In an appeal from an award in an NASD-sponsored arbitration, the Tenth Circuit has joined virtually all other Circuits in recognizing that arbitrators, arbitral forums and arbitral sponsors are immune from liability for actions taken in connection with administering arbitration. Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, Case No. 04-1274 (10th Cir. Feb. 20, 2007).
Court orders production of documents regarding reinsurance of similar risks
In an action seeking reinsurance for trucking risks, in which the reinsurer alleged that the reinsurance had been placed in breach of various binding guidelines and agreements, a magistrate judge granted, in part, a motion to compel the reinsurer to produce documents relating to its underwriting process and declination of other trucking risks. The Court believed that the documents were discoverable to rebut the reinsurer's position. Scottsdale Insurance v. American Re-Insurance Co., 8:06-cv-00016 (D. Neb., Feb. 2, 2007)
Cat risk legislative update
There are three recent items of interest in pending legislation regarding cat risks:
- a Bill has been introducted in the United States Senate (S. 292) to establish a bi-partisan Commission on Catastrophic Disaster Risk and Insurance, to assess the condition of the property and casualty insurance and reinsurance markets in the aftermath of the recent hurricanes, and the ongoing exposure of the United States to various cat risks, and recommend any necessary legislative and regulatory changes to improve the financial health and competitiveness of such markets and assure consumers of the availability of adequate insurance coverage at competitive prices;
- a Bill has been introduced in the Missouri Senate (SB 518 – bill text and bill summary) to establish the Missouri Catastrophe Fund to help protect property and casualty insurers against insolvencies caused by certain natural disasters.
- two Bills have been introduced in the New York Senate to establish a state cat fund (S. 1883 and S. 2520).
Hannover Re issues $106 million cat securitization
Hannover Re has issued a $160 million securitization of catastrophe risks. Hannover described the issue as the completion of its “K3” transaction, being composed of a variety of non-proportional reinsurance of natural perils (hurricanes and earthquakes in the United States, windstorms in Europe and earthquakes in Japan) and worldwide aviation business.
Silence Deemed Insufficient to Preclude Aggregate Liability
In a matter that is difficult to describe briefly, an arbitrator has entered an award in an interesting reinsurance claims issue, and the award has been confirmed. Gerling Global Reinsurance Corporation (“Gerling”) issued a certificate of facultative reinsurance to Employers’ Surplus Lines Insurance (“Employers”) reinsuring an Excess Umbrella policy providing for $5,000,000 per occurrence and aggregate losses. When Gerling refused to pay its pro rata share of certain indemnity and defense costs, Employers demanded arbitration to enforce the certificate. Gerling argued that a non-concurrency existed between the facultative certificate and the umbrella policy with regard to the aggregate liability and liability for defense costs. Gerling argued that the absence of the word “aggregate” in various sections of the certificate precluded consideration of aggregate limits of liability and that its reinsurance limits applied strictly on a per-occurrence basis. Gerling also argued that it was not required to reimburse Employers for the defense costs associated with the settlement because the “follow the settlements” clause in the certificate was subject to the condition that an indemnity payment must be made on a specific claim before any defense costs attached. Gerling argued that this language was non-concurrent with Employers’ ultimate net loss liability theory. While the arbitrator acknowledged that the presumption of concurrency is “not absolute and can be overridden by clear language of limitation in the certificate,” this was not such a case. The arbitrator concluded that the absence of the word “aggregate” was insufficient to preclude liability, stating that “silence, as an expression of limitation, strains credulity and is insufficient to preclude aggregate liability.” The arbitrator also noted Gerling’s failure to use any of the methods available to it to limit aggregate liability, such as including the phrase “Nil Aggregate” in the certificate or by adding an endorsement. With respect to liability for defense costs, the arbitrator concluded that Gerling misinterpreted the “follow the settlements” clause and that the concept of “ultimate net loss” contained in the Employers’ policy was entitled to the presumption of concurrence. As such, Gerling was responsible for its share of the defense costs. Employers’ Surplus Lines Insurance Co. v. Global Reinsurance Corp., Case No. 07-30 (USDC S.D.N.Y. Jan. 11, 2007).