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SEC settles claims against MBIA for sham reinsurance

February 8, 2007 by Carlton Fields

The SEC has filed a Complaint against MBIA in District Court alleging securities fraud arising out of an allegedly sham reinsurance transaction in 2005, which MBIA had entered into to avoid having to recognize a $170 million loss on bonds guaranteed by MBIA. The SEC simultaneously commenced an administrative enforcement proceeding against MBIA and entered an agreed cease and desist Order settling the dispute. A SEC litigation release describes these events, and the underlying conduct by MBIA.

Filed Under: Reinsurance Regulation, Week's Best Posts

Fifth Circuit articulates evident partiality standard

February 6, 2007 by Carlton Fields

In a software licensing dispute, a sole arbitrator entered an award, only to have the award vacated by a District Court on the basis that the arbitrator had failed to disclose an instance in which he had served as one of many co-counsel in a lawsuit with one of the counsel in the arbitration. The District Court vacated the arbitration award, on the basis that the prior relationship “might have conveyed an impression of possible partiality to a reasonable person.” A panel of the Fifth Circuit affirmed, but in an en banc decision, the full Fifth Circuit reversed, finding that the nondisclosure of “a trivial or insubstantial prior relationship” did not merit vacating the award under the evident partiality standard. The relevant legal standard arises out of a plurality Supreme Court opinion, and the en banc opinion noted a split of the Circuits as to what legal standard for evident partiality comes from the Supreme Court's opinion, with the en banc opinion alinging with the way in which the majority of Circuit Courts had interpreted the opinion. Positive Software Solutions, Inc. v. New Century Mortgage Corp., Case No. 04-11432 (5th Cir. Jan. 18, 2007). There is a prior Reinsurance Focus posting about this case dated June 6, 2006, which includes the Fifth Circuit panel opinion.

Filed Under: Confirmation / Vacation of Arbitration Awards

American Academy of Actuaries issues risk transfer testing practice note

February 5, 2007 by Carlton Fields

The American Academy of Actuaries' Committee on Property and Liability Financial Reporting has published a Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Notice. This publication provides advisory, non-binding guidance to property/casualty actuaries regarding testing for risk transfer, in connection with the NAIC's new Supplement 20-1 titled the “Reinsurance Attestation Supplement: Attestation of Chief Executive Officer and Chief Financial Officer Regarding Reinsurance Agreements.”

Filed Under: Accounting for Reinsurance, Week's Best Posts

District Court rules on reinsurance of auto lease residual value insurance policies

February 1, 2007 by Carlton Fields

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).

Filed Under: Reinsurance Claims

Court denies motion to dismiss in a case involving the interpretation of a commutation agreement

January 30, 2007 by Carlton Fields

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).

Filed Under: Contract Interpretation, Week's Best Posts

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