Reinsurance Newsletter - December 2013

    View Authors 2 December 2013

    Recent Case Summaries

    Michigan Federal Court Enjoins Arbitration Proceeding Because of Possible Misconduct

    Star Ins. Co. v. Nat’l Union Fire Ins. Co., No. 13-13807, 2013 U.S. Dist. LEXIS 130379 (E.D. Mich. Sept. 12, 2013).

    This case has made some headlines and includes accusations that ex parte communications took place.  Of course, ex parte communications are regularly allowed at various points in reinsurance arbitration proceedings.

    While the federal court in Michigan recognized that courts generally lack jurisdiction to review arbitration proceedings until a final award is issued, the court found that the facts in this case fell into the exception to the rule. As the court said, the case raises serious questions concerning a potential breach of the arbitration clause of the reinsurance contract. The court found that the plaintiffs raised credible issues concerning fundamental fairness of the proceedings and the integrity of the arbitration proceeding going forward.

    Here, the arbitration clause required that all disputes would be decided by active or retired disinterested officials of insurance or reinsurance companies not under control of either party to the agreement. This, of course, is a pretty typical sentence in a reinsurance contract arbitration clause. A “panel scheduling order,” as the court called it, stated that “ex parte communications with any member of the panel shall cease upon the filing of the parties’ initial pre-hearing briefs.” According to the facts as set out by the court, a hearing was held after which an interim final award was issued on liability and questions of damages were left open for further submissions and decision.

    According to the court, on the day the interim final award was issued, counsel for the reinsurer had an ex parte telephone conference with the reinsurer’s party-appointed arbitrator about the interim final award (as apparently shown in his time entries produced to obtain an award of attorney fees). The interim final award required that the parties provide certain documentation, which the cedents did, which was followed by more ex parte communications the next day between reinsurer’s counsel and party-appointed arbitrator. Thereafter, a motion was filed by the reinsurer’s counsel to strike the cedents’ submissions. Apparently, two of the three arbitrators (allegedly without the knowledge of the cedents’ arbitrator) granted the motion to strike. The cedents filed an emergency motion to clarify and asked for time to re-submit documents. The panel, again allegedly without the cedents’ arbitrator, granted the request for more time and clarified the documents required.

    The court went on to describe other relationships between the reinsurer and its counsel, which the court found questionable (you can read the decision if you are interested).  Ultimately, the cedents went to court to vacate the interim final award and moved to stay the arbitration after the arbitration panel refused that relief (with the cedents’ arbitrator dissenting).

    The question the court had was whether the arbitration clause was breached and whether a stay was appropriate to allow for that question to be researched and resolved. Essentially, the cedents argued that instead of submitting the matter to a three-person panel, decisions were made by a two-person panel in violation of the contract (and the ARIAS U.S. Code of Conduct).

    In granting the injunction, the court found that under Michigan law (which was the choice of law in the contract), all the cedents had to do was prove the fact of ex parte communications to prevail on a request to remove a panel member. Thus, the court found that the cedents would prevail on the merits and granted the preliminary injunction (there is a lot more to the opinion so we recommend you read it). The court finished off with the following: “Although there is a strong federal policy favoring arbitration, the public interest lies in the integrity of the arbitration process and in upholding arm’s length, negotiated contracts.”

    There are differing views as to whether ex parte communications should be allowed in reinsurance arbitrations. This case now brings the issue to a public head. The order has been appealed.  We will see whether the circuit court of appeals feels as strongly about this as the district court.

    New York Federal Court Grants Request to Unseal Reinsurance Arbitration Information

    Eagle Star Ins. Co. v. Arrowood Indemnity Co., No. 13 Civ. 3410 (HB), 2013 U.S. Dist. LEXIS 135869 (S.D.N.Y. Sept. 23, 2013).

