Swiss Re provided a type of reinsurance to Reliance Insurance Company for insurance of residual value insurance policies covering certain automobile risks. When Reliance became financially impaired, Swiss Re litigated liability and damage issues directly with the insured, Keybank USA. In a complicated 67 page opinion on cross motions for summary judgment, the District Court granted in part and denied in part the motions of both parties. This opinion considers multiple issues of contract interpretation, mitigation of damages and expert testimony. The Court recently entered an Order denying the motion of Keybank for reconsideration of the portion of the prior Order that granted partial summary judgment to Swiss Re with respect to auto leases that were part of Keybank's lease extension program. Reliance Insurance Co. v. Keybank U.S.A., Case no. 01-62 (USDC N.D. Ohio Dec. 20, 2006).
Court denies motion to dismiss in a case involving the interpretation of a commutation agreement
In a terse one sentence ruling, a District Court has denied a motion to dismiss a Complaint alleging a number of claims with respect to a Commutation Agreement of certain reinsurance agreements. The Defendant contended that the Commutation Agreement unambiguously released it from all liabilities, while the Plaintiff countered that the Defendant's reliance on extrinsic evidence in its motion demonstrated that the agreements were not unambiguous, requiring the denial of the motion to dismiss. ACE Tempest Reinsurance, Ltd. v. Converium Reinsurance (North America), Inc., Case No. 06-1059 (USDC S.D.N.Y. Nov. 30, 2006).
Special Focus: captive insurer bills
With January comes the new sessions of most state legislatures. We have been reviewing the new bills filed in the state legislatures relating to reinsurance. There is one clear trend: many state legislators wish to provide for the creation and regulation of captive insurance/reinsurance companies in their states, or to amend existing rules relating to captives. While it is, of course, impossible to predict how many of the filed bills will be enacted into law, here is a sampling of the captive bills filed so far:
- Arizona: HB 2294 (adding new provisions relating to captives);
- Connecticut: Bill 58 (formation and licensing of captives) and Bill 60 (establishing a captive insurance division within the Insurance Department) (the full text of these bills is not available as of this posting);
- Hawaii: HB 272 (allowing captives to be formed as limited liability companies, specifying minimum capital and surplus requirements and increasing investment flexibility);
- Indiana: HB 1417 (specifying the requirements for a captive to do business in Indiana, imposing fees and premium taxes and establishing a captive insurer trust fund);
- Missouri: SB 215 (amending the existing statutes to add 25 new sections relating to the regulation of captives – bill summary);
- Montana: SB 161 (broad revision of statutory regulation of captives);
- Nebraska: LB 121 (Captives Insurers Act);
- New Jersey: SB 1444 (broad regulation of captives); and
- West Virginia: SB 93 (adding three new sections relating to captives).
Florida Governor signs new hurricane preparedness and insurance bill into law
New Florida Governor Charlie Crist has signed his first bill into law, House Bill 1A from a special session of the Florida Legislature dealing with insurance rates for homeowners. One of the principal goals of the special session was to increase the availability and lower the cost of homeowners insurance, particularly in coastal areas. A House of Representatives staff analysis of the bill contains background information about the insurance market in Florida and the impact of the eight major hurricanes that hit Florida during the 2004 and 2005 hurricane seasons. The staff analysis reports that claims payments were made relating to the eight hurricanes totaling $33,346,477,364, and describes the resulting impact on the number of insurers writing homeowners coverage in the state, the cost of coverage and the cost of reinsurance.
This 176 page bill makes extensive changes to the Florida property insurance and reinsurance markets. The changes are summarized in the staff analysis. Among the changes is expanding the Florida Hurricane Catastrophe Fund to provide a “temporary emergency program” for the 2007, 2008 and 2009 hurricane seasons providing less expensive reinsurance for insurers. Savings from the reduced cost of reinsurance must be passed on to consumers. It is unclear what the impact of this new law will be on the reinsurance market, but a large amount of reinsurance premium may now be diverted from the private reinsurance market to the public avenues set up or modified in this bill.
Delaware proposes regulations for managed care organizations
Delaware has proposed regulations to implement the transfer of regulatory authority over managed care organizations from the Department of Health and Social Services to the Department of Insurance. The regulations include a requirement that each managed care organization secure reinsurance to cover catastrophic or unusual losses which would be in excess of the levels of loss which the organization assumes in the basis of its calculation of premium charges. A public hearing on the proposed regulations has been noticed for February 26, 2007. Delaware Proposed Regulation 1403.