Reinsurance Focus

Land O’ Lakes, a member-owned agricultural cooperative, acquired a property in Oklahoma that was later designated by the EPA as a “Superfund” clean-up site. In or about 2001, the EPA notified Land O’ Lakes that it was a Potentially Responsible Party (“PRP”) for the clean-up costs, and demanded $8.9 million. Land O’ Lakes notified its insurers, who declined coverage. In or about 2008, the EPA sent a renewed notice to Land O’ Lakes, demanding more than $20 million in additional clean-up costs. Land O’ Lakes again turned to its insurers and all declined coverage. Land O’ Lakes sued and all issues were raised via cross motions for summary judgment, with all parties seeking judgment in their favor. While the majority of this opinion addresses the direct claims by Land O’ Lakes against its insurers, the Court granted summary judgment to White Mountains Reinsurance on contribution claims asserted against it by Travelers Indemnity and Employers Insurance Company of Wausau. Summary judgment was predicated upon alternative grounds, the most basic of which was that although Travelers and Wausau breached their duty to defend Land O’ Lakes, that claim, upon which the claim of contribution was based, was barred by the statute of limitation. Land O’ Lakes, Inc. v. Employers Mut. Liability Ins. Co. of Wisconsin, Case No. 09-CV-0693, (USDC D. Minn. Mar. 6, 2012).

This post written by John Pitblado.

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After settling with AIG for $1 billion, the New York Attorney General remains in pursuit of two former AIG executives—former CEO Maurice “Hank” Greenberg and former CFO Howard Smith—in connection with their alleged roles in a finite reinsurance transaction between AIG and Gen Re and a transaction between AIG and Capco Reinsurance Company, an offshore shell company that AIG allegedly used to disguise unfavorable loss ratios from the investing public. The appellate court affirmed the denial of defendants’ motion for summary judgment on the AG’s claims, which are brought under New York’s Martin Act and Executive Law section 62(12). The appellate court held that the claims are not preempted by federal securities laws and that triable issues exist based on the record evidence. The court also reversed the trial court’s grant of summary judgment to the AG on liability with respect to the Capco transaction. State of New York v. Greenberg, No. 401720/05 (N.Y. App. Div. May 8, 2012).

This post written by Ben Seessel.

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Policyholder Nero filed a putative class action lawsuit against American Family Insurance Company, alleging common law and statutory claims. American Family moved to dismiss, asserting that the claims were subject to mandatory arbitration, among other grounds. Shortly thereafter, on March 1, Nero notified American Family that an arbitration hearing would be commencing on March 5 in a different state and in front of a single arbitrator. American Family sought a temporary restraining order from the court enjoining the arbitration. American Family argued that it did not have sufficient time to prepare and, furthermore, that the location and designation of a single arbitrator was contrary to the terms of the arbitration provision in Nero’s insurance policy. It further argued that it would be irreparably harmed by having to “oppose confirmation of an unjust arbitration award” in a different jurisdiction. The court denied American Family’s request. The court stated that American Family’s contention that the arbitrator would not follow the proper procedure for selecting arbitrators was only speculative, and, furthermore, that FAA section 10(a)(3) permits vacatur where an arbitrator wrongfully refuses to postpone an arbitration hearing. Nero v. American Family Mut. Ins. Co., Case No. 11-02717 (USDC D. Colo. Mar. 2, 2012).

This post written by Ben Seessel.

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Plaintiff sued her bank in Florida federal court for the manner in which she was charged overdraft fees. The bank moved to compel arbitration, but the district court found the agreement to arbitrate unconscionable and unenforceable. The bank appealed. After the Supreme Court decided AT&T Mobility LLC v. Concepcion, __ U.S. __, 131 S.Ct. 1740 (2011), the Eleventh Circuit reversed and remanded for consideration in light thereof. The district court again refused to compel arbitration, avoiding an unconscionability finding, but nevertheless finding that the dispute did not come within the scope of the arbitration agreement. The bank again appealed and the Eleventh Circuit again reversed, finding the threshold issue of whether the dispute is arbitrable to be explicitly reserved for the arbitrator under the so-called “delegation provision” in the parties’ contract, which states that “[a]ny issue regarding whether a particular dispute or controversy is . . . subject to arbitration will be decided by the arbitrator.” In re Checking Account Overdraft Litigation, No. 11-14282 (11th Cir. March 21, 2012).

This post written by John Pitblado.

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On March 27th and April 24th, respectively, Oregon and Florida became the latest states to enact legislation providing for the formation of captive insurers, including captive reinsurers, for various types of insurance. Among other things, the new legislation sets out standards for captive formation, capitalization requirements, permissible types of coverage, and reporting. The two laws vary, however, in several respects.