    A New York federal court recently granted an application by putative intervenors to unseal reinsurance arbitration information originally filed under seal in a proceeding that was settled without court order. The “confidential” arbitration information was filed in conjunction with a petition to confirm an arbitration award and a related motion to dismiss. Before the petition and motion were fully briefed, the parties settled and agreed to discontinue to the case. Nevertheless, the putative intervenors, which apparently have an arbitration with the same respondent, moved and objected to the arbitration information remaining under seal. The court analyzed the ability to address a motion on a sealing issue after the parties had settled and went through the recent law on sealing motions. Ultimately, the court granted the motion to unseal the petition and motion to dismiss (containing the arbitration information), but denied the motion to intervene as moot.

    This is another case following the trend of the courts rejecting the parties’ confidentiality stipulations and orders in arbitration. What makes this case even more unusual is that parties to a different arbitration apparently wanted to get access to the arbitration information from the first arbitration for use in their separate arbitration against the same respondent. The court allowed this to happen.  This case and others that reject sealing requests have ramifications for confidentiality stipulations and their viability once a party goes to court to vacate or confirm an arbitration award.

    New York Federal Court Denies Reinsurer’s Motion to Dismiss Action Seeking Appointment of Arbitrator

    Utica Mut. Ins. Co. v. Emp’rs Ins. Co., No. 6: 12-CV-1293 (N.D.N.Y. Sept. 26, 2013). 

    A New York federal court denied a reinsurers’ motion to dismiss the cedent’s complaint in a case where the cedent sought a declaration that its counsel should not be disqualified and that arbitration should proceed without the obstruction by the reinsurers.

    In an action against the underlying insured, the cedent and the reinsurers shared a common interest and were all represented by a certain law firm.  A dispute between the cedent and the reinsurers developed regarding the appropriateness of the defense billings for the underlying claim. To resolve this dispute, the cedent used that same law firm to demand arbitration against the reinsurers. The reinsurers requested that the law firm withdraw from its representation of the cedent because the dispute being arbitrated was substantially related to the underlying matter in which the law firm represented the reinsurers. The law firm declined to step down.

    One of the reinsurers filed a complaint in Wisconsin seeking disqualification of the law firm.  In response, the cedent filed this action in New York. The reinsurers moved to dismiss on grounds that the New York federal court did not have subject matter jurisdiction and that the cedent failed to state a claim upon which relief could be granted.

    In denying the motion to dismiss the action filed in New York federal court, the court noted that the reinsurers did not dispute the factual accuracy of the cedent’s allegations concerning the parties’ citizenship. Therefore, the court accepted these allegations as true and found that the complaint alleged diversity of citizenship. As a result, the court found the reinsurers’ arguments concerning subject matter jurisdiction unpersuasive. The court also noted that there was a lapse in the naming of an arbitrator. Accordingly, Section 5 of the Federal Arbitration Act (the “FAA”) afforded parties the opportunity to seek relief from district courts to designate and appoint an arbitrator. The cedent thus had the authority to seek the relief it sought in the New York federal court.  Therefore, the court found the reinsurers’ motion to dismiss for failure to state a claim unpersuasive as well.

    In the alternative, the reinsurers argued that the action in New York federal court should be stayed because the action in Wisconsin was filed first.  The court disagreed on three grounds: the parties were different in the two actions; the causes of actions were different; and the relief sought was different.  For these reasons, the court denied the reinsurers motion to dismiss the cedent’s complaint.

    Massachusetts Federal Court Denies Reinsurer’s Motion to Enjoin Arbitration

    Allstate Ins. Co. v. OneBeacon Am. Ins. Co., No. 13-12368-NMG, 2013 U.S. Dist. LEXIS 146826 (D. Mass. Oct. 8, 2013).

    A Massachusetts federal court denied a reinsurer’s motion to enjoin arbitration. The reinsurer sought a preliminary injunction to enjoin arbitration because the designated umpire received notification that the cedent had proposed that he be appointed umpire.

