Reinsurance Focus

On April 24, 2013, the Iowa State Senate adopted a Credit for Reinsurance Act that becomes effective January 1, 2014. On March 20, 2013, the Maryland State Senate adopted Senate Bill 777, an Act concerning “Insurance – Ceding Insurers and Reinsurance,” which takes effect June 1, 2013. The language of both Acts closely tracks that of the NAIC Credit for Reinsurance Model Law, which allows a ceding insurer to receive a credit for reinsurance when insurance is ceded to a reinsurer that meets certain requirements. Senate File 182, 85th Gen. Assembly (IA Apr. 24, 2013); Senate Bill 777, Gen. Assembly (MD 2013). A staff summary provides an analysis of the Maryland act.

This post written by Abigail Kortz.

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The NAIC’s Reinsurance Task Force met on April 8, 2013, as part of the NAIC’s spring national meeting. The Task Force has published its agenda and materials for the meeting, as well as the post-meeting summary. This meeting was informational in nature, and mainly was concerned with progress in the development of the NAIC’s list of qualified jursidictions for purposes of implmenting the Credit for Reinsurance Model Law and other progress in the implementation of the revised credit for reinsurance models.

This post written by Rollie Goss.

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In a contract dispute between an insurer and its reinsurance broker on which we previously reported, the Eighth Circuit affirmed the district court’s dismissal of the insurer’s complaint for failure to state a claim. The brokerage sharing agreement at issue required the reinsurance broker to pay an annual fee to the insurer in exchange for status as the insurer’s exclusive broker and included a forfeiture provision which discontinued the broker’s obligation to make the annual payment upon notice of the insurer’s decision to terminate or replace the broker. The insurer replaced the reinsurance broker, the broker refused to pay the annual fee, and the insurer sued for breach of contract. On appeal, the insurer argued that the district court misconstrued several key terms in the agreement, that the terms were ambiguous, and that theories of equity therefore applied. Applying Minnesota law, the Eighth Circuit determined that an “integrated definition” of a key term and the forfeiture provision were unambiguous, the broker was no longer obligated to make annual payments after receiving notice from the insurer that the broker was being replaced, and equitable relief was not available since the contract was clear and unambiguous. Olympus Ins. Co. v. AON Benfield, Inc., No. 12-1974 (8th Cir. Ap. 1, 2013).

This post written by Abigail Kortz.

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Confirming Award

Mandell v. Reeve, No. 11-5238 (2d. Cir. Feb. 4, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; denying appellee’s motion for sanctions, finding that the appeal was not frivolous).

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. Apr. 9, 2013) (reversing district court’s decision to vacate an arbitration award with instructions to reinstate the award, holding that the arbitrator’s award of a perpetual license as relief to the prevailing party was not inconsistent with the essence of the parties’ contract).

Data & Development, Inc. v. Infokall, Inc., No. 12-2456 (2d Cir. Mar. 13, 2013) (affirming district court’s decision to confirm arbitration award, holding that the arbitrator did not manifestly disregard New York law in awarding lost profits to the prevailing party on breach of contract claim).

Stonebridge Equity v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. Mar. 26, 2013) (affirming district court’s confirmation of arbitration award, holding that arbitrators did not act in manifest disregard of the law by using extrinsic evidence to interpret the parties’ contract and that the district court’s minor modification of the award to assure compliance was in accordance with the FAA).

Johnson Controls, Inc. v. Edman Controls, Inc., Nos. 12-2308 & 12-2623 (7th Cir. Mar. 18, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; arbitrator had not disregarded the parties’ choice of law nor exceeded his powers in awarding damages and attorneys fees to prevailing party).

Vacating Award

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 12-1850 (6th Cir. Apr. 9, 2013) (affirming district court’s partial vacatur of arbitration award, holding that the district court did not commit clear error in making the factual determination that an entity was not bound by an arbitration clause).

City of Oswego v. Oswego City Firefighters Association, No. 49 (N.Y. Apr. 2, 2013) (reversing order of appellate division; ordering that an arbitration award be vacated because the award would require a municipality to provide a benefit no longer authorized by law and that the final result would conflict with other laws and well-defined policy considerations).

Class Action Waiver and FAA Preemption

McKenzie Check Advance of Florida, LLC v. Betts, No. SC 11-514 (Fla. Apr. 11, 2013) (FAA preemption prevents court from invalidating class action waiver as void against state public policy because waiver would prevent consumers from vindicating rights under state consumer protection laws).

Jurisdiction

Community State Bank v. Knox, No. 12-1304 (4th Cir. Apr. 11, 2013) (affirming district court’s dismissal of petition to compel arbitration holding that that the FAA by itself does not bestow federal jurisdiction and that there was no independent basis for federal jurisdiction).

This post written by Ben Seessel.

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Plaintiff Insurance Company of the State of Pennsylvania (“INSCOP”) brought suit in New York state court against TIG, its reinsurer, alleging it breached six different facultative reinsurance agreements. TIG removed to federal court. INSCOP moved to remand, citing the service of suit clause which, though not quoted in the opinion, presumably authorized service of suit in New York. TIG argued that only some of the agreements contained the clause, but the court found there were no competing service of suit clauses for other jurisdictions, and that the absence of the clauses in some of the treaties did not overcome the presumption in favor of remand where the limits of federal court jurisdiction are at issue. Insurance Co. of the State of Pennsylvania v. TIG Insurance Co., No. 12-CV-6651 (USDC S.D.N.Y. March 11, 2013).