Oregon’s new law (SB 1547) requires minimum policyholder surplus of between $250,000 and $750,000, depending on whether the captive is formed as a “pure” captive, “association” captive, or captive reinsurer, all of which (among others) are defined in the law. Florida’s law (HB 1101), in contrast, requires minimum surplus of between $250,000 and $500,000, depending on whether the captive is formed as a “pure” captive, or an “industrial insured” captive, as defined therein.

The new laws also differ with respect to fees and taxes. Oregon requires $5,000 for the initial application fee and $5,000 for each annual renewal, whereas Florida requires $1,500 as an application fee and $1,000 for annual renewal. With respect to premium taxes, Oregon’s law contains none, as opposed to Florida’s law which sets a premium tax rate of 1.75% on gross premium receipts. Both laws provide various financial requirements relating to the maintenance of reserves and liquidity.

Captives licensed in Oregon or Florida are required to have at least one board meeting each year in their respective states. Both states also require captives to maintain their respective principal places of business in-state (with one exception in Oregon’s law for “branch” captives). Approximately 31 jurisdictions have now enacted captive insurance laws over the past decade. Both the Oregon and Florida laws will take effect July 1, 2012.

This post written by Michael Wolgin.

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School districts brought a case in state court against their insurers, alleging that the insurers’ withdrawal of funds from the federal Early Retiree Reinsurance Program (ERRP) on the school district’s behalf was improper under the ERRP’s scheme. Despite the plaintiffs’ assertion of only state common law claims for conversion, civil theft, unjust enrichment, and breach of fiduciary duty, the defendants removed the case to federal court as implicating a federal question. On plaintiffs’ motion to remand back to state court, the court analyzed plaintiffs’ allegations and determined that, notwithstanding that the legal claims were alleged under state law, meeting the elements of those claims required the court to interpret the ERRP and related federal regulations to determine whether the defendants’ withdrawals were proper. The court then determined that, because the case would entail a “substantial and disputed federal issue,” and because federal jurisdiction over the case would not create “a potentially enormous shift of traditionally state cases into federal court,” federal jurisdiction was proper. In reaching this conclusion, the court found that the lack of a right to a private right of action under the ERRP was a relevant factor, but did not require remand. Hartland Lakeside Joint No. 3 School District v. WEA Insurance Corp., Case No. 2:12-cv-00154 (USDC E.D. Wisc. Apr. 24, 2012).

This post written by Michael Wolgin.

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A dispute arose between the city of Warren, Michigan and several insurance companies regarding their duties to defend and indemnify with respect to a state court class action suit against the city. The city sought to compel discovery of underwriting manuals, documents reflecting the company’s interpretation of key policy terms, and documents reflecting discussions with reinsurers and the setting of reserves from United States Fire Insurance Company as well as a series of other insurers who had provided coverage at various points between the 1960s and 2001. The district court granted the city’s motion to compel as to the claims manuals, underwriting manuals, and related documents, and denied all other requests. Specifically, the court found that (1) the other claims-related material was covered by attorney-client privilege or the work-product doctrine; (2) materials evidencing interpretation of policy terms were not relevant; and (3) while reinsurance policies themselves are discoverable, all other documents relating to reinsurance are irrelevant and not discoverable. United States Fire Insurance Co. v. The City of Warren, No. 10-13128 (E.D. Mich. Apr. 26, 2012).

This post written by John Black.

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The Commonwealth Court of Pennsylvania issued an opinion vacating Pennsylvania’s Office of Open Records’ denial of a request for documents under the state’s Right-to-Know Law. Plaintiff sought records related to Reinsurance Offset Guidelines from the Pennsylvania Department of Insurance and Reliance Insurance Company, which has been in liquidation since 2001. The OOR denied the request on the basis that the documents were “internal, pre-decisional deliberations.” The court vacated the denial because the OOR did not have jurisdiction to hear this matter as Reliance’s Statutory Liquidator. The court further explained that the Pennsylvania Insurance Department, when aiding the Statutory Liquidator, and Reliance are acting pursuant to a judicial order and under the supervision of the Commonwealth Court. Because the court had appointed the state Insurance Commissioner as Statutory Liquidator, it retained general supervision over the Statutory Liquidator and the insolvent estate. Thus, all complaints regarding how the insolvency is being administered must be directed to the court, and any records can only be obtained through court order. Greenberger v. Pennsylvania Ins. Dept., No. 931 C.D. 2011 (Pa. Commw. Ct. Mar. 7, 2012).

