Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

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.