CALIFORNIA LEGISLATION REGARDING CREDIT FOR REINSURANCE SIGNED INTO LAW

On September 16, 2014, Assembly Bill No. 2734 (“AB 2734”) was signed into law. AB 2734 authorizes trusteed surplus to be reduced to not less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust if the Insurance Commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus. AB 2734 also reduces the period during which the Insurance Commissioner is prohibited from taking final action on an application for certification as a reinsurer from 90 days to 30 days after posting the required notice concerning receipt of the certification application.

This post written by Kelly A. Cruz-Brown.

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SOUTHERN TITLE INSURANCE COMPANY DECLARED INSOLVENT AND ORDERED LIQUIDATED

In July of this year, the State Corporation Commission of the Commonwealth of Virginia issued an Order declaring Southern Title Insurance Company insolvent and ordering its liquidation. Among other things, the Order authorized the receiver to use approximately $10 million of its assets “to enter into contracts of reinsurance to pay all policyholder claims.” The Order also set a Claims Filing Deadline and established other procedures and guidelines for the liquidation. Commonwealth ex rel. State Corp. Comm’n v. Southern Title Ins. Co., No. INS-2011-00239 (Va. State Corp. Comm’n July 28, 2014).

This post written by Catherine Acree.

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COMMONWEALTH COURT OF PENNSYLVANIA APPROVES REINSURANCE COMMUTATION AGREEMENT

On September 4, 2014, the receivership court for the Reliance Insurance Company (“Reliance’) estate (the “Reliance Estate”) approved a settlement agreement allowing the Liquidator to terminate and commute the obligations between Odyssey and Reliance under the reinsurance agreements. The receivership court accepted the liquidator’s representations that the settlement agreement is a fair and reasonable settlement of Odyssey’s obligations to the Reliance estate under the reinsurance agreements and that the payment contemplated under the settlement constituted fair and reasonable value to the Reliance Estate. The Reliance estate will receive an economic benefit amounting to $6,450,000. In re Liquidation of Reliance Insurance Company, Docket No. 1 REL 2011 (Pa. Comm. Ct. Oct. 8, 2014)

This post written by Kelly A. Cruz-Brown.

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FEDERAL COURT REFUSES TO ENFORCE ARBITRATOR’S SUBPOENA DUCES TECUM TO NON-PARTY

A United States district court in Louisiana recently dismissed a suit brought under the Federal Arbitration Act to enforce a subpoena duces tecum issued in an arbitration proceeding. The district court granted the defendant’s motion to dismiss on two grounds. First, the court held that the amount in controversy requirement for diversity jurisdiction was lacking because the plaintiffs were asserting no claim against the defendant in the federal court action; the plaintiffs sought only the production of discovery documents. Second, the court ruled that Section 7 of the FAA provides for the enforcement of a subpoena duces tecum against a non-party only if the non-party is compelled to testify as a witness before the arbitrator. Because the defendant was not summoned to testify in the arbitration proceeding, the subpoena duces tecum was unenforceable. Chicago Bridge & Iron Co. N.V., et al. v. TRC Acquisition, LLC, No. 14-1191, 2014 WL 3796395 (E.D. La. July 29, 2014).

This post written by Catherine Acree.

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COURT CONFIRMS ARBITRATION PANEL’S INTERIM AWARD REQUIRING REINSURER TO POST SECURITY FOR CEDENT’S CLAIMED LOSSES

A federal district court has confirmed an arbitration panel’s interim award requiring Allied Provident, as reinsurer, to post security for unreimbursed losses and expenses that its cedent claims are due under the parties’ reinsurance agreement. The court first considered whether it even had the power to confirm the panel’s interim award because generally a court does not have the authority to review an interlocutory ruling by an arbitration panel. The court found, however, that an exception to that rule exists when a panel has granted an award of temporary equitable relief, such as a security award, separable from the merits of the arbitration. The court therefore found that it had the power to confirm the interim award and rejected all of Allied Provident’s arguments to vacate it.

The court also denied Allied Provident’s request to stay the interim award and to disqualify the entire arbitration panel. The court directed Allied Provident to appoint a new party arbitrator, as its arbitrator had resigned due to health reasons, so the proceedings could continue. Companion Property and Casualty Insurance Co. v. Allied Provident Insurance Inc., Case No. 13-CV-7865 (USDC S.D.N.Y. Sept. 26, 2014).

This post written by Renee Schimkat.

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OHIO DEPARTMENT OF INSURANCE IDENTIFIES REQUIREMENTS FOR DOMESTIC INSURERS TO TAKE CREDIT FOR CEDED INSURANCE ON FINANCIAL STATEMENTS

The Ohio Department of Insurance requires that Ohio domestic insurance companies taking credit for ceded insurance on their financial statements to comply with certain statutory conditions, including requiring that the assuming reinsurer must be authorized in Ohio as of the date of the financial statement. Additionally, domestic insurers may take credit for reinsurance ceded to certain unauthorized reinsurers that meet the US reinsurance trust requirements under certain Ohio statutory requirements.

This post written by Leonor Lagomasino.

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SPECIAL FOCUS: IS IT STILL PRIVILEGED?

