Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

UK COURT FINDS THAT REINSURED VIOLATES COOPERATION CLAUSE BY WAIVING POTENTIAL LIMITATION DEFENSE

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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.

AIG WARDS OFF ADDITIONAL CLAIMS IN CONTINGENT COMMISSION ACTION

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This action arose out of allegations that AIG and certain of its officers and directors violated securities laws by failing to disclose AIG’s participation in bid-rigging and contingent commission schemes (alleged in a complaint by New York Attorney General Elliot Spitzer against Marsh & McLennan Companies). Following a period of substantial discovery and a motion for class certification, lead plaintiffs sought to amend their complaint for a fourth time to add new and unrelated claims as well as new defendants based on AIG’s alleged write-down in February and May 2008 of more than $20 billion stemming from losses in its portfolio of credit default swaps written by its subsidiary, AIG Financial Products Corp.

The District Court denied plaintiffs’ motion to amend, finding that: (1) the claims to be added took place more than three years after the transactions in the Third Amended Complaint; and (2) lead plaintiffs knew the basis for the promised amendment before they filed their motion for class certification and before they defended over a dozen class certification depositions. In short, the court found that granting the motion would result in undue prejudice for the defendants as well as a potentially uncertifiable class. In re American International Group, Inc. Securities Litigation, Case No. 04-8141 (USDC S.D.N.Y. July 17, 2008).

This post written by Lynn Hawkins.

STATE LAW UPDATE: CAPTIVE REINSURANCE ISSUES DOMINATE

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The end of the state legislative season has been dominated by developments regarding captive insurers, although there have been a few other interesting developments as well.

  • Louisiana has entered the captive insurer arena with a statute, SB 150, providing for the formation and operation of domestic captive insurance companies (effective January 1, 2009).

  • Hawaii has amended its already established captive structure by enacting a bill (S 3023), which we previously reported, to provide for Special Purpose Financial Captive Insurance Companies, effective July 1, 2008.
  • The Utah Insurance Department has proposed an amendment to its captive insurer regulations, proposed regulation R590-238, relating to the financial, reporting, record-keeping and other requirements for captive insurance companies. The comment period for this proposed regulation ends August 14, 2008; no hearing has yet been set.

In the non-captive area, the New York Insurance Department has issued two interesting opinions, one stating that a licensed insurance broker may compensate a non-licensee for referrals made to the broker, and another providing that an insurer may not pay an insurance commission to an entity which is not licensed and appointed as an insurance agent or broker.

The US Congress has entered the reinsurance regulation arena, considering H.R. 6213, which, if enacted, would establish the Reinsurance International Solvency Standards Evaluation Board, which would be charged “to evaluate the reinsurance supervisory systems of the States of the United States and jurisdictions outside the United States to determine, on a uniform basis, whether such systems provide adequate capital and risk management standards and an acceptable level of prudential supervision over their domiciled reinsurers.”

This post written by Rollie Goss.

UK COURT RULES THAT FOREIGN ARBITRATION AWARDS DOMESTICATED IN THE UK BEAR INTEREST FROM THE DATE OF ENTRY

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We have reported several times on a dispute over an award issued by the International Commercial Arbitration Court in Moscow, Russia, of over $88 million relating to a dispute over natural gas, and efforts to enforce the award in the UK and the United States pursuant to the New York Convention (see June 14, 2007, November 27, 2007 and March 26, 2008 posts). The UK Commercial Court has ruled that foreign arbitration awards that are reduced to a judgment in a UK court under the UK Arbitration Act of 1996 bear interest at the rate of 8% from the date of the entry of the UK court judgment. This results in interest of approximately $12.6 million on this particular arbitration award. Gater Assets Limited v. Nak Naftogaz Ukrainiy [2008] EWHC 1108 (Comm.).

This post written by Rollie Goss.