Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Two Courts rule on Arbitrator Appointment Disputes

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After the parties had appointed arbitrators in a reinsurance dispute, and proposed several names to the party-appointed arbitrators for their consideration as umpire, a dispute arose as to whether the parties had agreed to extend the time to provide additional names for consideration as umpire. A motion was filed to resolve the issue. The Court determined that one of the persons already selected should be appointed due to his connections with the parties or counsel on both sides of the dispute. Glacier Reinsurance AG v. Odyssey American Reinsurance Corp., Case No. 07-583 (USDC D. Conn. June 27, 2007).

An unusual situation was presented in Baylor Univ. Medical Center v. GE Group Life Assur. Co., Case No. 06-103 (USDC N.D. Tex. June 12, 2007), which had one Plaintiff and multiple Defendants. The arbitration was governed by the rules of the American Arbitration Association. The agreement stated that each party would appoint an arbitrator. The AAA interpreted this to require that the three Defendants jointly agree upon and appoint one arbitrator. Some of the Defendants disagreed with this interpretation. The Court decided that since the parties had consented to the authority of the AAA, that the AAA’s interpretation of the agreement controlled. The Court appointed one arbitrator on behalf of all of the Defendants.

Court Rejects Argument That Custom Implies “Follow The Fortunes” Clause Into Reinsurance Contract

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This controversy involved a reinsurance dispute between ERC, a reinsurer, and Laurier, an insurer incorporated in Bermuda. ERC declined to indemnify Laurier for the settlement costs of a wrongful death suit. The present matter came before the court on the parties’ motions for reconsideration of a magistrate’s rulings on the parties’ cross-motions for summary judgment.

ERC moved for summary judgment based on Laurier’s failure to provide prompt notice of the claim, and contended that the delay was unreasonable as a matter of law and that it suffered prejudice as a result. ERC also claimed entitlement to partial summary judgment because “follow the fortunes” clauses are not implied in reinsurance contracts.

The reinsurance contracts at issue did not contain a “follow-the fortunes” clause. Laurier argued that the absence of the clause constituted an ambiguity in the contract and that the Court should allow custom to imply the clause into the reinsurance contract. The court disagreed, concluding that it could not “go outside the laws of contract construction and outside the four corners of an unambiguous contract to add a clause that was not bargained for.” As such, the court granted partial summary judgment for ERC on the issue of the “follow the fortunes” clause.

The court denied summary judgment on the remaining issues, including allocation of loss, waiver of the late notice defense, and the timeliness of the notice, finding that genuine issues of material fact existed as to those issues. ERC v. Laurier Indemnity Co., Case No. 8:03-cv-1650 (M.D. Fla. June 25, 2007). [The choice of law dispute in this case was addressed in an earlier posting on this blog on June 16, 2006.]

England Court of Appeals Denies Request to Reopen Case Upon Allegation of Fraud, Asserting Lack of Jurisdiction

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This case involves claims by Lloyds names against Lloyds, alleging that they had been misled by misrepresentations by Lloyds of its syndicate auditing and operational controls into becoming members of Lloyds syndicates. The names later suffered serious financial losses with respect to asbestos claims. The names lost the case, but then discovered additional evidence which they contended demonstrated that the judge had been misled by Lloyds. The issue before the court was whether the England and Wales Court of Appeals had jurisdiction to reopen a case upon an allegation that the Court had been misled by a party’s evidence and by fraud. The applicants, who were names at the Society of Lloyds, asserted that under the jurisprudence of Taylor v. Lawrence, 2003 QB 528, the Court had authority to reopen the case.

The Court disagreed, noting that, unlike the present case, Taylor v. Lawrence concerned misconduct by a court in that the judge was said to have been biased. Taylor v. Lawrence did not contain authority for extending the recognition of jurisdiction to reopen an appeal on the grounds of bias to a case where the allegation was not that the court had misbehaved, but that the court had been misled by one of the parties. The court cited authority directly denying the existence of jurisdiction in the latter case, providing that the proper remedy was to bring a collateral action to set aside the judgment allegedly obtained by fraud. Jaffray v. The Society of Lloyds, [2007] EWCA Civ 586 (June 20, 2007).

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.