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Reinsurer’s Calculation Of “Incurred Loss” Could Lead To Finding Of Bad Faith

March 13, 2007 by Carlton Fields

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).

Filed Under: Contract Interpretation, Reinsurance Avoidance

NAIC Committee takes action on reinsurance collateral proposal

March 12, 2007 by Carlton Fields

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.

Filed Under: Reinsurance Regulation, Week's Best Posts

Tenth Circuit affirms confirmation of arbitration award

March 12, 2007 by Carlton Fields

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).

Filed Under: Confirmation / Vacation of Arbitration Awards

Winter 2007 Journal of Reinsurance

March 12, 2007 by Carlton Fields

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.

Filed Under: Law Review Articles About Reinsurance, Week's Best Posts

Securities fraud putative class action against MBIA dismissed

March 8, 2007 by Carlton Fields

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).

Filed Under: Accounting for Reinsurance, Arbitration / Court Decisions

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