The SEC has filed a civil action against three former executives of Renaissance Reinsurance Ltd., alleging that they were involved in fraudulent finite reinsurance transactions to improve the company's financial statements and earnings. The case was filed in the Southern District of New York. SEC v. Stanard, Merritt and Cash, Case No. 06-7736 (Sept. 27, 2006).
Court applies follow the fortunes doctrine and rejects late notice claim
In a summary judgment posture, a New York state court has rejected a reinsurer's late notice claim, finding that under New York law a reinsurer must prove prejudice due to late notice in order for late notice to constitute a defense to failure to pay claims. The Court found that no evidence of prejudice had been proffered. The Court then enforced a follow the fortunes clause as to the majority of the reinsurance claims at issue, finding that the reinsurer had not developed evidence in extensive discovery that the reinsured had acted fraudulently or in bad faith in paying the claims. The Court denied summary judgment as to claims relating to one underlying insured, based upon limited evidence that suggested possible bad faith in the payment of claims submitted by that party. Granite State Insur. Co. v. Ace American Reinsur. Co., Index No. 604347/04, in the Supreme Court of the State of New York, County of New York (Aug. 4, 2006).
Creative use of reinsurance not avoid rescission of life insurance policy
The Eleventh Circuit has affirmed a District Court Order granting Met Life summary judgment, rescinding a life insurance policy based upon misrepresentations in the policy application. The decision was based upon a Florida statute, which provides for rescission in either of two circumstances: (1) the insurer can show that the prospective insured made misrepresentations in the application that were material either to the acceptance of the risk or to the hazard assumed by the insurer; or (2) the insurer would not have issued the policy (or would have issued it on different terms) had it known the true facts. The insured contended that any misrepresentations could not, as a matter of law, have been material to the acceptance of the risk because Met Life had completely reinsured the liability. The Court found that it did not have to reach this contention since the evidence supported rescission under the second prong of the statutory test. Miguel v. Metropolitan Life Insur. Co., Case No. 06-11491 (11th Cir. Oct. 18, 2006). This creative argument deserves an “A” for effort.
Modified follow the fortunes provision not apply to settlements by reinsured
A UK Court has held that a follow the fortunes provision in facultative reinsurance contracts did not apply to without prejudice settlements reached by a reinsured with its insureds, since the clause provided that the reinsurance would “follow in all respects the settlements or other payments of whatsoever nature excluding without prejudice and ex-gratia settlements.” The clear contractual exclusion of without prejudice settlements from the operation of the follow the fortunes clause meant that the reinsured had to prove that the claims payments were appropriate under the underlying insurance. Faraday Capital Ltd. v. Copenhagen Reinsurance Co., [2006] EWHC 1474, [2006] All ER D 74, 2006 WL 2667603 (Queen's Bench Comm. Ct. May 4, 2006).
Opinions on confirmation of arbitration awards
Four recent non-reinsurance opinions have applied accepted principles in the confirmation of arbitration awards:
- A party may not successfully contend that an arbitration award entered pursuant to what is referred to as the “baseball arbitration” process is “manifestly irrational and prejudicial” when the parties agreed to use that process. The Court also found that a claim that the award was the result of corruption, fraud or undue means failed because the proof of fraud was vague, rather than clear and convincing, and there was no nexus demonstrated between the alleged fraud and the basis for the award. U.S. Steel Mining Co. v. Wilson Downhole Services, Case No. 02-1758 (USDC W.D. Pa. Oct. 5, 2006)
- An arbitration award was confirmed where a panel granted a Respondent summary judgment, holding that the doctrines of res judicata, collateral estoppel and waiver all precluded the panel from deciding the merits of the Petitioner's claims. Sherrock Bos., Inc. v. DaimlerChrysler Motors Co., Case No. 06-351 (USDC M.D. Pa. Oct. 12, 2006)
- An arbitration award was confirmed, rejecting a contention that the award failed to draw its essence from the contract at issue, since the arbitrator's award arguably construed the contract. Appalachian Regional Healthcare v. Ky. Nurses Assoc., Case No. 06-150 (USDC E.D. Ky. Oct. 13, 2006)
- An arbitration award was vacated on the basis that it failed to draw its essence from the underlying contract, where an award contravened express contractual limits on the authority of the arbitrator. The Court rejected the suggestion that it was merely disagreeing with the award. Truck Drivers Local Union No. 164 v. Allied Waste Systems, Inc., Case No. 05-73509 (USDC E.D. Mich. Oct. 16, 2006).