Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Winter 2007 Journal of Reinsurance

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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.

Securities fraud putative class action against MBIA dismissed

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Having settled with the SEC over charges relating to allegedly fraudulent reinsurance transactions, MBIA may be finding closure on the civil side of that problem. Relying on a 1991 Supreme Court decision stating that litigation under Section 10(b) and Rule 10b-5 must be commenced “within one year after the discovery of the facts constituting the violation and within three years after such a violation,” a District Court has dismiss a securities fraud putative class action against MBIA as time-barred. Plaintiffs filed a consolidated securities fraud class action alleging that MBIA’s financial statements were materially misstated because MBIA improperly treated a series of transactions in 1998 as reinsurance agreements, and the associated proceeds as income, although they were in fact disguised loans. In re MBIA Inc. Securities Litigation, Case No. 05-3514 (USDC S.D.N.Y. Feb. 14, 2007).

Surplus lines/reinsurance bill reintroduced in Congress

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Last fall, the Nonadmitted and Reinsurance Reform Act passed the house 417-0, but was not considered by the Senate due to its late passage in the House. A substantially similar bill has been introduced in the House, H.R. 1065. The bill subjects nonadmitted insurers to the premium tax laws of the policyholder's home state, and makes reinsurers subject to the solvency laws of their state of domicile under most circumstances. Due to an amendment to the definition of “qualified risk manager,” the new bill has the support of the Risk & Insurance Management Society, which did not support the bill last year.

District Court vacates attorney fee award portion of arbitration award

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Following arbitration of a dispute between parties to a coinsurance arrangement, an arbitration panel awarded attorney and arbitrator fees and costs to one party. A District Court confirmed the award, but vacated the award of fees and costs, which exceeded three million dollars, concluding that the award exceeded the arbitrators’ powers. The court relied on the terms of the coinsurance agreements, which expressly stated that “[e]ach party shall bear the expense of its own arbitrator…and related outside attorneys’ fees.” The court held that despite the breadth of the agreements to arbitrate, these provisions made clear that the arbitrators had no authority to award outside attorneys’ fees. The Court's decision is reflected in an Order, and a Judgment, with additional information about the case available in Memoranda filed by Reliastar and EMC National Life. Reliastar Life Insurance Company of New York v. EMC National Life Insurance Company, No. 06-cv-10186 (S.D.N.Y., February 13, 2007).

Zurich companies settle insurance bid-rigging claims

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A group of companies has settled civil and regulatory issues relating to alleged bid rigging in the sale of insurance. A District Court has approved a settlement whereby Zurich Financial Services, Zurich American Insurance Company, Steadfast Insurance Company, Fidelity and Deposit of Maryland, Empire Fire and Marine Insurance Company, American Guarantee and Liability Insurance Company, Empire Indemnity Insurance Company and Assurance Company of America have settled all claims in a pending MDL action, and also settled with numerous state attorneys general and insurance departments. In re: Insurance Brokerage Antitrust Litigation, Case No. 04-5184/MDL No. 1663 (USDC D.N.J. Feb. 16, 2007). Details of the settlement, which will cost the companies over $200 million, may be found in a Memorandum In Support of a motion seeking approval of the settlement.