Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW YORK COURTS DECLINES TO ADDRESS REINSURANCE CLAIM DISPUTE

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On July 18, 2007, we reported on a ruling by the New York Supreme Court’s Appellate Division in a case in which it described the conduct of the insured, American Home Assurance, as “manifest manipulation,” based upon its taking inconsistent positions on the number of insured occurrences of environmental pollution in order to minimize its liability to its insured but maximize its reinsurance recovery. The result of the ruling was the complete loss of American Home’s reinsurance cover. Without opinion, the New York Court of Appeals has denied a motion for leave to appeal, apparently ending the case. Allstate Insurance Company v. American Home Assurance Co., Mo. No. 213 (NY June 3, 2008).

This post written by Rollie Goss.

JURY FINDS CLAIMS OF REINSURED BARRED BY STATUTE OF LIMITATION

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A jury in state court in San Francisco, California has found, by special verdict, that a reinsured waited too long to sue its reinsurer for failure to pay claims under two facultative reinsurance certificates. The jury rejected the contention that the running of the statute of limitation was tolled due to the ongoing investigation and negotiations between the parties. Background on the dispute is found in the Complaint. Transport Insurance Company v. TIG Insurance Company, No. CGC-06-448898 (Cal. Super. Ct. June 9, 2008).

This post written by Rollie Goss.

COURT COMPELS PRODUCTION OF ACCOUNTING AND RESERVE-RELATED DOCUMENTS TO HELP INTERPRET REINSURANCE CONTRACTS

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On November 19, 2007, we reported on the denial of a motion to dismiss an action seeking to bar the arbitration of disputes under 43 reinsurance contracts. A district judge has now compelled the production of documents in five categories, finding them relevant to both the claims alleged by Midwest Employers Casualty Company (“MECC”) and the defenses of Legion Insurance Company (“Legion”). The dispute is whether the reinsurance contracts provide for coverage on a “risk attaching” basis (Legion’s contention) or a “loss occurring” basis (MECC’s contention). The court compelled Legion to produce:

  • Contracts evidencing reinsurance purchased by Legion for program business on a “loss occurring” basis;

  • Documents evidencing the attachment basis of the reinsurance that Legion purchased from MECC;

  • Documents showing Legion’s booking of or accounting for reinsurance purchased from MECC;

  • Documents showing actuarial support for Legion’s last Schedule F statutory filing relating to its projection of MECC’s ultimate liability and any subsequent projection of MECC’s ultimate liability; and

  • Documents showing case reserves and reinsurance receivables by claim, program and/or year relating to Legion’s policies or accounts reinsured by MECC or that otherwise show reinsurance payments that Legion estimated or expected to receive from MECC.

Further detail regarding the dispute is set forth in the memoranda in support of and in opposition to the Motion to Compel. Midwest Employers Casualty Company v. Legion Insurance Company, Case No. 07-870 (USDC E.D. Mo. June 4, 2008).

This post written by Rollie Goss.

FIRST CIRCUIT PANEL VACATES ARBITRATION AWARD AS BEING IN MANIFEST DISREGARD OF LAW, WITHOUT MENTIONING HALL STREET ASSOCIATES

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In an appeal of an arbitration award rendered pursuant to the rules of the National Association of Securities Dealers (“NASD”), the First Circuit has reversed the confirmation of an arbitration award on the basis that the award was in manifest disregard of law. The arbitrators had dismissed certain claims, with prejudice. The Panel initially justified its decision as being based upon its consideration of the merits of the claims, but when the losing party reminded the Panel that the merits of the claims had not been briefed, nor had the Panel received any evidence pertaining to the claims, the Panel announced that the dismissal was a discovery sanction pursuant to NASD Code Rule 10305, based upon the failure to produce documents in accordance with an Order to do so. The First Circuit found that the NASD rules required the imposition of lesser sanctions in an attempt to achieve compliance “before the ultimate sanction of dismissal is imposed. The Panel ignored this unmistakable directive.” The Court clearly was troubled by the severity of the sanction.

This opinion does not mention the Supreme Court’s decision in Hall Street Associates v. Mattel, which another panel of the First Circuit has read as eliminating the doctrine of manifest disregard of law as a basis for vacating an arbitration award. See the June 30, 2008 post discussing Ramos-Santiago v. UPS, No. 07-1024 (1st Cir. April 24, 2008), which stated in dicta that “manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]”. This is developing into an interesting area of the law of arbitration. Kashner Davidson Securities Corp. v. Mscisz, No. 07-1231 (1st Cir. June 27, 2008).

This post written by Rollie Goss.

ATTORNEYS' FEES AND COSTS AWARDED AGAINST NEW YORK SUPERINTENDENT FOR IMPROPER BANKRUPTCY FILING

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The New York Insurance Department, as Liquidator of Nassau Insurance Company, pursued Jeanne Diloreto for 20 years to recover what it contended were assets diverted from Nassau, recovering a judgment in state court that it attempt to execute upon. Superintendent DiNallo ended up filing an involuntary bankruptcy petition against Ms. Diloreto, which was dismissed, in part based upon procedural infirmities. Diloreto sought damages for a bad faith filing, and established to the satisfaction of the bankruptcy court that the motivation for filing the petition was related to a potential recovery in an ancillary malpractice action that Diloreto had filed against her former law firm. The bankruptcy court judge determined that while the filing by Superintendent DiNallo had not been in bad faith, Diloreto nevertheless was entitled to a judgment against Superintendent DiNallo in his capacity as Liquidator in an amount exceeding $70,000 for attorney’s fees and costs, which it Ordered could not be offset against the Liquidator’s state court judgment against Diloreto. This is a procedurally tortured case, centering on a very long running dispute, which included Diloreto purchasing property in Florida shortly after the state court judgment was entered, apparently in the hope of shielding assets under the Florida homestead provision. In re Diloreto, Bank. No. 07-15413 (US Bank. Ct. E.D. Pa. June 19, 2008).

This post written by Rollie Goss.