This post written by John Black.

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A federal district court entered a final order and judgment approving a class action settlement in an action brought against AIG by certain members of the National Workers Compensation Reinsurance Pool (“NWCRP”). Class plaintiffs alleged that AIG had underreported workers compensation premium for the purpose of reducing its share of the workers compensation market and, consequently, increasing the residual market costs of other Pool members. The settlement provides for a $450 million payment to be allocated among class members according to market share. Liberty Mutual and two of its affiliates, Safeco and Ohio Casualty, objected to the settlement but their objections were overruled. American Int’l Group, Inc. v. ACE INA Holdings, Inc., Case No. 07-02898 (USDC N.D. Ill. Feb. 28, 2012).

This post written by Ben Seessel.

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Manifest Disregard

Biller v. Toyota Motor Corp., No. 11-55587 (9th Cir. Feb. 3, 2012) (affirming confirmation of award, no manifest disregard of the law)

Giller v. Oracle USA, Inc., Case No. 11-02456 (USDC S.D.N.Y. Feb. 14, 2012) (denying vacatur, no manifest disregard, no evident partiality)

Latour v. Citigroup Global Markets, Inc., Case No. 11-1167 (USDC S.D. Cal. March 16, 2012) (vacatur denied, no manifest disregard)

Collins v. Chicago Investment Group, LLC, Case No. 11-01105 (USDC D. Nev. March 20, 2012) (vacatur denied, arbitrator did not exceed scope by transferring matter from Nevada to Illinois, no manifest disregard)

Exceeded Scope

Muskegon Central Dispatch 911 v. Tiburon, Inc., No. 09-2214 (6th Cir. Feb. 2, 2012) (affirming vacatur where arbitrators exceeded scope of submission)

Tucker v. Sterling Jewelers, Inc., Case No. 09-14102 (USDC E.D. Mich. Feb. 10, 2012) (denying vacatur, arbitrator did not exceed scope of submission, no manifest disregard of the law)

Dubois Logistics, LLC v. United Food and Commercial Workers Union, Local 23, Case No. 11-34 (USDC W.D. Pa. March 5, 2012) (vacatur denied, arbitrator did not exceed scope, denying attorneys fees to prevailing party)

Garlyn, Inc. v. Auto-Owners Ins. Co., No. A11-1520 (Minn Ct. App. March 26, 2012) (affirming in part, reversing in part, affirming lower court’s vacatur where arbitrators did not exceed scope of submission in finding for petitioner on merits, but reversing lower court’s denial of vacatur of statutory pre-award interest, as that portion of award exceeded the scope of the submission)

Buy Rite Auto Glass, Inc. v. Progressive Casualty Ins. Co., No. A11-1492 (Minn. Ct. App. April 9, 2012) (affirming in part, reversing in part, affirming lower court’s denial of vacatur where arbitrators did not exceed scope of submission in finding for petitioner on merits, but reversing lower court’s denial of vacatur of statutory pre-award interest, as that portion of award exceeded the scope of the submission)

New York Convention on Enforcement of Foreign Arbitral Awards

SEI Societa Esplosivi Industriali SpA v. L-3 Fuzing and Ordnance Systems, Inc., Case No. 11-149 (USDC D. Del. Feb. 17, 2012) (confirming Swiss award under New York Convention on the Recognition and Enforcement of Foreign Arbitral awards, precluding review for manifest disregard, and finding award did not exceed scope and did not violate United States public policy)

Greatship (India) Limited v. Marine Logistics Solutions (Marsol) LLC, Case No. 11-420 (USDC S.D.N.Y. Jan. 24, 2012) (dismissing action to confirm foreign award for lack of personal jurisdiction over respondent)

Subway International, B.V. v. Bletas, Case No. 10-01715 (USDC D. Conn. April 3, 2012) (motion to confirm granted, personal jurisdiction satisfied under New York Convention, FAA applied where arbitration foreign parties took place in United States between)

Res Judicata

Druz v. Morgan Stanley, Inc., Case No. 10-6281 (USDC D.N.J. March 8, 2012) (denying vacatur of award previously confirmed by court, under principle of res judicata)

Evident Partiality

Urban Associates, Inc. v. Standex Electronics, Inc., Case No. 04-40059 (USDC E.D. Mich. Feb. 17, 2012) (denying vacatur, no evident partiality, no failure or refusal to hear material evidence, arbitrators did no exceed powers) (magistrate judge’s report and recommendation and district court’s order)

This post written by John Pitblado.

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