Reinsurance Focus

A dispute arose between the Alabama Municipal Insurance Corporation and Alliant Insurance regarding the latter’s public entity reinsurance program. AMIC purchased $650 million in reinsurance, received a binder on the program, paid almost half a million dollars in premium, but did not receive a written policy until over a year later. According to AMIC, the two parties had agreed that AMIC must transmit timely loss notices to Alliant. Subsequently, during a round of golf between two senior executives from the parties, the two companies entered a “Gentlemen’s Agreement” that AMIC would not submit reinsurance claims for the 2000-01 treaty year. Five years later, AMIC submitted its 2000-01 claims which Alliant passed on to Lloyd’s, the reinsurance underwriter, which denied payment. At a trial of the dispute, a jury awarded AMIC just under $400,000 for breach of contract.

On Alliant’s motion for judgment as a matter of law, the federal district court found that the evidence so weighed in Alliant’s favor that no reasonable jury could find that AMIC had successfully proven a legally enforceable contract existed. AMIC could not demonstrate whether Alliant was acting as managing general agent for AMIC or for the reinsurance underwriters. Moreover, the claims had not properly been submitted in any case. The court further concluded that the equities barred recovery. Alabama Municipal Insurance Corp. v. Alliant Insurance Services, Inc., Case No. 09-928 (USDC M.D. Ala Jan. 10, 2012).

This post written by John Black.

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Various insurance carriers covering losses from the 9/11 terrorist attacks were collectively awarded treble damages amounting to over $9 billion against the terrorist organization al Qaeda. The carriers had obtained default judgments against al Qaeda and moved under the “business or property” provisions of the Anti-Terrorism Act to assess damages. Adopting the magistrate judge’s report and recommendation, the district judge broadly construed the available damages under the ATA based on similar language in the Clayton Act and civil RICO statute. Based on the insurers’ allegations and affidavits, the court awarded treble damages for claims paid on business interruption, property damage, and other losses resulting directly from the 9/11 attacks. The court denied recovery, subject to reconsideration after submission of additional evidence and briefing, for claim adjustment costs and legal expenses associated with paying claims. The court noted that binding precedent likely limited the insurers’ recoveries to the extent of their subrogation to their insureds’ claims. In re Terrorist Attacks on September 11, 2001, Case No. 03 MDL 1570 (USDC S.D.N.Y. Dec. 16, 2011).

This post written by Michael Wolgin.

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An English court held that a professional indemnity insurance “tower” of multiple excess of loss policies incurred liability simultaneously, rather than sequentially as each policy’s limits were exhausted. The tower consisted of a primary professional indemnity policy upon which were three layers of excess of loss insurance written by the insured’s captive insurer, Teal Insurance. Above the excess of loss policies was a “top and drop” policy written by Teal and reinsured by W.R. Berkley Insurance providing additional coverage once the excess of loss policies were successively exhausted. All policies provided worldwide coverage except the top and drop policy, which excluded North American claims. When the insured incurred multiple American and non-American claims, Teal argued it was entitled to ignore the order in which claims were incurred, and elected to exhaust the tower’s coverage with only the American claims, so as to pass the non-American claims to the reinsured top and drop policy. Teal contended that each policy in the tower incurred liability only after the lower layer policy accepted and exhausted liability. The court disagreed with Teal, holding that liability for the tower occurred simultaneously based on the top and drop policy’s provision that the policy would “continue in force as Underlying policy” (i.e., the top and drop policy would “become” the first layer policy) once the tower was exhausted. Any other conclusion would mean Teal “could determine when they (Teal) admitted liability further up the layer and could themselves organise the lower levels to pay American claims, leaving reinsurers to face non-American claims where those claims should otherwise have exhausted the tower.” Teal Assurance Co. v. W.R. Berkley Insurance (Europe) Ltd., [2011] EWCA Civ 1570 (Eng. Ct. App. Dec. 15, 2011).

