Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

CASE UPDATE: ENGLISH COURT OF APPEAL REVERSES DECISION DENYING REINSURANCE COVERAGE, MARKING DEPARTURE FROM TRADITIONAL FOLLOW THE SETTLEMENTS RULINGS

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In a May 23, 2007 post, we reported on a UK decision denying reinsurance coverage despite a follow the fortunes provision based on a finding that the damages occurred outside the coverage period of the reinsurance, despite the conclusion of a US court on the underlying claim finding liability for damage occurring outside the coverage period of the underlying policy. The UK Court of Appeals has allowed an appeal, finding that the coverage provision of the reinsurance should be interpreted in the same manner as the coverage provision in the underlying insurance.

The English appellate court agreed that the insurance and reinsurance contracts were not entirely “back to back” in terms of the coverage periods, but concluded that although there were some differences in the contracts, the parties intended that they should have the same effect and therefore, the reinsured’s settlement of the insurance claim did fall within the terms of the reinsurance contract. Despite the fact that the reinsurance appeared only to cover damage that occurred during the period of the reinsurance, and the trigger of coverage used by the US court permitted a broader recovery from the insurer, the Court of Appeals accepted the proposition that “the same or equivalent [coverage] wordings should be given the same meaning in the reinsurance contract as in the insurance contract.”

Explaining that the UK reinsurer had taken certain known risks in reinsuring a US insurer, the Court concluded that although the judgment against the insured was not one which the reinsurers expected, nevertheless it was one which was a possibility that they agreed to cover. This decision marks a departure from previous ‘follow the settlement’ cases involving differences in the insurance and reinsurance contracts, which have typically been resolved in favor of the reinsurers. Wasa International Ins. Co. v. Lexington Ins. Co., [2008] EWCA Civ 150 (Feb. 29, 2008).

This post written by Lynn Hawkins.

COURT INTERPRETS REINSURANCE AGREEMENT LIABILITY LIMIT IN SUMMARY JUDGMENT SETTING

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A district court has interpreted the liability limit of a reinsurance agreement in a summary judgment setting, finding the language to be unambiguous, and finding in favor of the position advanced by the reinsured. The opinion contains a good discussion of the rules for interpreting reinsurance agreements. Princeton Ins. Co. v. Converium Reinsurance (North America) Inc., Case No. 06-599 (USDC D. N.J. Mar. 27, 2008).

This post written by Rollie Goss.

NAIC REINSURANCE TASK FORCE WORK PROCEEDS SLOWLY

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The NAIC's Reinsurance Task Force of the E Committee met on March 29, 2008, and had further discussion of the proposal to revamp the regulation of the reinsurance industry in the United States. The Task Force is projecting further meetings through the end of 2008 on this subject. The materials indicate that representatives from the Florida and New York departments made presentations to the task force at its March 11-12, 2008 meeting regarding their proposals to change the collateral requirements for reinsurance to a financial strength based framework. The minutes of this meeting, as well as materials distributed for the meeting, have been published.

This post written by Rollie Goss.

COURT CONFIRMS ARBITRATION AWARD

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A district court has confirmed an arbitration award, finding that a pro se challenge to the award merely questioned the correctness of the award, and that there was no evidence to sustain a challenge to the award on the bases permitted by the Federal Arbitration Act. The challenges to the award included the failure of the arbitrators to allow a late amendment to the claims, the exclusion of unlawfully intercepted audiotapes (where questioning about the subject matter of the intercepted discussion was permitted) and the suggestion that a witness committed perjury because he disagreed with the movant. Martin v. Scott & Stringfellow, Inc., Case No. 06-207 (USDC E.D. Va. Mar. 13, 2008).

This post written by Rollie Goss.