New reinsurance-related and arbitration developments from Carlton Fields
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.
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.
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.
An insurance broker’s bid to dismiss a federal securities lawsuit failed when a federal district court in Illinois denied its motion to reconsider its earlier motion to dismiss. The lawsuit arose out of the New York Attorney General’s investigation into the insurance brokerage industry’s use of so-called “contingent commission” practices, wherein brokers would allegedly direct or steer business to insurers willing to use their services when buying reinsurance in order to generate revenues in the form of commission payments. The broker, Aon, originally sought dismissal of the case in 2005, which the district court denied in 2006, relying on the pleading requirements set forth in the Seventh Circuit’s decision in Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588 (7th Cir. 2006). After the United States Supreme Court vacated the Seventh Circuit’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007), articulating the standard courts must apply in determining whether a securities plaintiff has pled a “strong inference of scienter” as required by the Private Securities Litigation Reform Act of 1995, the broker reasserted its argument that the plaintiffs had not adequately pled scienter.
The district court disagreed with the broker once again, however, and denied the motion to reconsider. The court found that, even under the new Tellabs decision, the complaint supported an inference of the defendants’ knowledge, awareness and involvement in the alleged steering scheme. It also found that the complaint adequately alleged that the defendants either knew, or would have realized under the circumstances, that a failure to reveal potentially material facts would likely mislead investors. Among other things, the court found a financial motive to conceal the contingent commission practices, that it had been alleged that defendants failed to comply with GAAP and substantially inflated their reported earnings, and that company executives had admitted violating the internal code of ethics. Thus, the court found that a “strong inference of scienter” had been pled. Roth v. Aon Corp., Case No. 04-C-6835 (USDC N.D. Ill. Mar. 7, 2008).
This post written by Brian Perryman.
The plaintiff farmers brought an action in federal district court to enforce two arbitration awards against the Federal Crop Insurance Corporation (“FCIC”), a division of the United States Department of Agriculture. FCIC is a reinsurer of crop insurance policies issued by private insurance companies. It issues cooperative financial agreements with the private insurers that are referred to as “standard reinsurance agreements.” Plaintiffs purchased policies with American Growers Insurance Company (“AGIC”). In turn, AGIC entered into standard reinsurance agreements with FCIC. Plaintiffs filed arbitration demands against AGIC, but in 2005, the State of Nebraska liquidated AGIC. On the order of liquidation, FCIC notified plaintiffs that it would review their claims. The arbitration proceeded, however, over FCIC’s objections that it was not a party to the arbitration agreement, and that it would not submit to the arbitrator’s jurisdiction. Eventually, the arbitrator granted awards against FCIC.
When plaintiffs sought to enforce the awards in the United States District Court for the Eastern District of Washington, the court ruled against them on cross-motions for summary judgment. The court found that FCIC had not agreed to submit to arbitration, being neither a party to the crop insurance policies at issue nor otherwise in privity of contract with plaintiffs. Among other things, FCIC was found to be a reinsurer, not a “substituted insurer,” i.e., an entity that assumes direct liability to the policyholder. Accordingly, the arbitrator lacked jurisdiction to preside over any dispute between FCIC and plaintiffs. The district court, therefore, vacated the awards. Olsen v. United States, Case No. CV-06-5020-FVS (USDC E.D. Wash. Mar. 8, 2008).
This post written by Brian Perryman.