Converium Holding, a Swiss reinsurance company, issued an IPO in December 2001. Converium's North American unit collapsed in September 2004 after four increases in reserves in a single year. Class action lawsuits followed, alleging that management had grossly misrepresented necessary reserves and failed to disclose reserve disputes with the company's outside auditor. The District Court dismissed claims against the IPO's underwriter and broker and claims against the company and individual defendants relating to the IPO, denying dismissal of certain other claims. In re Converium Holding AG Securities Litigation, Case No. 04-7897 (USDC S.D.N.Y. Dec. 28, 2006). This opinion illustrates the strategic problem of finding a solvent deep pocket in this type of situation, and discusses the “storm warning” doctrine, pursuant to which the Court found that the frequent increases to reserves, in increasing amounts, in a short period of time, put investors on notice of problems despite comfort statements by management.
Article on reinsurance issues relating to hurricane losses
The Fall 2006 issue of the Environmental Claims Journal contains an article by Carol Ann O'Dea and Vincent J. Vitkowsky titled Reinsurance Issues Arising from the 2005 Hurricane Season. Information about the Environmental Claims Journal may be found on the Internet.
Court confirms arbitration award over disclosure issue
A District Court in the Sixth Circuit has confirmed an arbitration award in a products liability injury matter, rejecting a contention that the award should be vacated due to the failure of one of three arbitrators to disclose that he had been counsel of record in several cases years ago in which counsel for one of the parties to the arbitration was either co-counsel or counsel for another party. The Court found that the Sixth Circuit had stated that the review of an arbitral award is governed by “one of the narrowest standards of judicial review in all of Ameican jurisprudence.” The Court found that no reasonable person would find that the presence of the two attorneys in the same lawsuits constituted a conflict of interest or resulted in bias, fraud or corruption. Uhl v. Komatsu Forklift Co., Case no. 04-10148 (USDC E.D. Mich. Dec. 8, 2006).
Discovery allowed as to other reinsurance claims
Zurich American, as reinsured, sued its reinsurer, R & Q Reinsurance, alleging that R&Q had breached its reinsurance obligations by not paying its full share of a settlement reached by Zurich with its insured. The dispute involved the allocation of policy limits among successive policies applicable to the loss. Zurich sought discovery of other instances in which R&Q had denied payments based upon allocation disputes. The Court found that R&Q's handling of similar claims might be relevant in the interpretation of the contract at issue, and ordered the production of certain information and the sampling of a claims database maintained by R&Q. Zurich American Ins. Co. v. Ace American Reinsur. Co., Case No. 05-9170 (USDC S.D.N.Y. Dec. 22, 2006).
Court declines to intervene in umpire appointment process
A District Court has declined to intereven in the appointment of an umpire, finding that there was no impass, and that the parties should continue the process, following the process set forth in various facultative and excess of loss reinsurance agreements. Global Reinsurance Corp. v. Certain Underwriters at Lloyd's, London, Case No. 06-7689 (USDC S.D.N.Y. Dec. 16, 2006). The agreements provided that each party would appoint an arbitrator, and that the party appointed arbitrators would have 30 days to agree upon an umpire. Failing agreement, each arbitrator was to designate one umpire, with the selection being made between the two proposed persons by drawing lots. Global contended that there was an impass due to its objections to the impartiality of the umpire suggested by Lloyd's arbitrator. The Court disagreed, finding that objections to partiality were proper only after an award was entered, and that the process should continue as agreed. This opinion illustrates the importance of including, as part of the qualifications for arbitrators and umpires in an arbitration provision, requirements that prospective arbitrators and umpires not have relationships with parties and their counsel. All qualifications must be clearly stated in the agreement.