Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

New Journal of Reinsurance Issue

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The Spring 2007 issue of the Journal of Reinsurance is out. Published by the Intermediaries & Reinsurance Underwriters Association, articles in the current issue include:

  • Neal Moglin and Dan Sails, Achieving Certainty in an International Marketplace, addressing increasing certainty in insurance and reinsurance contracting;
  • Paul Horgan, ERM: No Longer a Nice-to-Have, addressing enterprise risk management issues;
  • Georges Galey and Sebastiaan Reitsma, Nuclear Risks in Property insurance and Limitations of Insurability; and
  • James Bisker, Creating Insurance Innovation Through a Services Organization.

Further information about the articles, and suscription information, may be found at the IRU's Internet site.

Legislative update

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In celebration of our nation's birthday (no, the blogmaster is not actually making this post on the 4th), here is a review of what our various legislators are doing with respect to reinsurance. With respect to pending legislation:

  • The Governor of Nebraska signed LB 117 into law on May 30, 2007, which contains amendments to the Suprlus Lines Insurance Act and a new Captive Insurers Act (sections 35-53). The terms of this new act may vary from a different captive bill introduced that was profiled in a January 29 post to this blog.
  • The Governor of South Carolina, on June 14, signed S. 589, which makes amendments to the captive provisions of the South Carolina Code.
  • On June 11, the Governor of South Carolina signed H. 3820, the Omnibus Coastal Property insurance Reform Act of 2007, which provides credits to property owners and insurers, establishes various associations and damage mitigation programs and provides for the formation of Coastal Captive Insurance Companies.
  • The Governor of Vermont, on May 25, signed S. 91 into law, which makes amendments to the captive provisions of the Vermont Code, adding provisions relating to special purpose financial captive companies.

With respect to pending legislation:

  • Delaware HB 214 passed the state House on June 26, providing amendments to Delaware's captive insurance provisions.
  • A potentially interesting risk pool concept was introduced in Louisiana House Concurrent Resolution No. 175, which seeks an investigation of the feasibility of establishing a regional cat fund that would allow Gulf Coast states to pool property insurance risks and other resources as a method of reducing insurance premiums.
  • LD 1390 was introduced into the Maine legislature, providing for the establishment and regulation of special purpose reinsurance vehicles by insurers domiciled in Maine.
  • H 6503 was introduced into the Rhode Island General Assembly, providing for the establishment of a state commission on hurricane loss projection methodology.
  • In the US Congress, this term's version of the Nonadmitted and Reinsurance Reform Act (see the March 7, 2007 post to this blog) passed the House on a voice vote on June 26, and was sent to the Senate. The companion Senate bill has made no progress in committee. Last year, this bill passed the House late in the fall and was not considered by the full Senate before the end of the term.

Courts Rule on Confirmation of Arbitration Awards

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Seven recent decisions addressed whether arbitration awards should be confirmed or vacated:

