Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COMMUTATION AGREEMENT’S JURISDICTION CLAUSE IS EXCLUSIVE AND MANDATORY, UK COMMERCIAL COURT HOLDS

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Allstate applied for a stay of proceedings in a UK Commercial Court action brought by Equitas pending the outcome of arbitration in Texas between Allstate and a non-party, Highlands. The English action concerned the scope of a commutation agreement between, among others, Allstate and Equitas. The agreement was governed by English law and contained an exclusive English jurisdiction clause. The claims in the action – the applicability of the commutation agreement to certain Lloyd’s syndicates’ claimed interests in common account excess of loss reinsurance contracts and whether Highland could recover pursuant to the contracts – were also the subject of the Texas arbitration. This was insufficient to warrant a stay of proceedings, however, principally because of the jurisdiction selection clause. The effect of the clause made English jurisdiction exclusive and mandatory, depriving the court of its common law discretion to stay proceedings in favor of another jurisdiction on classic forum non conveniens grounds. Equitas Limited v. Allstate Insurance Company [2008] EWHC 1671 (Comm. July 17, 2008).

This post written by Brian Perryman.

COURT ADDS PREJUDGMENT INTEREST TO AWARD IN FAVOR OF REINSURED

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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.

NEW HAMPSHIRE SUPREME COURT CLEARS THE WAY FOR SETOFF OF REINSURANCE CLAIMS SUBJECT TO A “PUT-BACK” PROVISION

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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.

NAIC REINSURANCE TASK FORCE ISSUES PROGRESS REPORT ON ITS CONSIDERATION OF A PROPOSED REINSURANCE REGULATORY MODERNIZATION FRAMEWORK

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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.

UK COURT FINDS PARTIES NOT REQUIRED TO DISPENSE WITH LEAVE TO APPEAL ARBITRAL AWARD UNDER SECTION 69 OF ARBITRATION ACT OF 1996

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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.