     The substantive dispute was over two reinsurance contracts.  The umpire was chosen by the two party-appointed arbitrators. The umpire, however, came to know that the cedent had proposed that he be appointed umpire. The reinsurer argued that this knowledge would “fundamentally corrupt the integrity of the process.” For this reason, the reinsurer filed a preliminary injunction to enjoin arbitration.

    In denying the motion, the court recognized four criteria that a movant needed to demonstrate in order for a preliminary injunction to be granted: that the movant was likely to succeed on the merits; that the movant was likely to suffer irreparable harm in the absence of preliminary relief; that the balance of equities tipped in the movant’s favor; and that an injunction was in the public’s interest.  The court found that the reinsurer could not prove that the cedent violated the arbitration agreement. Moreover, the court considered the reinsurer’s claim to be nothing more than a “dressed-up bias claim against an allegedly impartial arbitrator.” Therefore, according to the court, the reinsurer did not meet its first burden—it did not prove that it was likely to succeed on the merits of its underlying claim. In addition, the court found that the reinsurer did not adequately illustrate that there was sufficient irreparable harm to warrant an injunction. The court noted that a legal remedy existed to deal with bias on an arbitration panel: a post-award challenge to the arbitration proceeding itself.  On the third factor, the court held that the reinsurer’s hardship—namely the presence of bias tainting the arbitral process—was not the sort of harm sufficient to tilt the balance of equities in the reinsurer’s favor. Finally, as to the fourth prong, the court remarked that a dispute over arbitration procedure between two reinsurance companies did not involve much public interest.

    Because the reinsurer failed to meet any of its burdens as a movant, the court denied the reinsurer’s preliminary injunction. The court also ruled that, as the same four-factor test applied to permanent injunctions, the reinsurer’s motion for a permanent injunction should be denied as well.

    New York Federal Court Interprets Reinsurance Contract’s Arbitration Provision and Transfers Venue to Massachusetts

    First State Ins. Co. v. Nat’l Cas. Co., No. 13 Civ. 0704 (AJN), 2013 U.S. Dist. LEXIS 142518, 2013 WL 5439143 (S.D.N.Y. Sept. 27, 2013).

    A cedent and a reinsurer were parties to various reinsurance agreements, each of which contained an arbitration provision.  Due to irreconcilable differences between the two parties regarding the agreements, the parties negotiated an Agreement for Consolidation of Arbitration (“Agreement”).  The Agreement provided, in pertinent part, that “[a]ny arbitration hearing pursuant to [the Agreement] shall take place in Boston, Massachusetts, unless the [arbitration panel and parties] agree otherwise.”  It further provided that “[a]ny judicial proceeding concerning this agreement, or confirmation, vacatur, or modification of any award pursuant to Sections 9, 10, or 11 of the Federal Arbitration Act, shall be brought in the district court in and for the district within which the arbitration hearing is held.”  Subsequently, both parties disputed over contractual interpretations on payment issues.  The dispute was ultimately determined by an arbitration panel sitting in New York.  After the arbitration panel released its order regarding the contractual dispute and the cedent filed this action, the arbitration panel held a final evidentiary hearing concerning findings of liability and damages in Massachusetts.  The arbitration panel issued a final monetary award.  Hence, the issue before the court was the proper venue for the petition to confirm the arbitration award.

    In transferring the case to Massachusetts, the court first construed the Agreement’s “shall be brought” clause as a mandatory forum-selection clause.  Second, the court determined that the “arbitration hearing” clause of the Agreement was referring to only one location, not multiple locations.  Simply put, the court was confronted with the task of settling the debate of whether the “arbitration hearing” clause in the Agreement referred to the contractual dispute hearing in New York or the Massachusetts hearing regarding the findings of liability and damages.  The court determined that the Agreement language referenced a single arbitration hearing (“Boston, Massachusetts”) and could not be construed to contemplate many arbitration hearings in different locations.

