Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Non-legislative reinsurance market developments

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Apart from legislative activity in the area of cat funds and cat risk reinsurance, there have been three recent items of interest with respect to alternative reinsurance arrangements:

  • Hanover Re, which has been very active in securitizing reinsurance risks, has securitized reinsurance recoverables valued at approximately $1 billion, to accelerate the cash flow in that area;
  • The World Bank has created a regional catastrophe risk insurance pool that is currently covering 18 Caribbean countries. Two press releases describe the pool and the initial funding for the pool, which will purchase reinsurance in the private market. A detailed report available at the World Bank's Internet site provides additional detail;
  • Guy Carpenter & Company and MMC Securities Corp. has issued a detailed report titled The Catastrophe Bond Market at Year-End 2006, providing an annual review of the catastrophe bond market and an update on bond transaction activity and market dynamics. It provides interesting descriptions of different kinds of alternative risk transfer mechanisms, such as catastrohe bonds, side cars, and extreme mortality transactions, with listings of transactions in each category.

NON-SIGNATORY LACKED STANDING TO COMPEL ARBITRATION

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This case addressed whether a court was required to recognize the right of a non-signatory to compel arbitration. The Defendant, Boris Bannai, executed an agreement for the sale of ore on behalf of Northgate. The agreement included an arbitration clause, requiring the arbitration of all claims relating to the agreement in London. When the plaintiff sued Bannai for fraud and unjust enrichment based on the agreement, Bannai moved to compel arbitration. Applying English law as required by the choice of law provision in the arbitration agreement, the court denied the motion, concluding that as a nonsignatory, Bannai lacked standing to compel arbitration. There are three expecptions to the general principle of English law that a non-party to an agreement may not compel arbitration, but none of the exceptions were asserted. Felman Productions Inc. v. Boris Bannai, Case No. 3:06-0644 (USDC S.D. W.Va. March 5, 2007)

U.S. COURT holds that it has jurisdiction to grant a prejudgment remedy relating to a foreign arbitration

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This case addresses the important and divisive issue of whether the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards deprive a United States District Court court of jurisdiction to order injunctions and grant provisional remedies while an international arbitration is pending in London. Relying on precedent from the Second Circuit, a Connecticut District Court denied a motion to dismiss, holding that it has jurisdiction to entertain a motion for a prejudgment remedy by a party to an arbitration currently pending in London. However, it denied a motion requiring the immediate disclosure of assets. Bahrain Telecommunications v. DiscoveryTel, Inc., Case No. 3:05cv1957 (D. Ct. March 9, 2007)

COURT UPHOLDS ARBITRATOR’S DECISION REGARDING CLASS CERTIFICATION

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Sutter, a New Jersey pediatrician, filed a class action complaint against Oxford and several other health insurers for failure to pay medical claims timely and correctly under New Jersey law. Shortly after the case was filed, a New Jersey court granted Oxford’s motion to compel arbitration. Arbitration proceeded under the rules of the American Arbitration Association, which included a specific rule governing class actions. In 2005, the sole arbitrator issued a partial final class determination award, where he defined the class of claimants and certified the class. Oxford promptly filed a motion in district court to vacate the award. The District Court upheld the award, rejecting defendant’s argument that the arbitrator exceeded his authority and manifestly disregarded the law. The Third Circuit recently affirmed the judgment, finding that the arbitrator had not acted in manifest disregard of law, because he had considered all of the requirements set forth in the AAA's class action rule. Sutter v. Oxford Health Plans, Case No. 05-5223 (3rd Cir. February 28, 2007)