the reinsurance contracts. Prior to the audit, TIG retained outside counsel, who provided TIG’s claims investigators with advice pertaining to the conduct of the audit. The investigators took notes during the audit and submitted them to outside counsel.

During the course of the litigation, AIU issued discovery requests, seeking information pertaining to TIG’s late notice investigation and records audit. TIG provided some documents, and withheld others (including the records made during the audit) on the basis of attorney-client privilege and the work product doctrine. While the Court upheld a few of TIG’s assertions of privilege (as set forth in a privilege log TIG produced in conjunction with its objections to AIU’s discovery requests), it ordered TIG to produce the majority of the withheld documents. As to the claim of attorney client privilege, the Court held that TIG failed, for the most part, to demonstrate with specific evidence that each document withheld in fact contained communications between TIG and its attorneys reflecting the request for or provision of legal advice. As to the claims of work product protection, the Court generally found that the documents were not clearly prepared in anticipation of litigation, and TIG failed to rebut the presumption that documents prepared by or for an insurer prior to a coverage decision are prepared in the ordinary course of the insurer’s business, and thus are not entitled to work product protection. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 28, 2008).

This post written by John Pitblado.