    As such, the court found that the language of the forum selection clause in the Agreement was unambiguous and to specifically exclude alternative venues for the petition to confirm the final monetary award.  Thus, the court transferred the case to the United States District Court for the District of Massachusetts.

    New York Federal Court Grants Reinsurer’s Motion for Summary Judgment and Dismisses Action

    Seneca Ins. Co. v. Everest Reinsurance Co., No. 11 Civ. 7846 (BF), 2013 U.S. Dist. LEXIS 151594 (S.D.N.Y. Oct. 17, 2013).

    A New York federal court granted summary judgment to a reinsurer and dismissed the cedent’s case for breach of contract.  The cedent filed an action for breach of contract against a reinsurer after the reinsurer denied coverage to the cedent.  The case concerned an adverse verdict from a retaliation employment suit against a corporation to whom the cedent provided coverage.  The suit resulted in the cedent having to pay $4.91 million in damages, including attorney fees, and $2.43 million in interest.  Important to the dispute was the reinsurance certificate, which specified a $5 million threshold that would trigger the reinsurer’s obligations to pay for loss and other expenses. 

    In response to the cedent’s request for payment, the reinsurer denied coverage on various grounds, but material to the issue before the court was simply whether the $5 million threshold was satisfied. The case boiled down to the question of whether the interest amounts ($2.43 million) were properly considered “loss” or “interest on a judgment” under the reinsurance certificate.  Finding the latter, the court concluded that the judgment “loss” was $4.91 million, which fell just short of the $5 million loss threshold that would have triggered the reinsurer’s obligation to pay.  As a matter of law, the court found no genuine issue of material fact existed as to whether the $2.43 million in interest was not considered a “loss” under the reinsurance certificate.  Accordingly, the loss did not amount to the $5 million requirement needed in order for the reinsurer’s obligations to take effect.

    Granting summary judgment in favor of the reinsurer, the court held that the reinsurer did not breach the reinsurance contract when it denied coverage.

    New York Federal Court Holds Facultative Certificate Cost-inclusive Under New York Law Where Cost-exclusiveness Not Expressly Stated

    Utica Mut. Ins. v. Munich Reinsurance Am., Inc., No. 6:12-CV-0196 (LEK/ATB), 2013 U.S. Dist. LEXIS 141212, 2103 WL 5493704 (S.D.N.Y. Sept. 30, 2013).

    A New York federal court granted summary judgment to a reinsurer in a dispute over whether the liability limits of a facultative reinsurance certificate were cost-inclusive.  The reinsurer issued a certificate indemnifying the insurer for a percentage of an umbrella liability policy up to a set dollar limit, which was issued to a policyholder who incurred significant covered claims relating to asbestos exposure.  The reinsurer reimbursed the insurer for the entire limit under the certificate. 

    The umbrella policy, however, was cost-exclusive.  The cedent filed suit against the reinsurer claiming that the limitation under the certificate was also cost-exclusive, and therefore, the reinsurer was liable for a percentage of the additional costs that the insurer incurred above the limits stated in the certificate. 

    The reinsurer sought summary judgment, arguing that the declarations and conditions of the certificate did not expressly state that its limits were cost-exclusive and, therefore, under New York law, they had to be deemed unambiguously cost-inclusive.  The cedent argued that the language of the certificate indicated that it was cost-exclusive. 

    In granting the motion for summary judgment, the court first pointed out that the certificate was silent as to inclusion or exclusion of costs on the liability limit, and that under several prior New York cases, limit-of-liability provisions that were silent on whether they were cost-inclusive or exclusive were deemed to be unambiguously expense-inclusive.  The court reasoned that, unless cost-exclusion is expressly stated, reinsurers are entitled to rely on the liability limit as setting the maximum risk exposure.  Second, court found that the absence of a follow-the-form clause was indicative that there was no basis to conclude that, just because the insurance policy was cost-exclusive, the certificate should be deemed cost-exclusive.  Accordingly, the court held that the cedent failed to raise an issue of material fact.