This post written by Michael Wolgin.

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Some resolution was reached in a lawsuit between Munich Re and Tower Insurance. The parties asserted claims against each other under reinsurance and retrocessional agreements wherein they agreed to indemnify each other against all or a portion of the loss sustained under certain standard insurance policies. Both parties moved for partial summary judgment. Munich Re sought a past due payment of over $3 million plus prejudgment interests. Tower sought summary judgment on certain claims pertaining to quota share agreements and a multiple line excess of loss reinsurance agreement. The federal district court granted in part and denied in part Munich’s motion, finding that: (a) Tower had already paid the alleged past due payment; (b) Munich was entitled to submit a certification setting for the appropriate prejudgment interest; and (c) a request for an order directing Tower to cease its practice of withholding disputed net balances due should be denied. Likewise, Tower’s motion also was granted in part and denied in part. Munich’s claim regarding the quota share agreements should be limited in scope; loss adjustment expenses arising out of the agreements should be denied. Finally, the court denied Tower’s claim under the excess of loss agreement. Munich Reinsurance America, Inc. v. Tower Insurance Co. of New York, Case No. 09-2598 (USDC D.N.J. Dec. 23, 2011).

This post written by John Black.

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Petitioners filed a motion to confirm an arbitrator’s decision that an arbitration could be conducted on a class-wide basis and a further order granting class certification. The court denied the request on ripeness grounds, finding that it was premature. The court explained that governing case law permits confirmation of non-final orders only in limited circumstances, such as where the failure to grant review would cause hardship to a party. Petitioner’s stated hardship—that one defendant (of many) was seeking declaratory relief from another federal district court that the arbitration agreements did not permit class arbitration—was insufficient because the referenced case was first-filed and, furthermore, only involved one of many defendants. Pryor v. Overseas Admin. Servs., Ltd., et al., Case No. 10-01930 (USDC N.D. Cal. Dec. 7, 2011).

This post written by Ben Seessel.

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Manifest Disregard:

L’Objet, LLC v. Samy D. Ltd., Case No. 11-3856 (USDC S.D.N.Y. Sept. 29, 2011) (confirming award, finding arbitrator did not exceed powers, commit misconduct, or exhibit manifest disregard of the law, in disallowing certain discovery, and interpreting applicable precedent)

Schwartz v. Merrill Lynch & Co., Inc., No. 10-0826 (2d Cir. Nov. 30, 2011) (affirming denial of motion to vacate arbitrator’s award, rejecting claim that retroactivity of Lilly Ledbetter Fair Pay Act did not suffice to establish manifest disregard of arbitrator decision made before passage of Act)

Diaz v. Colombina, S.A., Case No. 10-1426 (USDC D.P.R. Dec. 6, 2011) (confirming award, finding no basis for vacatur under enumerated categories in FAA)

Scope of Submission:

Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, No. 09-3800 (8th Cir. Sept. 1, 2011) (Affirming confirmation of award, panel did not exceed scope of submission by ordering injunctive relief)

Wilkes Barre Hospital Co., LLC v. Wyoming Valley Nurses Assoc. PASNAP, Nos. 11-1134 and 11-1225 (3d Cir. Dec. 1, 2011) (affirming confirmation of award, finding arbitrator’s award did not exceed scope of submission based on nature of “mixed remedy” not specifically contemplated in parties’ Collective Bargaining Agreement)

Evident Partiality:

Anderson v. Cricket Comm’s, Inc., Case No. 11-2004 (USDC, W.D. Tenn. Sept. 23, 2011) (confirming award, finding no corruption, fraud or partiality by single arbitrator challenged by pro so litigant for declining to allow certain discovery)

Free Country Design & Construction, Inc. v. Proformance Group, Inc., Case No. 09-06129 (USDC W.D. Mo. Dec. 5, 2011) (confirming award, finding no evident partiality for “conflict of interest” based on arbitrator’s prior relationship with prevailing parties’ predecessor-in-interest, awarding attorney’s fees for post-arbitration litigation)

