The California Insurance Commissioner, as conservator of Fremont Indemnity Company, has sued former executive officers and directors of Fremont in a civil fraud case, alleging that they caused Fremont over $200 million is loss due to fraudulent underwriting and reinsurance placement activities, which caused reinsurers to seek rescission of reinsurance, forcing Fremont to enter into commutation agreements with the reinsurers. Garamendi v. Rampino, Case No. BC357691 (Cal Super. Ct. Aug. 29, 2006). The Complaint alleges that the defendants inappropriately gave pricing discounts, wrote risks in high severity NCCI grades, wrote on a net line underwriting basis, and abused deductible and retrospective rating underwriting principles, in many respects contrary to express representations made to reinsurers.
Arizona Court rejects collateral modification of an arbitration award
Cundiff and State Farm arbitrated the amount of damage suffered by Cundiff as a result of an automobile accident while working. Neither party challenged the award or sought confirmation. The policy contained a provision allowing State Farm to offset benefits received from worker's compensation from any policy claim. Cundiff sued State Farm, contending that she was entitled to recover the full amount of her loss, without an offset for the workers' compensation benefits. The Court determined that the full amount of Cundiff's loss, at least implicitly including the offset issue, had been litigated in the arbitration, and that Cundiff's failure to follow Arizona law to seek modification of the arbitration award barred her action, justifying summary judgment in favor of State Farm. Cundiff v. State Farm Mut. Auto. Ins. Co., Case No. 2005-0209 (Az. Ct. App. Oct. 27, 2006).
Insolvent insurer recoups claims payments made to insureds and retains reinsurance recovery for same claims
The Utah Supreme Court has ruled on issues relating to whether payments received under various insurance and reinsurance agreements constituted voidable preferences under the Utah Insurers Rehabilitation and Liquidation Act, holding that the payments constituted voidable preferences. Wilcox v. Anchor Wate Co., Case No. 20050324 (Utah Nov. 3, 2006). An insurer had paid claims to its insured and received reimbursement from its reinsurers. The insurer was declared insolvent, and successfully recouped the claims payments it had made to its insured as a voidable preference, even though it had received reinsurance payments. The Court held that the insured had no right to the reinsurance proceeds, and that under the liquidation statute, the insolvent insurer could keep the reinsurance payments and recoup the claim payments it had made to its insured.
Court bars run-off administrator from arbitration
National Indemnity Company provided reinsurance to Seaton Insurance Company and Stonewall Insurance Company, both of which were in run-off. Castlewood, Inc. entered into an agreement with Seaton and Stonewall to provide administratrive services for the run-off of their business. When arbitrations commenced between NICO and Seaton and Stonewall on their reinsurance agreements, NICO sought to add Castlewood to the arbitrations, despite the lack of an arbitration agreement in Castlewood's agreements with Seaton and Stonewall. The Court granted Castlewood's request for a preliminary injunction preventing its addition to the arbitrations, subject to a $1 million injunction bond. Castlwood, Inc., v. National Indemnity Co., Case No. 06-6842 (USDC S. D. N.Y. Oct. 24, 2006). NICO sought to compel Castlewood to arbitrate based upon theories of assumption and estoppel, and because Castlewood's agreement provided that its administration of the run-off would not conflict with the reinsurance obligations of Seaton and Stonewall. The Court found this an insufficient basis to compel Castlewood's participation in arbitration.
RICO claims against Gen Re dismissed in ROA case
A US District Court has dismissed RICO claims asserted in a Second Amended Complaint against Gen Re (with leave to amend) arising out of the insolvency of Reciprocal of America, and Gen Re's provision of “accommodation reinsurance” that involved an undisclosed side agreement. The Court found a failure to appropriately plead proximate cause and reliance. State law claims were dismissed without prejudice since the only federal law claims were dismissed. In re Reciprocal of America Sales Practices Lit., MDL 1551 (USDC W. D. Ten. Sept. 29, 2006).