    Illinois State Circuit Court Rules That Limitation on Reinsurer’s Liability Covered Both Losses and Expenses

    Cont’l Cas. Co. v. MidStates Reinsurance Co., No. 12 CH 42911 (Ill. Cir. Ct. Sept. 10, 2013).

    An Illinois state court granted a reinsurer’s motion for judgment on the pleadings in the case where the cedent sought a declaration that none of its facultative certificates contained limits on expenses and that the reinsurer therefore breached its certificates with the cedent by refusing to pay expenses in excess of the stated certificate limits.

    The facultative certificates contained a provision titled “reinsurance assumed” that described the amount of coverage that the reinsurer agreed to provide. While both parties agreed that this provision limited the reinsurer’s liability to compensate for losses, they disagreed on whether the provision applied to expenses as well. The reinsurer argued that the “reinsurance assumed” provision acted as a limitation on a reinsurer’s obligations for both losses and expenses; in the reinsurer’s eyes, “reinsurance assumed” just meant the total amount of reinsurance assumed. Therefore, the reinsurer declined to pay any expenses in excess of the limits it perceived were set out in the certificate. The cedent, on the other hand, argued that the “reinsurance assumed” provision did not limit the reinsurer’s obligations to pay expenses. The cedent claimed that the reinsurer’s failure to pay expenses in excess of its perceived limit constituted a breach of contract.  

    The court noted that while the “reinsurance assumed” provision did not distinguish between “losses” and “expenses” when discussing the reinsurer’s liability, a different provision in the reinsurance certificate did. The fact that the “reinsurance provision” only discussed the reinsurer’s liability in general terms indicated that the contracting parties had no intention of separating losses from expenses when calculating the amount for which  the reinsurer should be liable. The court also pointed out that the majority of cases that had dealt with this issue found that “reinsurance assumed” provisions limited all liability and not just losses and expenses. Therefore the court found that, as a matter of law, there was a limit on the reinsurer’s liability and that limit covered both losses and expenses.

    In the alternative, the cedent argued that the certificates are ambiguous and that extrinsic evidence was needed. The court, however, was not persuaded by this argument; it pointed out that ambiguity does not exist simply because the parties disagreed on the meaning of a contractual provision. Here, the amount of reinsurance liability assumed was set at a total amount in the certificates without any indication that the amount referred only to losses or expenses respectively. 

    The court found that there was no genuine issue of material fact and that the reinsurer was entitled to judgment as a matter of law. Consequently, the court granted the reinsurer’s motion for judgment on the pleadings.

    New York State Court Denies Late Notice Defense        

    New Hampshire Ins. Co. v. Clearwater Ins. Co., No. 653547/2011, 2013 N.Y. Misc. LEXIS 5117 (N.Y. Sup. Ct. Oct. 31, 2013).

    A New York State motion court granted part of a cedent’s motion for summary judgment in a case involving the cession of asbestos losses after a substantial group settlement of an asbestos coverage action.  The reinsurer did not pay the billings for its share of the cedent’s portion of the group settlement.  The cedent brought suit and moved for summary judgment.  The reinsurer claimed that the motion was premature and alternatively argued that the cedent failed to give timely notice of the loss and that there were triable issues of fact concerning the settlement allocation and as to whether the cedent retained the proper amount of loss.

    The facultative certificate provided that the cedent will promptly notify the reinsurer of any event or development that it “reasonably believes might result in a claim against” the reinsurer.  The reinsurer claimed that although the cedent knew about the loss in 1991, the cedent did not provide notice until 1997 and then, later in 1997, advised the reinsurer that it did not think its policy would be impacted.  Thus, the reinsurer claimed, it did not receive actual notice until 2010.