Validity of Arbitration Agreement:

Tricon Energy, Ltd. v. Vinmar International, Ltd., Case No. 10-05260 (USDC S.D. Tex. Sept. 21, 2011) (confirming award, finding valid agreement to arbitrate based on email exchanges which ratified certain disputed provisions of the parties’ agreement, including the arbitration provision)

Unity Construction Services, Inc. v. New Jersey Building Laborer’s Local Unions and District Councils, Case No. 11-6209 (USDC D.N.J. Dec. 12, 2011) (vacating award based on finding that no valid agreement existed as putative agent of contracting party had no authority to enter into agreement containing arbitration provision)

Duvall Contracting LLC v. New Jersey Building Laborer’s District Council, Case No. 11-02705 (USDC D.N.J. Dec. 16, 2011) (confirming award, finding valid agreement to arbitrate under Collective Bargaining Agreement applied to non-signatory company set up by principal of signatory company for purpose of avoiding use of union labor, contrary to CBA’s “double-breasting” provision)

This post written by John Pitblado.

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A. M. Best has issued its outlook for the reinsurance sector for 2012, titled Global Reinsurance Ratings Outlook Remains Stable As Industry Weathers Catastrophes, Pricing Begins to Turn. This short one page article presents an optimistic outlook.

This post written by Rollie Goss.

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In a dispute concerning approximately $250 million in coverage obligations under two reinsurance policies issued by National Indemnity Company (“NICO”), IRB-Brasil Resseguros, S.A. (“IRB”) filed a motion to prohibit NICO from changing its party-appointed arbitrator two-years after appointment, and to stay the second of two pending arbitrations until the arbitrators in the first proceeding decided IRB’s motion to consolidate. The federal district court denied IRB’s request to bar NICO from replacing its appointed arbitrator, reasoning that a party is entitled to an arbitrator of its choice to act as a “de facto advocate for its position” and, furthermore, that, notwithstanding the passage of two-years, no action had been taken in the arbitration because a panel had never been fully constituted. The court granted the motion to stay that later-filed arbitration pending the arbitrators’ decision on the motion to consolidate. The court also denied a motion by NICO to disqualify IRB’s neutral umpire candidate due to alleged impartiality, finding that such challenges cannot be brought under the FAA until after an award is rendered. IRB-Brasil Resseguros, S.A. v. National Indem. Co., Case No. 11-1965 (USDC S.D.N.Y. Nov. 29, 2011).

This post written by Ben Seessel.

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The European Union’s Solvency II initiative has received considerable trade press exposure, but the NAIC’s Solvency Modernization Initiative has received less attention. Learn about the general outlines of these initiatives in our Special Focus article, Solvency Ho! An Update on U.S. and European Solvency Initiatives.

This post written by John Pitblado.

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A court dismissed reinsurer Assurecare Corp.’s counterclaim for fraud and unjust enrichment against reinsured Arrowood Indemnity Company for drawing on Assurecare’s letter of credit for the allegedly improper purpose of collecting a disputed reinsurance claim. After engaging in a choice of law analysis, the court found that Assurecare’s fraud claim, which Assurecare sought to replace with a claim that Arrowood tortiously interfered with Assurecare’s relationship with the bank that issued the letter of credit, failed because no effect on the banking relationship was alleged. Assurecare’s unjust enrichment counterclaim failed because an enforceable contract (the Assurecare-Arrowood reinsurance agreement) existed between the parties. The court rejected Assurecare’s argument that Arrowood’s conduct related exclusively to the letter of credit, holding that the reinsurance agreement governed “the conditions under which Arrowood could draw on the Letter of Credit.” Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11-5206 (USDC N.D. Ill. Dec. 15, 2011).

This post written by Michael Wolgin.

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