Renaissance Re has reached a proposed settlement of a shareholder class action lawsuit arising out of alleged finite reinsurance transactions. The proposed settlement would result in a cash fund of $13.5 million against which claimants could submit claims. Class counsel filed a memorandum in support of preliminary approval of the proposed settlement and a supplemental memorandum. The court then entered a preliminary approval order, setting a fairness hearing for consideration of final approval of the proposed settlement on January 11, 2008. This proposed settlement is in addition to Ren Re's $15 million settlement with the SEC reported on in a February 16, 2007 post to this blog.
NEW YORK INSURANCE DEPARTMENT PROPOSES NEW REGULATION ON REINSURANCE COLLATERAL
The New York Insurance Department has proposed a new regulation that moves from collateral-based security for reinsurance agreements to “principles-based” regulation based in large part on the financial rating of reinsurers, regardless of their domicile. A press release from the department provides a good summary of the reasons behind the change, as well as a summary of the new regulation, and touts the revised regulation as a substantial accomplishment, seemingly portraying it as an accomplished fact. A redlined version of the proposed regulation was also released, which will be published for comment. The target date for the effectiveness of the new regulation is July 1, 2008.
ILLINOIS COURT GRANTS SUMMARY JUDGMENT TO INSURANCE COMMISSIONER, AS STATUTORY LIQUIDATOR, ON RESCISSION AND SETOFF AFFIRMATIVE DEFENSES
We have reported previously on developments in Legion Insurance’s liquidation proceeding (see January 16, 2007 and April 26, 2007 posts), including an attempt to recover premiums allegedly owed by American Patriot Insurance Agency, Inc. (“American Patriot”) relating to a workers’ compensation program under a limited agency agreement.
On September 7, an Illinois federal court granted the Commissioner’s motion for summary judgment on American Patriot’s affirmative defenses for setoff and rescission. The court concluded that American Patriot had waived their right to rescind the limited agency agreement where they failed to take any steps towards rescinding the agreement until three years after they acquired knowledge of the fraud, coupled with Defendants’ continued retention of the benefits of the contract. With respect to American Patriot’s setoff defense, the liquidator contended that the alleged debts could not be mutual because they were not due and owing between the same parties or based upon the same contracts, and that mutuality of capacity was lacking because the premium owed by American Patriot were held in a fiduciary capacity. The judge agreed, stating that “the debts asserted by Defendants lack a mutuality of time with the debts asserted against them by the Liquidator, and Defendants’ claim for setoff must be dismissed on these grounds.”
The court denied summary judgment to the liquidator on American Patriot’s remaining affirmative defenses of unclean hands, fraud, negligent misrepresentation, estoppel of a 2000 program year and breach of contract. Ario v. American Patriot Ins. Agency, Case No. 05 C 1049 (N.D.Ill. September 7, 2007).
CONNECTICUT ATTORNEY GENERAL FILES ANTITRUST ACTION AGAINST GUY CARPENTER CHALLENGING THE USE OF REINSURANCE FACILITIES WITH LEAD REINSURERS
Opening a new front, Connecticut Attorney General Richard Blumenthal filed a 107 page Complaint in Connecticut state court against reinsurance broker Guy Carpenter & Company and Excess Reinsurance Company, alleging violations of the Connecticut antitrust and unfair trade practices statutes by fixing prices, creating closed reinsurance markets and allocating reinsurance markets. This action has potentially broad significance since one of the practices it challenges is the creation by reinsurance brokers of a reinsurance facility with a “lead” reinsurer, in which other reinsurers can participate only if the agree to the pricing and other terms set by the lead reinsurer. The Complaint alleges that such a facility is “totally insulated from competition or any competitive market forces.” The role of a “lead” reinsurer in setting market rates and terms is not an unusual concept in some lines of reinsurance and markets. State of Connecticut v. Guy Carpenter & Company and Excess Reinsurance Company, Superior Court, Judicial District of Hartford (October 4, 2007).
ARBITRATION AWARD CONFIRMATION DECISIONS
There are three recent decisions regarding arbitration awards, two of which have some unique interest:
- In Comedy Club, Inc. v. Improv West Associates, No. 05-55739 (USCA 9th Cir. Sept. 7, 2007), the court partially confirmed and partially vacated an arbitration award, finding that the arbitrator properly arbitrated equitable claims, properly issued injunctions except to the extent that they sought to bind non-parties to the arbitration agreement who were not in privy with parties, did not act irrationally, but acted in manifest disregard of law in the imposition of an overbroad covenant not to compete.
- In Ward v. Phantom Screens Manufacturing, Ltd., Case No. 04-3916 (USDC D. N.J. April 13, 2007), the court confirmed a Canadian arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards with minimal analysis, noting that the Convention clearly stated the bases upon which an award could be vacated, and that none of those grounds were present. The bases for the Order are set out in a Memorandum.
- In Louis J. Kennedy Trucking Co. v. Teamsters Local Union No. 701, Case No. 05-6005 (USDC D. N.J. Sept. 17, 2007), the court refused to vacate an arbitration award based upon claims that the arbitrator exceeded her authority, manifestly disregarded the law and acted in violation of public policy. The basis for the argument to vacate was basically that the arbitrator had erred, which is insufficient under the FAA.