    In rejecting the reinsurer’s late notice defense and granting partial summary judgment to the cedent, the court noted that the reinsurer must show economic injury to sustain a claim of prejudice because of late notice.  The reinsurer claimed that it had commuted with its retrocessionaires.  The court rejected the reinsurer’s claim because of a lack of any detailed facts to support its claim of prejudice.  The court also rejected the reinsurer’s claim that it did not need to show prejudice when the cedent had failed to implement routine practices and controls to ensure prompt and timely notice.  The court held that New York law did not support that proposition.  The court also rejected the reinsurer’s claim that the cedent had not met its retention because of a lack of any facts.

    The reinsurer also argued that the facultative certificate had following form language and not follow-the-settlements language.  The court rejected this argument and referred to a Massachusetts case where the reinsurer made the same argument against an affiliate of the cedent and where the court held that the provision was a follow-the-settlements provision.  But the court refused to grant summary judgment to the cedent because issues concerning the allocation of the settlement raised triable issues of fact sufficient to warrant a denial of the motion.  As the court noted, while a cedent’s allocation decision is entitled to deference, it is not immune from scrutiny and must be objectively reasonable.

    Florida Federal Court Grants Reinsurer’s Motion to Dismiss Because of Lack of Coverage

    Public Risk Management of Fl. v. One Beacon Ins. Co., No. 6:13-cv-1067-Orl-31 TBS, 2013 U.S. Dist. LEXIS 150091, 2013 WL 5705575 (M.D. Fl. Oct. 18, 2013).

    A Florida federal court granted a reinsurer’s motion to dismiss a cedent’s complaint finding that there was no coverage under the cedent’s policy and, therefore, no claim for reimbursement under the reinsurance contract.  The case arose out of the reinsurance of a public official’s errors and omissions claim for a construction project dispute between a municipality and a contractor.  The reinsurance dispute was over whether the reinsurer was required to reimburse the cedent for expenses defending the underlying action between the contractor and the municipality (indemnity was not an issue as the settlement payment was not ceded).

    In dismissing the complaint, the court determined that the underlying complaint was not based on negligence and, therefore, no “wrongful act” was alleged to bring the matter within the coverage grants of the policy.  Additionally, the policy excluded intentional breaches of contract.  Both these bases were sufficient to sustain the motion to dismiss.  The court also rejected a claim of equitable estoppel based on reservation of rights letters from the reinsurer

    New York Federal Court Special Discovery Master Makes Privilege Determinations

    Harbinger F&G, LLC v. OM Group (UK), No. 12-CV-5315 (AJP), 2013 U.S. Dist. LEXIS 132009 (S.D.N.Y. Aug. 22, 2013).

    A parent corporation sold to a purchaser one of its subsidiaries, a Maryland domiciled life insurance company.  Under the terms of the transactional agreement, the purchaser was to seek regulatory approval from the Maryland Insurance Administration (“MIA”) for the transfer of assets to a reinsurer, which was owned by the purchaser.  In the event that the MIA required the terms of the agreement to be materially changed or altered in a manner that adversely affected the purchaser’s economic benefits, the purchaser would be entitled to a refund of up to $50 million.  To receive a refund, however, the agreement first required the purchaser to have taken remedial efforts. 

    After the MIA denied approval of the reinsurance transaction, the purchaser demanded payment of the $50 million refund.  The parent corporation refused, contending that the purchaser failed to satisfy the conditions of payment regarding the remedial efforts.  The purchaser asserted it was not required to undertake remedial efforts because the MIA’s denial of approval did not require any “change or alteration” to the terms of the transactional agreement.  Alternatively, it asserted that it complied with the remedial efforts provision in the agreement.  As such, the court addressed the issue of whether the purchaser was obligated to undertake remedial efforts, and if so, whether it satisfied such obligation. 

