Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Two courts address discovery-related issues

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Two courts recently addressed discovery issues relating to reinsurance.

  • In Spirco Environmental, Inc. v. American Int’l. Specialty Lines Ins. Co., Case No. 4-1437 (USDC E.D. Mo. Aug. 30, 2006), a coverage action, the Court denied a motion to compel discovery of information about reserve funds and reinsurance, on the basis that they were subject to work product protection and of limited relevance.
  • Sotelo v. Old Republic, Case No. 05-02238 (USDC N.D. Cal. Sept. 13, 2006), involved a claim on a life insurance policy for breach of contract and bad faith. The Court denied a motion to quash a subpoena issued to a reinsurer of the risk, finding that the requested information was discoverable and not privileged.

Court denies arbitration of fee dispute in KPMG criminal tax case

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In the massive criminal tax case against seventeen former partners and employees of KPMG, KPMG declined, under severe pressure from the government, to pay the attorneys' fees of the defendants. The District Court permitted the defendants to add KPMG as a defendant, and assert a claim against it for fees. The Court recently denied KPMG's motion for summary judgment, and set the claims seeking the advancement of fees for trial on an expedited basis. United States v. Stein, Case No. 05-crim-0888 and 06-civ-5007 (USDC S.D. N.Y. Sept. 6, 2006). The Court rejected KPMG’s contention that the fee issue was subject to arbitration under the partnership agreement, in part because not all of the defendants had been partners, but also on public policy grounds, due to the severe disruption that such a course would necessarily have had on the pending criminal case. This opinion may become of interest to reinsurers to the extent that there are criminal charges filed relating to finite reinsurance matters.

UK Court awards additional damages in brokerage fraud case

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The UK Commercial Court has decided that a reinsurance company is entitled to damage for the cost of investigating a conspiracy between one of its employees and its broker/intermediary. R+V Versicherung AG v. Risk Insurance and Reinsurance Solutions, SA, [2006] EWHC 1705 (Commercial Court July 10, 2006). The Court had previously ruled on other damages requests. The fraudulent activity included a hidden compensation agreement that gave the broker additional commissions in exchange for an equity interest in a London operation that was of minimal if any value.

No global reinsurers rated above AA- by S&P

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Standard & Poors recently lowered its ratings on Swiss Re to AA-. This action is notable not so much because of its potential impact upon Swiss Re, but because it means that there are now no stand-alone reinsurers that have a S&P rating of above AA-. S&P views the reinsurance industry to be volatile and underperforming in terms of earnings.