This post written by John Pitblado.

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As we reported on November 1, 2012, a federal court confirmed an arbitration award in favor of AXA Versicherung AG in a long-running reinsurance dispute with New Hampshire Insurance Company and other AIG affiliated entities. The $10 million award provided interest to be paid at 6.5%, compounded annually. AIG asked AXA for an extension on its deadline to pay the award. AXA agreed on the condition that AIG would not challenge the award and, further, that AIG would pay 6.5% interest until the award was paid in full.

AIG mistakenly sent payment to a former AXA affiliate that had been sold to an unrelated third-party. It took six weeks for the money to be returned to AIG. AIG argued that it should only have to pay interest at the lower stautory rate during this six-week period because AXA had not cooperated in obtaining a return of the funds. The court ruled in AXA’s favor, holding that AIG had to pay the 6.5% interest as agreed and, moreover, that it was AIG’s responsibility to make payment to the proper party. AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 1:12-c-06009 (USDC S.D.N.Y. Apr. 22, 2013)

This post written by Ben Seessel.

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Plaintiff homeowners filed a putative class against Bank of America Corp. (“BOA”), Bank of America Reinsurance Corp. (“BOARC”) and three primary insurers that issued private mortgage insurance covering plaintiffs’ mortgages with BOA. Plaintiffs allege they were required by BOA, the mortgage lender, to have private mortgage insurance to cover the risk of default which, under the mortgage agreement, BOA retained the right to place on plaintiffs’ behalf. BOA then allegedly placed the insurance with carriers that had previously agreed to cede a portion of the premium to BOARC, a captive of BOA, for reinsurance. Plaintiffs allege no actual risk was transferred, the reinsurance is illusory, and it therefore constitutes a prohibited “kickback” under the Real Estate Settlement Procedures Act. Defendants moved to dismiss citing the Act’s statute of limitations, but the court accepted plaintiffs’ equitable tolling argument that plaintiffs did not, and could not have, discovered the alleged “kickback” scheme because it was allegedly fraudulently concealed. Riddle v. Bank of America Corp., No. 12-1470 (USDC E.D. Pa. April 11, 2013).

This post written by John Pitblado.

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As previously reported on this blog, the Connecticut Insurance Department amended its Credit for Reinsurance law to align with the NAIC Credit for Reinsurance Model Law with an effective date of October 1, 2012. On March 1, 2013, the Department issued a bulletin which provides practical guidance to insurers seeking to become credited reinsurers in Connecticut. The bulletin sets forth the requirements for certification eligibility and includes a checklist addressing those requirements, which must be submitted along with the application for certification. State of Conn. Ins. Dep’t., Requirements to Become a Connecticut Certified Reinsurer, Bulletin No. FS-25 (Mar. 1, 2013).

This post written by Abigail Kortz.

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Pursuant to the Biggert-Waters Act, the Director of the FIO is required to conduct a study and submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report “providing an assessment of the current state of the market for natural catastrophe insurance in the United States.” The FIO Director must also consult with the National Academy of Sciences, State insurance regulators, consumer organizations, representatives of the insurance and reinsurance industry, policyholders, and other organizations and experts, as appropriate. To that end, on April 24, 2013, the FIO issued a notice seeking comments from these and other interested parties and the public.

The notice seeks comments on a number of areas, including: (1) the current condition of, and the outlook for, the availability and affordability of insurance for natural catastrophe perils in the United States, including whether a definition of a “natural catastrophe” should be established; (2) the current ability of States, communities, and individuals to mitigate their natural catastrophe risks; (3) the current state of catastrophic insurance and reinsurance markets and the current approaches in providing insurance protection to different sectors of the population of the United States; (4) the current financial condition of State residual markets and catastrophe funds in high-risk regions; (5) the current role of the Federal Government and State and local governments in providing incentives for feasible risk mitigation efforts and the cost of providing post-natural catastrophe aid in the absence of insurance; and (6) current approaches to insuring natural catastrophe risks in the United States.

Comments and papers containing analyses of natural catastrophes and the current state of the insurance market must be received by the FIO on or before June 24, 2013.

This post written by Michael Wolgin.

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In a prior post, we reported the district court’s denial of the insurer’s motion to compel arbitration in Union Electric Co. v. Aegis Energy Syndicate 1225. In that decision, the court held that a choice of law and forum selection clause agreeing “to submit to the jurisdiction of the Courts of the state of Missouri” in a policy endorsement, commonly known as a service of suit provision, prevailed over an alternative dispute resolution clause in the policy itself, and foreclosed arbitration. On April 19, 2013, the Eighth Circuit affirmed that decision, holding that the endorsement’s plain language gave Missouri courts jurisdiction over all disputes related to the policy. The court was not persuaded by the insured’s argument that the endorsement granted only personal jurisdiction over the parties for Missouri courts to enforce the ADR provision. This decision is setting up a conflict of opinions on this issue. Union Electric Co. v. Aegis Energy Syndicate 1225, No. 12-3546 (8th Cir. April 19, 2013).

This post written by Michael Wolgin.

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