    The issues before the Special Master concerned assertions of attorney-client privilege and attorney work product claims made on a discovery privilege log of the purchaser.  The seller claimed that the privileges were improperly asserted or otherwise waived by selectively disclosing certain attorney documents.  In recommending in favor of the purchaser, the Special Master found that the purchaser did not selectively disclose documents for tactical advantage, and that fairness did not require disclosure of communications on the broader subject of efforts to engage the parent corporation in the negotiation of alternative terms to the agreement. 

    California Federal Court Directs Production of Reserve Information

    McAdam v. State Nat’l Ins. Co., No. 12cv1333-BTM, 2013 U.S. Dist. LEXIS 157202, 2013 WL 5936338 (S.D. Ca. Nov. 1, 2013).

    A California federal court granted a motion to compel production of, among other things, reserve information established by an alleged reinsurer on the underlying claim.  The dispute arises out of a hull and machinery protection and indemnity policy issued to the insured.

    In determining whether reserve information should be disclosed, the court set forth the broad legal standard for discovery under the Federal Rules of Civil Procedure.   The court noted that the determination of relevance of reserve information depends on the claims asserted by the plaintiff.  Because plaintiff alleged bad faith, the evidence of loss reserves established by the carrier and by its alleged reinsurer was relevant and subject to disclosure.  The court also found that the alleged reinsurer was actually a “front-line” insurer and not a reinsurer.

    Wisconsin Court of Appeals Affirms Circuit Court Order Enforcing Injunction Against Reinsurer Issued During Proceedings to Rehabilitate a Segregated Account

    In re. Rehab. Of: Segregated Account of Ambac Assur. Corp., No. 2011AP1486, 2013 Wisc. App. LEXIS 896, 2013 WL 5745987 (Wis. Ct. App. Oct. 24, 2013).

    The Wisconsin Court of Appeals affirmed a circuit court’s order enforcing an injunction against a reinsurer that was issued during the course of a Chapter 645 proceeding to rehabilitate a segregated account.  The court also affirmed the circuit court’s ruling that the injunction it granted barred the reinsurer from pursuing arbitration in New York on two reinsurance contracts and obligated the reinsurer to make certain reinsurance payments to the cedent. 

    On this appeal, the court primarily addressed three issues presented by the reinsurer: (1) whether the rehabilitation court validly exercised personal jurisdiction over the reinsurer, a company organized under Bermuda law; (2) whether the reinsurer’s coverage dispute with the cedent is subject to arbitration; and (3) whether the injunction or the reinsurance contracts required the reinsurer to pay a proportionate share of the principal amounts of surplus notes paid by the segregated account in settlement of claims.

    As to the first issue, the court rejected the reinsurer’s argument that the cedent’s failure to serve a summons resulted in the court’s lack of personal jurisdiction over the reinsurer, because the reinsurer was notified about the rehabilitation plan that would potentially affect policies subject to its reinsurance contract with the cedent.  Additionally, the court held that the reinsurer’s single issuance of a policy in Wisconsin can satisfy the “minimum contacts” analysis.  

    As to the second issue, the court determined that the reinsurer could not avail itself of the arbitration provisions in its reinsurance contracts to resolve a coverage dispute regarding surplus notes, which would have required arbitration to take place in New York, because the surplus notes were integral to the effectiveness of the rehabilitation plan as a whole and thus subject to the exclusive jurisdiction of the rehabilitation court.

     As to the third issue, the court noted that the circuit court’s injunction restrained entities from withholding or failing to make payments owed to the cedent’s segregated account, general account, or allocated subsidiaries under or in connection with any policies allocated to the segregated account.  The court ruled that the cedent’s demands to be reimbursed under its reinsurance contract for claims made on policies covered by the reinsurance contract are “in connection with” the underlying policies, as well as the contracts.  Therefore, the court held that the circuit court was “well within” its discretion to conclude that its injunction against withholding payments applied to the coverage dispute at issue here, which involved commutations of claims on policies in the segregated account. 

