Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CONTROVERSY OVER ARBITRATION AWARD CENTERS OVER WHETHER PARTIAL AWARD WAS FINAL

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A single arbitrator heard evidence on claims for monies allegedly due under a facultative reinsurance contract. The arbitrator entered a partial final award, finding liability for indemnity payments, no liability for certain defense costs and requiring supplemental submissions on the amount of the indemnity and cost obligations. The parties moved for confirmation or vacation of this award, and the court declined to act, stating that the award was not yet final. The court remanded the matter to the arbitrator for further proceedings. On remand, the arbitrator held to his indemnity determination but decided that further submissions justified an award of defense costs. A final award was entered for $3 million, plus interest. The prevailing party sought to confirm the award, and the losing party contended that the partial award was final as to the defense cost issue, and the arbitrator did not have authority to change that ruling under the doctrine of functus officio. The court held that the partial award was not final, and hence the doctrine did not apply, and confirmed the final award, entering final judgment on the award. Employers' Surplus Lines Ins. Co. v. Global Reinsur. Corp., Case No. 07-2521 (USDFC S.D.N.Y. Feb. 2008).

This post written by Rollie Goss.

GUILTY VERDICTS IN FINITE REINSURANCE TRIAL

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All five former executives of Gen Re and AIG charged in a criminal trial in federal court in Hartford, Connecticut were convicted on all counts in a trial in which it was alleged that certain reinsurance transactions fraudulently added $500 million to AIG's loss reserves. Former AIG Chief Executive Hank Greenberg was named in the case as an unindicted conspirator. The transactions were entered into after AIG's stock price fell on concerns over its loss reserve. The charges included conspiracy, securities fraud, mail fraud and making false statements to the SEC. Sentencing is set for May 15, 1008. United States v. Ferguson, Case No. 06-cr-137 (USDC D. Conn. Feb. 25, 2008).

This post written by Rollie Goss.

DISTRICT COURT FINDS COMMERCIAL ACTIVITY EXCEPTION TO FOREIGN SOVEREIGN IMMUNITIES ACT NOT APPLICABLE TO ALLEGED REINSURANCE SCHEME

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In a June 7, 2007 post, we reported on a decision of the US Court of Appeals for the Second Circuit which affirmed the dismissal of claims alleging that an Indonesia state-owned social security insurer operated a reinsurance scam. The district court dismissed the claims after finding that the alleged activity was covered by the Foreign Sovereign Immunities Act, and the “commercial activity” exception to immunity did not apply. The Court of Appeals affirmed, but remanded the case for reconsideration of whether a negligent supervision claim was covered by the “commercial activity” exception. On remand, the district court has found that the negligent supervision claim does not come within the bounds of the “commercial activity” exception to immunity, and is therefore barred by the doctrine of sovereign immunity. The district court accordingly dismissed the remaining claim. Anglo-Iberia Underwriting Management Co. v. Lodderhose, Case No. 9700084 (USDC S.D. N.Y. Jan. 22, 2008).

This post written by Rollie Goss.

UK COMMERCIAL COURT DENIES LIBYAN INSURER’S CLAIMS AGAINST LONDON BROKER

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In 2004, Aon (a London broker) placed reinsurance for risks that United Insurance Company (a Libyan insurance company) assumed in insuring assets of a Libyan state-owned oil company. Aon also obtained reinsurance for United in relation to a Libyan company in the chemicals industry. Aon placed the business in the London market. After renewing the business in 2005, United brought three claims against Aon. United sought to recover brokerage fees paid to Aon on the basis that Aon misrepresented the nature of cover, commissions, and fees. United was unsuccessful on all of its claims. The Commercial Court found that United’s evidence did not match the relevant contemporary documents and was contradicted by Aon’s evidence. United Insurance Co of Libya v. Aon Ltd., [2007] EWHC 1583 (Comm. July 5, 2007). This opinion is not on the UK Court site, but is available on WESTLAW at 2007 WL 1942745.

This post written by Lynn Hawkins.

COURT FINDS ARBITRATION CLAIMS BARRED BY PRIOR CLASS SETTLEMENT

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Plaintiffs allegedly suffered losses relating to stock options in WorldCom stock. They filed an NASD arbitration asserting claims, and were members of a class certified with respect to WorldCom stock losses. The class action settled and the proposed settlement received final approval one month before the arbitration hearing. The Claimants in the arbitration were members of the settlement class and had not excluded themselves from the class. The settlement's final approval Order included a fairly typical release of claims and an injunction against class members maintaining or participating in legal proceedings seeking to pursue claims that were released by the settlement. The arbitration proceeded, and Claimants recovered an award, at least part of which was for losses released by the class settlement. Both the District Court and the Court of Appeals found that the award should be vacated to the extent that it awarded damages for claims that had been released by the class settlement. Rich v. Spartis, No. 06-1723 (USCA 2d Cir. Feb. 8, 2008).

This post written by Rollie Goss.