Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER’S ATTEMPT TO ENFORCE INDEMNITY AGREEMENT FAILS

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This dispute centered around a 1995 General Indemnity Agreement (“GIA”) between defendant PEC and Amwest, a surety company. Pursuant to the GIA, PEC agreed to indemnify Amwest in connection with any bonds written on behalf of PEC. In late 1998 or early 1999, Amwest issued a performance bond to the United States as obligee, with PEC as principal, in connection with a construction contract for the Army Corps of Engineers. Shortly thereafter, Swiss Re agreed to provide reinsurance to Amwest on that performance bond.

Two years later, a Nebraska court declared Amwest insolvent and entered an order of liquidation. When PEC was unable to obtain substitute bonding for the Corps construction project, PEC’s involvement was terminated and Swiss Re was required to complete the project at a cost of over 1.4 million dollars, exclusive of legal fees. Swiss Re filed the instant case seeking to enforce the indemnity agreement between Amwest and PEC.

The district court held that the indemnity agreement did not require PEC to indemnify Swiss Re. Specifically, the court concluded that: (1) the indemnity agreement was unenforceable due to a failure of consideration and/or Amwest’s prior material breach of the contract; and (2) the GIA was unenforceable under the doctrine of ‘frustration of purpose.’ Swiss Reinsurance v. Airport Industrial Park doing business as P.E.C. Contracting Engineers, Case No. 2:05-cv-01127 (USDC W.D. Pa. Aug. 27, 2007).

COURT OF APPEALS HOLDS THAT ARBITRATION AGREEMENT DEADLINES TO BE STRICTLY ENFORCED

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The US Court of Appeals for the Seventh Circuit has held that time deadlines in arbitration agreement must be strictly enforced, affirming a District Court decision previously reported on in this blog in December 11, 2006 and August 24, 2006 posts. The dispute arose out of the timing of appointing an arbitrator in an international arbitration.

The Seventh Circuit affirmed a district court’s ruling that when Argonaut, a California-based insurer, missed the deadline for appointing one of the arbitrators in an international arbitration, it lost its right to appoint an arbitrator. The arbitration agreement required that the parties make their appointments by a certain time. The appointment deadline fell on the Sunday of Labor Day weekend. When Argonaut did not appoint its arbitrator, Lloyd’s appointed an arbitrator for that position on the panel, giving it two party-appointed arbitrators. Argonaut argued that in light of the holiday, the notice it gave on the Tuesday after Labor Day was a “timely nomination” of the arbitrator. The court disagreed, holding that “[i]n the absence of a choice-of-law provision, we conclude that parties are to be bound to the explicit language of arbitration clauses, with no state-specific exceptions that would extend otherwise clear contractual deadlines.” Certain Underwriters at Lloyds v. Argonaut Ins. Co., No. 04 c 5852 (7th Cir. Aug. 29, 2007).

SOLVENCY II REGULATORY PROCESS COMMENCES IN THE EU

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Regulation of insurance and reinsurance in the European Union has moved from the solvency issue-based initial phase, dubbed Solvency I, to a broader phase, dubbed Solvency II. Solvency II will address concepts of capital requirements, risk management practices, supervisory activities, reporting and disclosures. Final implementation of Solvency II is scheduled between 2010 and 2012, and substantial study and regulatory and legislative activities will precede final implementation. Information about Solvency II may be found on the EU's web site.

MEALEY'S REINSURANCE-RELATED CONFERENCES COMING UP

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There are two conferences during the next couple of months which might be of interest to those interested in reinsurance. The Association of Insurance & Reinsurance Run-off Companies, in conjunction with Cavell and Mealey's, is presenting a conference on October 15-17 in Rutherford, New Jersey titled Highlights of Selected Issues in a Runoff from a US/UK Perspective. A brochure for this event is available on-line. November 14-15 is the time for Mealey's Global Reinsurance Forum, being held in Bermuda.

MEALEY’S REINSURANCE-RELATED CONFERENCES COMING UP

by

There are two conferences during the next couple of months which might be of interest to those interested in reinsurance. The Association of Insurance & Reinsurance Run-off Companies, in conjunction with Cavell and Mealey's, is presenting a conference on October 15-17 in Rutherford, New Jersey titled Highlights of Selected Issues in a Runoff from a US/UK Perspective. A brochure for this event is available on-line. November 14-15 is the time for Mealey's Global Reinsurance Forum, being held in Bermuda.