A Wisconsin Court of Appeals recently affirmed an order enjoining a reinsurer from withholding or failing to make payments to an insurer’s segregated account, which the insurer had established for troubled parts of its insurance business, including mortgage-backed securities, credit default swaps, and municipal bonds. Under an approved rehabilitation plan for the troubled segregated account, policyholders were to receive 25% of their claim amounts in cash and the remaining 75% in surplus notes. Although the reinsurer acknowledged an obligation to pay proportionately for the cash portion of any settlement agreements reached, it refused to reimburse the segregated account for the value of any surplus notes provided to policyholders unless and until the segregated account made cash payment on those notes and sought to compel arbitration. The rehabilitation court disagreed, and the Court of Appeals affirmed, finding: (1) that the rehabilitation court in Wisconsin had personal jurisdiction over the nonresident reinsurer based on minimum contacts and the reinsurer’s notice of the pending rehabilitation plan; (2) that the rehabilitation court had exclusive jurisdiction to determine any matter relating to a delinquent insurer that would otherwise be subject to an arbitration proceeding; and (3) that the reinsurer’s payment obligations stemmed not only from the contracts themselves, but also from the policies underlying the reinsurance contract. In re Rehabilitation of: Segregated Account of Ambac Assurance Corp., Case No. 2010CV1576 (Wis. Ct. App. Oct. 24, 2013).

This post written by Kyle Whitehead.

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