Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISTRICT COURT DISMISSES TORITOUS INTERFERENCE AND UNFAIR COMPETITION CLAIMS ALLEGED AGAINST REPLACEMENT REINSURANCE BROKER

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Benfield provided reinsurance brokerage services, but its services were terminated, and it was replaced by Aon. Benfield sued Aon, contending that Aon had wrongfully collected and retained commissions that should have been paid to it. Benfield alleged five claims: tortious interference with contract; tortious interference with prospective business relations; unjust enrichment; conversion; and unfair competition. On a motion to dismiss, the court dismissed all of the claims except those for unjust enrichment and conversion. Benfield, Inc. v. Aon Re, Inc., Case No. 07-2218 (USDC D. Minn. Jan. 8, 2008).

This post written by Rollie Goss.

COURT GRANTS SUMMARY JUDGMENT ON CLAIMS AMOUNTING TO ABUSE OF ARBITRATION PROCESS

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Myles had a credit card from Juniper Bank and failed to pay amounts due under the credit card. Wolpoff & Abramson LLP filed an arbitration claim against Miles on behalf of Juniper Bank. Myles contended that he never agreed to arbitrate, and no arbitration agreement signed by Myles was ever produced. The arbitrator retained the matter but dismissed the claim with prejudice. Myles then sued Wolpoff under the Fair Debt Collection Practices Act (“FDCPA”), the Michigan Collection Practices Act and the Michigan Occupational Code. The claims essentially alleged that Wolpoff had abused the arbitration process by filing a baseless arbitration claim. The district court found that the FDCPA claims failed as a matter of law because they amounted to a collateral attack on the arbitration award, which should have been challenged under the Federal Arbitration Act. The state law claims were then dismissed without prejudice pursuant to 28 U.S.C. § 1367. Myles v. Wolpoff & Abramson, LLP, Case No. 07-12247 (USDC E.D. Mich. Jan. 14, 2008).

This post written by Rollie Goss.

SEVENTH CIRCUIT AFFIRMS GRANT OF SUMMARY JUDGMENT AGAINST REINSURANCE SERVICE COMPANY

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Reinsurance Results is a service company that reviews an insurance company’s claims against its reinsurers to make sure the insurance company receives the benefits to which its reinsurance contracts entitle it. Reinsurance Results entered into a service contract with Indiana Lumbermens Mutual Insurance Company. The fee for the service was 33% of the funds collected from the insurance company’s reinsurers as a result of the review. Reinsurance Results claimed that it obtained $2.2 million and thus was owed 33% of that amount. Indiana Lumbermens disagreed, contending that the $2.2 million was a disputed benefit arising out of a change in its accounting treatment for certain transactions, which affected the amount that Indiana Lumbermens could bill its reinsurers, and that a change in accounting practices did not allow Reinsurance Results to compensation under its contract. An Indiana district court granted summary judgment against Reinsurance Results and Reinsurance Results appealed.

The Seventh Circuit, in an opinion by Judge Posner, affirmed the lower court’s decision. The Seventh Circuit noted that the contract stated that Reinsurance Results was entitled to compensation based upon its reporting of any loss or premium overpayment claims “that have not been processed in accordance with the reinsurance contract terms and conditions” (emphasis in court's opinion). The claims that the insurance company submitted were correctly processed. Even if Reinsurance Results did confer a benefit on Indiana Lumbermens by encouraging them to alter their accounting methodology, “it was not a benefit for which the insurance company was contractually obligated to compensate the service company.” Indiana Lumbermens Mutual Ins. Co. v. Reinsurance Results, Inc., No. 07-1823 (7th Cir. Jan. 16, 2008).

This post written by Lynn Hawkins.

COURT APPROVES INSURANCE COMPANY REORGANIZATION PLAN BASED UPON ASSUMPTION REINSURANCE AGREEMENT

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A Pennsylvania judge has approved the fourth amended plan for the rehabilitation of Fidelity Mutual Life Insurance Company, which is based upon Fidelity transferring its outstanding insurance and annuity contracts to Commonwealth Annuity and Life Insurance Company under an assumption reinsurance agreement. Assets of value equal to the assumed liabilities are also being transferred to Commonwealth, which is paying a ceding commission of $3.9 million and a contingent payment of up to $5.9 million. The proposed reinsurance transaction drew a single objection, which contended that Commonwealth was potentially financially unstable. The court rejected the objection, based in part upon Commonwealth’s A. M. Best rating of “A-“ and its estimated risk-based capital ratio of 8 to 1. The court found that the proposed plan complied with applicable regulations and was fair, equitable and financially sound. Ario v. Fidelity Mutual Life Ins. Co., No. 389 M.D. 1992 (Pa. Commonwealth Ct. Oct. 25, 2007).

This post written by Rollie Goss.

COURT CERTIFIES CLASS OF HOME BORROWERS WHO HAD PRIVATE MORTGAGE INSURANCE REINSURED WITH LENDER’S CAPTIVE REINSURER

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The US District Court for the Northern District of California has certified a nationwide class of persons who secured residential mortgage loans from Wells Fargo Bank, where the down payments were funded with borrowed funds subject to private mortgage insurance (“PMI”) with Wells Fargo as the beneficiary of the PMI, and the PMI was reinsured by Wells Fargo’s captive reinsurance company. The Complaint alleged violation of the federal Real Estate Settlement Procedures Act (“RESPA”) in that payments relating to the reinsurance amounted to illegal kickbacks. The court found that while the plaintiffs might not be able to maintain a claim that the amount paid for the insurance (and reinsurance) was excessive, claims that the payments amounted to illegal kickbacks under RESPA could be subject to class-wide treatment. Kay v. Wells Fargo & Co., Case No. C 07-01351 (USDC N.D. Cal. Nov. 30, 2007).

This post written by Rollie Goss.