The UK Commercial Court, Queen’s Bench Division, has granted a request to avoid several reinsurance agreements based upon misrepresentations in the placement of the treaties. The treaties were first loss facultative reinsurance agreements, and the court found that there had been material misrepresentations of the cedent’s underwriting policies. Specifically, the court found that although the placement materials had represented that the cedent insured risks subject to deductibles of from £500,000 to 1 million, the reinsured risks in actuality had deductibles of from £100,000 – 200,000. The court found that the misrepresentations were of a present fact, rather than of future intention, and were highly material to the acceptance of the risk given the conditions of the particular market. The court found that if the actual underwriting practices of the cedent had been disclosed, the reinsurer would not have agreed to the reinsurance agreements. The fact that the reinsurance was a first loss cover made the amount of the deductibles particularly important. Limit No. 2 Limited v. Axa Versicherung AG [2007] EWHC 2321 (Comm. Queen’s Bench October 17, 2007).
COURT HOLDS REQUEST FOR PRODUCTION OF ALL DOCUMENTS FILED WITH ANY REGULATORY AUTHORITIES FOR TEN YEARS OVERBROAD
Excess Insurance Company reinsured H. S. Weavers on more than 500 reinsurance contracts, and entered into a commutation agreement with Weavers. Rochdale Insurance Company partially reinsured one of the reinsurance agreements. Excess sued Rochdale, and sought production of every document filed by Rochdale with regulatory authorities over a ten year period of time. On a motion to compel, the court held that the request was overbroad. Excess did not state a rationale for the breadth of the request. Counsel had failed to meet and confer on the discovery dispute as required by a local rule, prompting a rebuke from the court. Excess Insurance Co. v. Rochdale Insurance Co., Case No. 05-10174 (USDC S.D. N.Y. October 4, 2007). Background on this dispute may be found in a Memorandum of Law filed in opposition to the motion to compel.
NAIC REINSURANCE TASK FORCE ADVANCES COLLATERAL AND REINSURANCE REGULATION PROPOSAL
The NAIC’s Reinsurance Task Force has advanced a proposal “to comprehensively modernize reinsurance regulation in the United States.” The proposal is outlined in a press release issued in conjunction with the recent meeting of the Annual Conference of the International Association of Insurance Supervisors. The proposal is in two parts: (1) NAIC Reinsurance Supervision Review Department; draft proposal to grant recognition of regulatory equivalence to non-U.S. insurance supervisors; and (2) Port of Entry State Criteria for Reinsures [sic] Supervised in Jurisdictions Approved by the NAIC Reinsurance Supervision Review Department and U.S. Licensed Reinsurers. Generally, the proposals provide for the regulation of US domiciled reinsurers through a single state, and the agreement to allow non-US domiciled reinsurers to be regulated in the United States through a single state “port of entry” if the foreign regulatory authorities provide a regulatory regime for the company that is functionally equivalent” to that in the United States The proposals also partially change the collateral requirements to a credit-based system, but do not by any means completely eliminate the collateral requirements. The NAIC has also posted on its website a PowerPoint presentation titled NAIC Reinsurance Collateral Update. The next step in this process is a meeting on November 7-8 in Atlanta in conjunction with the NAIC Financial Summit. Comments on the proposal are posted on the NAIC Reinsurance Task Force’s web site.
ENGLISH COURT ALLOWS UNDERWRITER TO CONTINUE RUN-OFF BUSINESS
In 2003, insurer Europ Assistance, and underwriter, Temple Legal Protection, entered into a binding authority agreement that authorized Temple to write ‘after the expenses’ coverage and handle claims on behalf of Europ. In exchange, Temple received 35% commission on the net premium. In 2005, Europ terminated the business with respect to new business, and in April 2007, Europ informed Temple that it planned to revoke all of Temple’s authority. Temple asserted that Europ repudiated the binding authority agreement.
While waiting for resolution of the underlying dispute, Europ sought an injunction barring Temple from continuing to carry on the run-off business, alleging that Temple was causing loss by unlawful means and was guilty of unlawful interference and breach of trust in failing to hand over premiums.
Balancing the interest of both parties, the English court refused to enjoin Temple from continuing with the run-off business. The court seemed influenced by the fact that Europ, a subsidiary of the well known and substantial Italian insurance company Assurazioni Generali SpA, had no continuing interest in the expenses business. In contrast, Temple, a small company, would be adversely affected if it were barred from running off the business. Europ Assistance Ins. Ltd. v. Temple Legal Protection Ltd., [2007] EWHC 1785 (Queen’s Bench July 25, 2007).
DISTRICT COURT QUASHES CRIMINAL SUBPOENAS ISSUED TO INSURANCE COMPANIES AND THEIR ATTORNEYS
Last year, a federal grand jury in New Haven indicted four former senior executives of General Re Corporation and one former senior executive of AIG for their participation in a fraudulent scheme to manipulate AIG’s financial statements. Recently, three of the defendants issued multiple subpoenas to several insurance companies and their attorneys pursuant to Federal Rule of Criminal Procedure 17(c). The subpoenas were contested by both the government and the third party subpoena recipients.
Applying the legal standard set forth by the Supreme Court in U.S. v. Nixon, the district court concluded that the subpoenas were unenforceable because they sought materials outside the proper scope of Rule 17(c). Specifically, the materials sought by several of the subpoenas would only be useful as impeachment materials, and therefore failed Nixon’s admissibility requirement. Other subpoenas were to be found unenforceable because they failed Nixon’s relevancy requirement. United States of America v. Ferguson, Case No. 3:06cr137, (USDC D. Ct. Sept. 26, 2007).