    Recent UK Case Summaries

    English High Court Rules on the Application of Follow-the-Settlements Clauses

    Tokio Marine Europe Ins. Ltd v Novae Corporate Underwriting Ltd [2013] EWHC 3362 (Comm).

    The High Court of England and Wales (Commercial Division) recently issued an opinion explaining the application of a follow-the-settlements clause in disputes between retrocedents and their reinsurers.  The dispute arose out of losses suffered by the original insured in Thailand as a result of flooding.  The original insured was covered for property damage and business interruption losses both under a Master Policy and a local policy.  The original insured claimed under both the Master Policy and the local policy and the claims were eventually settled for a combined £82.4m.

    The original ceded was reinsured under a facultative reinsurance agreement. The retrocedent agreed to pay the original cedent’s claim in full and then sought to retrocede its losses to the retrocessionaire under a retrocession cover between the parties.  The retrocessionaire resisted payment on numerous grounds and the High Court decision addressed several preliminary issues regarding the construction of the retrocession cover.

    First, the High Court rejected the retrocessionaire’s argument that its retrocession coverage applied only to losses under the insured’s Master Policy and not the local policy.  The retrocessionaire had argued that because the retrocession cover did not specifically reference the local policy, that policy was not subject to the retrocession.  The court noted that such an interpretation would create a “radical mismatch” between the terms of the reinsurance afforded to the original cedent by the retrocedent and the retrocession.  It further noted that the language of the retrocession references all losses suffered by the original insured, without regard to which underlying policy gave rise to a loss.

    Second, the High Court disagreed with the retrocessionaire’s position that the follow-the-settlements clause did not prevent it from challenging certain claims handling decisions made by the original cedent.  The retrocessionaire claimed that the follow-the-settlements clause meant it could not challenge the retrocedent’s settlement decisions, but did not prevent it from challenging certain decisions made by the original cedent.  The High Court ruled that both the language of the clause and the commercial reasoning behind the clause supported an interpretation that the retrocessionaire could not go back and challenge the original cedent’s settlement decisions. 

    Finally, the High Court ruled that, given the broad scope of the follow-the-settlements clause, the retrocessionaire was bound by the original cedent’s determination as to the construction and application of the aggregation provisions in the underlying Master Policy.  Given that the issue had been settled by the original insured and the original cedent, a reinsurer subject to an unqualified follow-the-settlements clause should not be permitted to re-litigate the construction of the underlying contract language.

    Recent Speeches and Publications:

    Larry Schiffer and Norma Krayem will be presenting on cybersecurity to the Reinsurance Association of America’s Current Issues Series on December 12, 2013, in Washington, D.C.

    Larry Schiffer will be speaking on negotiating and drafting secure and comprehensive commutation agreements at the American Conference Institute’s 9th National Run-Off and Commutations Summit, on April 23, 2014, in New York City.

    Larry Schiffer spoke on the NFL concussion injury cases at the Claims Committee meeting of the Brokers and Reinsurance Markets Association on September 10, 2013, in New York City.

    Eridania Perez spoke on the topic of “Access to Records - Is Sharing Information on Claims With Reinsurers a Thing of the Past?” at the Contract Wording Discussion Group on September 24, 2013, in New York City.

    John Nonna chaired and Larry Schiffer was a discussion leader on deliberations and spoke on technology in reinsurance arbitrations at the ARIAS•U.S. Fall Educational program on October 30, 2013, in New York City.

    Eridania Perez spoke on international arbitration issues in Latin America as part of the ARIAS•U.S. Fall Conference and Annual Meeting on October 31, 2013, in New York City.  Larry Schiffer spoke at the same conference on changes to the ARIAS•US arbitrator ethical guidelines on November 1, 2013.

    Larry Schiffer’s Commentary, “Reinsurance and Ever-Expanding Regulation and Oversight,” was published on the website of the International Risk Management Institute, Inc.,, in September 2013.