We previously reported on the decision in Progressive Casualty Ins. Co. v. FDIC, where the federal district court rejected claims of privilege, work product, and the common interest doctrine to certain information disclosed by an insurer to its reinsurers and broker. In a Special Focus article titled “IS IT STILL PRIVILEGED? AN INSURER’S DISCLOSURE OF INFORMATION TO ITS REINSURERS AND BROKERS WAIVES PRIVILEGE … SOMETIMES,” Renee Schimkat discusses Progressive Casualty (including another more recent order in that case) and other decisions where courts have considered whether the disclosure of information between these three parties waives applicable privileges.

This post written by Renee Schimkat.
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SECOND CIRCUIT REFUSES TO HEAR APPEAL BY UNDERWRITER AGAINST REINSURER

The Second Circuit refused to hear an appeal in an action brought by Acumen Re Management Corporation, an underwriter, against a reinsurer, General Security National Insurance Company. The crux of the action was Acumen’s allegation that General Security breached the agreement between them by failing to pay Acumen certain commissions which General Security allegedly owed under the parties’ agreement. In the suit, Acumen alleged five distinct theories as to how General Security breached the agreement. The lower court entered partial summary judgment in favor of General Security on four of those theories and further held that, under all five theories, no more than nominal damages were available to Acumen. The lower court certified the partial final summary judgment as to the four counts under Federal Rule of Civil Procedure 54(b) which authorizes, under certain circumstances, entry of a partial final judgment as to one or more, but fewer than all, claims of the parties such that the partial final judgment becomes reviewable on appeal. The Second Circuit determined that the five theories Acumen alleged were not separate and distinct claims; instead, Acumen alleged five various ways in which General Security breached the agreement and the claims were interrelated and dependent upon each other. The Second Circuit concluded that it did not have jurisdiction to review the lower court’s entry of partial summary judgment. Acumen Re Management Corp. v. General Security National Insurance Co., No. 12‐5081‐cv (2d Cir. Oct. 3, 2014).

This post written by Leonor Lagomasino.

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DISTRICT JUDGE ORDERS LG ELECTRONICS TO ARBITRATE IN TV PATENT SUIT

The Southern District of New York ordered LG Electronics Inc. to arbitrate with technology patent licensing company Wi-LAN Inc. a dispute over whether certain LG television models infringe patents LG does not own.  The current dispute can be traced back to a 2012 Florida suit in which Wi-LAN alleged that two of its patents for video display technology were used in LG’s flat panel televisions without their consent. LG filed a motion to dismiss arguing that the televisions were subject to a previously entered into patent licensing agreement (the “PLA”), signed by both parties. In response, Wi-LAN filed a motion to compel arbitration based on language in the PLA that mandated arbitration in the case of disagreement between the parties.  LG subsequently brought suit in New York federal court seeking an injunction against arbitration in the Florida proceeding. LG argued that the matter should not be sent to arbitration because Wi-LAN waived its right to arbitrate under the PLA by suing LG for patent infringement initially.

The court determined that Wi-LAN had not waived this right because, even though Wi-LAN did not move to compel arbitration until approximately four months after it filed its Florida suit, LG could not show that it had suffered any prejudice as a result of this delay. Prejudice, the court noted, is the “key to waiver analysis.”  Further, the court held that the PLA contains “clear and unmistakable evidence that they intended the arbitrator to resolve both issues of contract interpretation and issues of arbitrability.” Consequently, it ordered that the arbitrator, and not the court, would determine whether the arbitration clause is inapplicable because Wi-LAN “chose” litigation.  LG Electronics, Inc. v. Wi-LAN USA, Inc., No. 13-CV-2237-RA, 2014 WL 3610796 (S.D.N.Y. July 21, 2014).

This post written by Whitney Fore.

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UNDER FAA, CHICAGO COURT REFUSES TO DETERMINE WHETHER CLAIMS SHOULD BE PART OF PENDING NEW YORK ARBITRATION

A dispute involving competing actions between two competing aeroponic farming companies, FarmedHere, LLC and Just Greens, LLC (doing business as Aero Farm Systems), was simultaneously at issue in a New York arbitration, a New York state court, and a Chicago federal court. Aero Farm had originally demanded arbitration in New York based on an arbitration clause in a distribution agreement between Aero Farm and a company affiliated with FarmedHere. In response, FarmedHere filed a petition to stay the arbitration in the New York court, contending that it was not a party to the distribution agreement, and a separate case in Chicago alleging unfair trade practices and seeking a declaration regarding certain patented aeroponic farming technology. Aero Farm then moved to dismiss the Chicago action, contending that (1) FarmedHere assumed obligations under the distribution agreement, (2) FarmedHere’s claims were therefore subject to the arbitration clause, and (3) the proper jurisdiction under the FAA to determine arbitrability was New York (where the arbitration was pending), and not Chicago. After a review of the evidence, the court agreed with Aero Farm and dismissed the Chicago proceedings without prejudice. FarmedHere can attempt to refile its claims in Chicago if the New York court determines that FarmedHere’s claims are not arbitrable. FarmedHere, LLC v. Jut Greens, LLC, Case No. 14 C 370 (USDC N.D. Ill. June 16, 2014).

This post written by Michael Wolgin.

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