Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REN RE SHAREHOLDER CLASS SETTLEMENT RECEIVES FINAL APPROVAL

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Ren Re's finite reinsurance legal actions appear finally to be over. In an October 23, 2007 post, we reported on the preliminary approval of a class settlement with Ren Re's shareholders, coming after Ren Re's settlement with the SEC. The shareholder settlement has been given final approval by the Court, which entered a Final Approval Order (1/18/08), an Order awarding attorneys' fees and expenses (1/30/08) and a Final Judgment (1/30/08). In re Renaissancere Holdings Ltd. Securities Litigation, Case No. 05-6764 (USDC S.D. N.Y.).

This post written by Rollie Goss.

AMBIGUOUS ARBITRATION PROVISION FOR ARBITRATION PANEL, NOT COURT, TO DECIDE

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This dispute arose out of property damage to two Dow Chemical facilities caused by Hurricanes Katrina and Rita in 2005. Dow sought payment for the damage from Dorinco, Dow’s captive insurer. Dorinco then sought reimbursement under the policy from its reinsurers, the respondents in this case. The reinsurers disputed their obligation to reinsure the settlement amounts, totaling $289.7 million. Dorinco made two arbitration demands to the Reinsurers, one for claims resulting from Hurricane Katrina, and the other for the claim resulting from Hurricane Rita. Dorinco argued that the Reinsurers – as a group – were required to appoint a single arbitrator to each of the two panels. The Reinsurers contended that each reinsurer was entitled to its own arbitration panel and to appoint its own arbitrator to each panel.

The Court concluded that the arbitration provision was ambiguous and that, as a result, the Court was without authority to determine the parties’ intentions with respect to the provision. Relying on the Supreme Court’s decision in Green Tree v. Bazzle, and the arbitration provision at issue, the Court held that the arbitrators, not the Court, possess the authority to determine the parties’ intentions in agreeing to the arbitration provision. Dorinco Reinsurance Co. v. Ace American Ins. Co. et. al., No. 07-12622 (E.D. Mich. Jan. 23, 2008).

This post written by Lynn Hawkins.

CASE UPDATE: TRIAL REQUIRED TO DETERMINE ISSUES OF BAD FAITH OR EX GRATIA PAYMENTS

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On November 3, 2006 we reported on a decision of a New York state court that followed the follow-the-fortunes provision of a reinsurance agreement, granting summary judgment as to the majority of the reinsurance claims. A New York appellate court recently reversed that decision, revisiting the scope of the follow-the-fortunes doctrine and ex gratia exceptions under New York reinsurance law. The court found that the general “follow-the-fortunes” obligation comes with exceptions for claim payments that are “fraudulent, collusive or otherwise made in bad faith” or are “ex gratia.” Ex gratia payments are payments made by a cedent insurer “that recognizes no legal obligation to pay, but makes payment to avoid greater expense, as in the case of a settlement by an insurance company to avoid the cost of a suit.”

The reinsurer in this case contended that, years after making settlements in thousands of pesticide poisoning cases, the cedent’s parent company reallocated some of its settlement payments from sister companies to the cedent/plaintiff just to obtain the benefit of the reinsurance coverage. The reinsurer charged that the cedent insurance company's conduct constituted bad faith or at least an ex gratia payment that should relieve the reinsurer of any obligation as a matter of law on summary judgment. The New York appellate court disagreed, finding that issues as to the intent and circumstances of the underlying settlements remained unresolved, requiring a trial. Granite State Ins. Co. v. ACE American Reinsurance Co., 2007 NY Slip Op. 10464 (NY App. Div., Dec. 27, 2007).

This post written by Lynn Hawkins.

LEGISLATIVE UPDATE: STATES IMPLEMENT TRIA EXTENSION

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On December 21, 2007, we reported on the enactment and signing of the Terrorism Risk Insurance Program Reauthorization Extension Act of 2007, which extended TRIA. That Act made some changes to the TRIA program. A number of state insurance departments have issued Bulletins implementing the changes adopted in the extension. While it is not our intention to provide an exhaustive listing of the state actions in this area, we are providing in this post access to the Bulletins issued by the first group of insurance departments to address this matter, so that our readers can see the types of implementation activity that is occurring. You should check for Bulletins in states of interest to you if this topic is of concern to you. Alabama; Arizona; Illinois; Louisiana; Maine; New Hampshire; New Jersey; South Dakota; West Virginia.

This post written by Rollie Goss.

CASE UPDATE: FOURTH CIRCUIT FINDS LOWER COURT’S INTERPRETATION OF ARBITRATION AWARD INSUFFICIENT

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On June 20, 2006 we reported on a decision of a US District Court decision declaring the relationship between two arbitration awards. The Fourth Circuit has reversed that decision. The district court was asked to determine whether an arbitration panel’s second award was intended to supplement or incorporate the first award. After receiving yes/no responses from two of the three arbitrators, the district court concluded that the first award had been factored into and setoff by the second.

The Fourth Circuit reversed and remanded, concluding that while the district court correctly concluded that the second arbitration award was ambiguous and correctly sought clarification from the arbitrators, the procedure employed by the district court to clarify the ambiguity was unsuccessful. The court was “unable to discern, without further discovery into the arbitrators’ intent, how the one-word response from two of the arbitrators resolved the ambiguity.” The Burlington Insurance Company v. Trygg-Hansa Ins. Co., No. 06-2082 (USCA 4th Cir., Jan. 17, 2008).

This post written by Lynn Hawkins.