Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FEDERAL DISTRICT COURT RULES ON FINRA ARBITRATION DISPUTE

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The individual defendants in this matter each brought claims against Plaintiff in arbitration through Defendant FINRA. Plaintiff disputed its obligation to arbitrate and refused to execute the Uniform Submission Agreement required by FINRA. Plaintiff filed a first-amended complaint in the Southern District of Ohio seeking declarative and injunctive relief regarding the duty to arbitrate. Defendants moved to dismiss. The Court granted Defendants’ motions to dismiss. Relying on Sixth Circuit authority which held that the Federal Arbitration Act forbids immediate appeals of interlocutory orders, the court concluded that the Plaintiff was in fact seeking a review of interlocutory orders compelling Plaintiffs to sign the submission agreement. The Court also denied Plaintiffs request for injunctive relief. O.N. Equity Sales Company v. FINRA Disipute Resolution, Inc., Case No. 1:07cv804 (USDC S.D. Ohio).

This post written by Lynn Hawkins.

LIQUIDATOR NOT BOUND TO ARBITRATE REINSURANCE DISPUTE WITH JOHN HANCOCK

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This dispute is between the Ohio Superintendent of Insurance, in her capacity as liquidator for Credit General, and John Hancock over amounts potentially owed by Hancock under 13 reinsurance agreements pursuant to which Hancock reinsured risks initially insured by the now-insolvent Credit General. The sole issue presented on this appeal was whether the provisions of the Ohio Liquidation Act precluded enforcement of arbitration clauses against the Superintendent of Insurance functioning as liquidator, when those arbitration provisions were part of a contract that the liquidator otherwise sought to enforce.

The state appellate panel held that the liquidator was not bound to the arbitration clause in a reinsurance agreement finding that the purpose of the Ohio Liquidation Act outweighed the public policies in favor of arbitration. The panel also disagreed with John Hancock’s argument that the Ohio Liquidation Act could not overcome the explicit enforcement of arbitration under the Federal Arbitration Act. The panel reasoned that under the McCarran-Ferguson Act, state statutes that govern the liquidation of insurers supersede federal statutes. Hudson v. John Hancock Financial Srvs., No. 06AP-1284 (Ct. App. Ohio, Dec. 27, 2007).

This post written by Lynn Hawkins.

IRS ISSUES GUIDANCE FOR CELL CAPTIVE INSURANCE ARRANGEMENTS

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The Internal Revenue Service has issued a Revenue Ruling, number 2008-8 and a Bulletin, IRB 2008-5, which address questions relating to the structuring of cell captive insurance arrangements for federal income tax purposes. The Bulletin “provides guidance on the standards for determining whether an arrangement between a participant and a cell of a Protected Cell Company constitutes insurance for federal income tax purposes, and whether amounts paid to the cell are deductible as “insurance premiums” under section 162 of the Internal Revenue Code.” The IRS is requesting comments on this issue by no later than May 4, 2008. The Revenue Ruling “explains how arrangements between an individual cell and its owner are analyzed for purposes of determining whether there is adequate risk shifting and risk distribution to constitute insurance.”

This post written by Rollie Goss.

NINTH CIRCUIT RULES INSURER ALLOWED TO CANCEL POLICY DUE TO UNAVAILABLITY OF REINSURANCE

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The Ninth Circuit affirmed a magistrate’s ruling that Coregis Insurance Company complied with the plain language of an insurance policy issued to Independent School District of Boise City when Coregis cancelled coverage. The policy permitted Coregis to cancel the policy after it had been in effect for more than 60 days if it was unable to secure adequate reinsurance. The policy also contained a rate guarantee endorsement in which Coregis agreed “to keep this policy in effect and that rates will not increase more than 3% per year for the 2002-2003 and 2003-2004 policy years.” After one of the school shootings, reinsurance for terrorism risks was not available. The court determined that the two policy provisions could be read in harmony. Independent School District of Boise City v. Coregis Ins. Co., No. 06-35627 (9th Cir. Jan. 23, 2008).

This post written by Lynn Hawkins.

RULING RELATING TO LEGION LIQUIDATION PROCEEDING STANDS

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In a May 14, 2007 post, we reported on the affirmance by the Illinois Court of Appeals of a summary judgment decision disposing of a dispute under quota share reinsurance agreements related to Legion Indemnity. Without a published opinion, the Illinois Supreme Court has denied review of the decision of the Court of Appeals. In re Liquidation of Legion Indemnity Company.