New reinsurance-related and arbitration developments from Carlton Fields
We reported on April 7, 2008 on an order entered by a court interpreting a reinsurance agreement in favor of a reinsured. The court has entered an Amended Order and Judgment providing for a total award of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. Princeton Insurance Company v. Converium Reinsurance (North America) Inc., Case No. 06-599 (USDC D. N.J. July 2, 2008).
This post written by Rollie Goss.
The Supreme Court of New Hampshire has reversed a trial court’s ruling denying a reinsurer’s (CIC) asserted setoff of reinsurance claims in the liquidation of the Home Insurance Company (Home). CIC reinsured Home, remitting money to Home under a claims protocol that provided for a right of setoff controlled by a New Hampshire statute. Separately, CIC also reinsured certain affiliated insurance companies that had ceded a participation in their liabilities under certain policies in exchange for, among other things, an assignment of all rights to reinsurance recoverables relating to those policies. However, this assignment was qualified by a “put-back” provision that required CIC to return to its affiliated cedents any reinsurance recoverables deemed by CIC to be uncollectible, together with the rights to any related collateral. Among the reinsurance claims assigned to CIC were reinsurance obligations of Home to the affiliated cedents, i.e., reinsurance recoverables. Accordingly, pursuant to the claims protocol between CIC and Home, CIC sought to setoff amounts payable by it to Home against these recoverables.
Home’s liquidator objected to the attempted setoff, arguing that the New Hampshire statute referenced in the claims protocol required that setoff debts be “mutual,” and that the put-back provision destroyed mutuality by rendering the assignment conditional, not absolute. The liquidator contended that the provision made the affiliated cedents, not CIC, ultimately liable for the reinsurance. A referee ruled in favor of the liquidator, and the trial court sustained that ruling, reasoning that the mutuality requirement was not satisfied because the terms of the assignment required the return of uncollectible reinsurance, and so the assignment was conditional. On appeal, the New Hampshire Supreme Court reversed, concluding the assignment was, in fact, absolute, the put-back provision notwithstanding. The Supreme Court found that, although the provision allocated risk to the affiliated cedents, this “retained interest” was not fatal. Importantly, CIC, not the affiliated cedents, controlled implementation of the provision; thus, “the provision did not constitute a prohibited means of control over the reinsurance recoverables or ‘any form of revocation’ in the hands of the affiliated cedents.” In the Matter of the Liquidation of the Home Insurance Company, Case No. 2007-794 (July 25, 2008).
This post written by Brian Perryman.
The NAIC's Reinsurance Task Force has issued what amounts to a progress report on its consideration of a proposal for a reinsurance regulatory modernization framework. The 198 page package covers “regulator-to-regulator meetings” in Newark, New Jersey on March 11-12, May 7-9 and June 25-27, 2008, and provides comments on the proposal which were submitted to the Task Force by the Association of Bermuda Insurers and Reinsurers, the American Council of Life Insurers, the American Insurance Association, AIG, CEA Insurers of Europe, Genworth Financial, the General Insurance Association of Japan, the International Underwriting Association, Lloyd's, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America and the Reinsurance Association of America. At the end of the package there are some summaries of the comments.
This post written by Rollie Goss.
Royal and Sun Alliance (“R&S”) reinsured liabilities for certain BAE Companies. The parties entered into a Reinsurance agreement which contained a dispute resolution agreement (“DRA”). The DRA provided for English law to be the governing law and referred various disputes to arbitration incorporating the Rules of the London Court of International Arbitration (“LCIA Rules”). A dispute arose, and an arbitration panel made a partial award in favor of BAE. R&S sought to appeal the award to the English Courts on a point of law.
The question that arose was whether section 69 of the UK Arbitration Act of 1996 required an agreement of the parties permitting an appeal, or an agreement of the parties to dispense with the requirement to seek leave of the court. The Court resolved the issue in R&S’s favor as a pure question of construction, holding that Section 69 could not be held to require an agreement between the parties to dispense with the requirement to seek leave of the court. Royal & Sun Alliance Ins. v. BAE Systems, [2008] EWHC 743 (Comm. Apr. 15, 2008).
This post written by Lynn Hawkins.
In a 40 page opinion, the UK Commercial Court considered a situation in which a Venezuelan insurer, Multinacional de Seguros, provided insurance for a producer of liquid aluminum, aluminum ingots and aluminum cylinders. Multinacional obtained reinsurance from three reinsurers. An adjuster was retained to assist in processing claims, and during negotiations with the insured the Venezuelan three year limitation period expired. The Venezuelan Superintendent of Insurance provided an opinion that the limitation period had not expired, but the reinsurers decided to commence a declaratory action in London seeking a declaration that they were not responsible for the losses, and instructed the insurer to take the same position with the insured. Multinacional sent the insured a letter, however, which the Court found waived any potential limitation defense. The Court found that this action breached the cooperation clause of the reinsurance agreements. Lexington Insurance Company v. Multinacional de Seguros, S.A. [2008] EWHC 1170 (Comm. May 23, 2008).
This post written by Rollie Goss.