  • In Choice Hotels International, Inc. v. Shiv Hospitality, LLC, No. 05-2201 and 06-1043 (USCA 4th Cir. June 20, 2007), the Court affirmed a District Court's confirmation of an arbitration award, because a motion to vacate the award was untimely under the Federal Arbitration Act, which provides that an award may be confirmed within one year of its entry, but that a motion to vacate an award must be filed within three months of the entry of an award judgment. The Court confirmed the District Court's application of this rule to confirm the award when the motion to vacate was not filed within the required three month period.
  • In Downer v. Siegel, No. 06-30159 (USCA 5th Cir. June 13, 2007), the Court vacated a District Court Order vacating an arbitration award on the basis that the dispute was not subject to arbitration under the arbitration provision of an asset management agreement. The claimants attempted to avoid arbitration by naming the broker individually, instead of the brokerage firm with which they had contracted. The Court of Appeal held that the dispute was arbitrable because it necessarily related to the asset management agreement. The case was remanded for confirmation of the award.
  • In Sheet Metal Workers' International Assoc. Local 15 v. Law Fabrication, LLC, No. 06-16185 and 07-10356 (USCA 11th Cir. June 26, 2007), the Court affirmed the confirmation of a labor arbitration award, rejecting contentions that the dispute was not arbitrable and that the arbitration submission was untimely, finding the timeliness claim to be for the arbitrators to decide.
  • In Grabowski v. Vital Signs, Case No. 99-5683 (USDC D. N.J. June 8, 2007), the Court confirmed an arbitration award, rejecting claims that an arbitrator exibited evident partiality because: (1) one party's original expert (who was replaced by another expert) joined a firm with which the arbitrator was associated; and (2) the arbitrator was retained as an expert by a party allegedly adverse to defendant's counsel in another pending litigation.
  • In Hall Steel Co. v. Metalloyd Ltd., Case No. 05-70743 (USDC E.D. Mich. June 7, 2007), the Court denied a motion to confirm two arbitration awards entered by a London arbitrator on the basis that they were interim, not final, awards, and hence not eligible for confirmation under the Federal Arbitration Act.
  • In Glass Service Co. v. Illinois Farmers Ins. Co., No. C1-02-005860 (Minn. Ct. App. June 26, 2007), the Court affirmed the confirmation of arbitration awards despite claims that the arbitrators exceeded their authority: (1) by awarding aggregate damages in multiple individual consolidated claims; (2) by failing to hold a party to its burden of proof as an assignee and under the arbitration rules; and (3) in awarding damages in contravention of the policy language and governing statute, and that the lower court had erred in modifying the awards to add pre-award interest.
  • In In re Arbitration of Cincinnati Ins. Co. v. Tyco Fire Products, No. 82C806001071 (Minn. Ct. App. May 1, 2007), the Court affirmed the vacation of an arbitration award on the basis that it was procured by undue means, where the record supported a determination that the respondent was excluded from the arbitration proceeding by undue means, in violation of the due process provisions of the Minnesota Arbitration Act.

Seventh Circuit Finds Illinois’ ‘Insurance Producers Limitations Act’ Does Not Apply to Reinsurance Intermediaries

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This case arose out of reinsurance agreements between BCS and a third party, Insurance Specialists. The agreements were negotiated by BCS’ former reinsurance intermediary, Guy Carpenter & Company Inc. (“Guy Carpenter”). BCS alleged that Guy Carpenter failed to obtain adequate reinsurance for BCS and that Guy Carpenter’s actions resulted in an arbitration award against BCS in favor of its London reinsurers, exceeding $4.8 million dollars.

The district court granted summary judgment for Guy Carpenter, finding that five of the six claims asserted by BCS fell within the purview of the Illinois Insurance Producers Limitations Act (IPLA) and were barred by IPLA’s two-year statute of limitations. The district court also granted summary judgment for Guy Carpenter on the sixth claim, for implied indemnity, because BCS was unable to show it was derivatively liable in the arbitration for Guy Carpenter’s actions.

In a de novo review, the Seventh Circuit reversed the district court’s finding that five of BCS’ claims were governed by IPLA. Relying on briefing from the Illinois Attorney General, the Court concluded that “IPLA does not apply to reinsurance intermediaries and therefore does not govern the disputed agreements between BCS and Guy Carpenter.” The Seventh Circuit affirmed the district court’s finding that BCS failed to state a claim for implied indemnity because BCS failed to demonstrate that its liability resulted solely from the actions of Guy Carpenter. BCS Ins. Co. v. Guy Carpenter & Co. Inc., No. 06-1050 (7th Cir. June 18, 2007).

Party To Arbitration Waived Right to Contest Consolidation

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Plaintiff, Kentucky oil-and-gas developer Martin Ray Twist, sought an order compelling the defendant Investors to arbitrate separately their state law claims of securities violations, fraud, and other wrongs. Plaintiff’s motion was filed in federal court only weeks after a party-appointed arbitrator issued an order denying this identical request. The United States District Court for the Southern District of Indiana denied Plaintiff’s motion reasoning that “…Twist freely elected to let the arbitrator tackle the question.” The Court concluded that “[h]aving allowed the arbitrator to decide the issue, Twist cannot ask the court to overturn the ruling.” Martin Ray Twist v. Arbusto, Case No. 05-0187 (USDC S.D. Ind. June 8, 2007).