A District Court has confirmed an arbitration award finding no coverage under an insurance policy due to the presence of an absolute pollution exclusion. The policy did not have a choice of law provision, and the arbitration grew out of a declaratory judgment action filed by the insurer in US District Court in Indiana. Indiana law does not enforce the absolute pollution exclusion. Since the arbitration agreement provided for arbitration under the rules of the American Arbitration Association, which did not require that any substantive law apply, the arbitration panel declined to apply Indiana law, and arrived at what it viewed to be a fair and just decision. The District Court found no error in this decision. Reliance Ins. Co. v. Raybestos Products Co., Case No. 97-0027 (USDC S.D. Ind. Jan. 27, 2007). Additional background information may be found in the memoranda filed by Reliance and Raybestos as to whether the award should be confirmed or vacated.
Reinsurer’s Calculation Of “Incurred Loss” Could Lead To Finding Of Bad Faith
BJC, a network of hospitals is the sole shareholder of ATG, a captive insurance company that provides insurance for BJC. A dispute arose between ATG and its reinsurer, Columbia Casualty pertaining to the “incurred loss condition” clause in their reinsurance agreement. The incurred loss condition provided that continued coverage would be conditioned upon an incurred loss ratio of less than 75%. A few days before the end of the second policy year, Columbia terminated the agreement, claiming that BJC had exceeded the incurred loss ratio on an aggregate basis and on an individual claim.
Much of the case revolved around the actuarial work Columbia presented to BJC to justify Columbia’s determination that the incurred loss ratio had exceeded 75%. While the Eighth Circuit agreed that Columbia had broad discretion to determine the incurred loss, it held BJC presented sufficient evidence from which a reasonable jury could conclude that Columbia acted in bad faith.
The Court also agreed with the district court’s decision to strike the prayer for punitive damages because ATG’s complaint failed to allege fraud with the particularity required by Federal Rule of Civil Procedure 9(b).
Finally, the Court affirmed the district court’s finding that BCA was precluded from recovering compensatory damages resulting from Columbia’s decision to terminate the Contract because BJC failed to properly quantify its costs.
BJC v. Columbia Casualty, Case No. 06-1326 (8th Cir., February 23, 2007).
NAIC Committee takes action on reinsurance collateral proposal
The NAIC has issued a news release with respect to action taken today by the NAIC's Financial Condition (E) Committee at the NAIC's Spring National Meeting, which is currently underway in New York City. The news release reports that the Committee has directed the Reinsurance Task Force to continue to work on technical details within the Reinsurance Evaluation Office Proposal, and to consider the design of a revised US reinsurance regulatory framework. For details, see the news release on the NAIC's Internet site.
Tenth Circuit affirms confirmation of arbitration award
In a non-insurance arbitration, the United States Court of Appeals for the Tenth Circuit has affirmed the confirmation of an arbitration award, rejecting an argument that the arbitrator had acted in manifest disregard of law. The Court found that while the arbitrator's decision on liability “may be a close call,” it did not constitute manifest disregard of law. The Court also rejected an argument by a party against which an award had been entered that it was not a proper party to the arbitration, since it was not a party to the underlying note. This argument was rejected, in part because the party had vigorously participated in the arbitration without making any objection to its being named as a party. Hicks v. Bank of America, Case No. 05-1399 (10th Cir. Feb. 21, 2007).
Winter 2007 Journal of Reinsurance
The Winter 2007 issue of the Journal of Reinsurance is out. Published by the Intermediaries & Reinsurance Underwriters Association, articles in the current issue include:
- Eugene Wollan, Reinsurance Arbitrations: it's all in the point of view;
- John Gavin, IRMA Will Transform the Relationship Between Reinsurers and Receivers, about the NAIC's Insurer Receivership Model Act;
- Frank Achert and Arthur White, Solvency II: preparing for the dawn of a new day, about solvency regulation changes in the European Union; and
- Bina Dagar, The Reinsurance Underwriting Audit: an essential process.
Further information about the articles, and suscription information, may be found at the IRU's Internet site.