Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ENGLISH COURT DENIES AGGREGATION OF CLAIMS; PERMITS INSURER TO SEEK RECOVERY FROM BROKER

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The English Commercial Court has ruled that Standard Life Assurance Ltd can not recover damages from its underwriters arising out of the improper sales of mortgage endowment policies, but could claim against its insurance broker, Aon. Standard Life subscribed to a policy with a liability cover of £75 million in excess of £25 million. The policy contained a provision permitting the aggregation of claims arising from an originating cause or source. The insured aggregated 97,000 small claims and sought to recover the full £75 million excess of £25 million. The underwriters claimed that even if the claims did arise from a single originating cause, the claims could not be aggregated because the policy schedule and slip contained the wording “excess: £25million each and every claim and/or claimant.”

The court agreed with the underwriters, finding that the policy did not allow for the claims to be aggregated together, meaning the excess limit could not be reached. Specifically, the court found no “plausible purpose for the inclusion of the words ‘and/or claimant’ in the excess provision in the slip other than the attempted achievement of a per claimant excess.”

Prior to the court’s ruling, Aon brought its own negligence claim against Reynolds Porter Chamberlain (“RPC”) as a third party to the proceedings. Aon’s claim against RPC argues that the firm did not recognize that the wording of the policy meant the claims could not be grouped together. Standard Life Assurance Ltd. – and – Oak Dedicated Ltd. – and – Aon Ltd., Reynolds Porter Chamberlain, [2008] EWHC 222 (Comm. Feb. 13, 2008).

This post written by Lynn Hawkins.

AIG SETTLES FINITE REINSURANCE DISPUTE WITH PENNSYLVANIA DEPARTMENT OF INSURANCE

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AIG has settled issues with the Pennsylvania Department of Insurance arising out of finite reinsurance and bid-rigging allegations, agreeing to pay over $9 million in penalties and costs. This is the largest penalty ever levied upon an insurer by the department. The finite reinsurance issues arose out of one of the transactions included in the recent criminal conviction in Connecticut. New compliance measures are included to ensure accurate financial reporting and increased transparency of commission payments to agents and brokers. Details of the settlement are generally set out in a press release issued by the Department, and in a detailed settlement agreement.

This post written by Rollie Goss.

REINSURER’S AGENT IMPROPERLY JOINED IN INSURED’S ACTION AGAINST REINSURER

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Plaintiff, First Automotive Service Corporation (“FASC”), insures extended vehicle service contracts sold to automobile dealers and vehicle owners. Defendant, Northbrook Indemnity Company, is the reinsurer for a portion of that risk, and defendant, First Colonial Insurance Company (“First Colonial”), acts as “agent” and “manager” for Northbrook. FASC filed this lawsuit in state court in mid-2007 alleging that Northbrook owed FASC in excess of $10 million for claims arising under the four placement slips. Northbrook removed the case to federal court based upon diversity jurisdiction, contending that First Colonial corporation (a Florida corporation), had been fraudulently joined to defeat diversity. In their motion to remand, plaintiffs asserted that the parties were properly named.

The Court denied plaintiffs’ motion to remand, finding that “plaintiffs provide no basis for the Court to find that First Colonial acted as other than agent for Northbrook as it pertains to the placement slips,” and that “[t]here was no express agreement alleged or established by evidence that First Colonial would be personally liable to . . . FASC as reinsurer.” As such, the court concluded that “First Colonial, as agent to insurer Northbrook, is not a proper party in plaintiffs’ declaratory judgment action because as agent it is not a party to the contract between the insured and the insurer.” First Automotive Services Corp. v. First Colonial Ins. Co., Case No. 07-682 (USDC M.D. Fla. March 25, 2008).

This post written by Lynn Hawkins.

NEW YORK DISTRICT COURT CERTIFIES CLASS AGAINST SCOR

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A New York district court judge partially granted and partially denied a motion to certify the class in the SCOR Holding AG litigation. The judge certified a class that included: (1) US residents who purchased Converium shares on the Swiss Exchange; and (2) any person who purchased Converium American Depository Shares on the NYSE. The court specifically denied certification as to non-US investors that purchased shares of Converium on a non-US exchange.

Converium Holding AG (“Converium”), now known as SCOR Holding (Switzerland) AG, was a multinational reinsurer with offices in Switzerland, Germany and New York. This securities litigation was filed in September 2004 following the collapse of Converium North America. Plaintiffs alleged that, between Converium’s initial public offering in December 2001 and September 2004, the defendants misrepresented the sufficiency of Converium North America’s loss reserves, resulting in a representation to the public that Converium’s financial position was far stronger than it actually was during the relevant period. In re Scor Holding (Switzerland) AG Litigation, Case No. 04 Civ. 7897 (S.D.N.Y. March 6, 2008).

This post written by Lynn Hawkins.

SECOND LEGISLATIVE UPDATE

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Following is our second update for this year on reinsurance-related activity in the state legislatures. All three of the bills described in this post were previously described in our March 10, 2008 post.

  • Captive insurers: Michigan SB 1016 was signed by the governor March 13, 2008, and became effective March 18, 2008. Meanwhile, the final version of HB 55, the Utah amendments to its Captive Insurance Companies Act, which include the enactment of a new Chapter, Chapter 37a, titled Special Purpose Financial Captive Insurance Company Act, was signed by the governor March 18, and will become effective May 5, 2008.
  • Financial requirements: Utah SB 143 was signed by the governor March 17, and will become effective July 1, 2008. The final version of this bill modifies the requirements for when a domestic or a foreign ceding insurer is allowed credit for reinsurance and modifies the restrictions on investments by insurers.

This post written by Rollie Goss.