Reinsurance Focus

Julian Jeffrey Messent, a reinsurance broker who was head of the Property Division (Americas) of PWS International Limited, a London-based reinsurance broker, was convicted in London in late 2010 of corruption offenses, stemming from his supervision of payments made to various Costa Rican governmental officials. The payments were found to be bribes meant to steer reinsurance placement for Costa Rican government-owned utility organizations to PWS. For his placement of the contracts, Messent received large incentive bonuses between 1999 and 2002 from PWS. After a new President of Costa Rica was elected in 2002, newly appointed Costa Rican officials discovered the improper payments, and both the Costa Rican and U.K. governments undertook criminal investigations which led to Messent’s arrest in 2007. Messent appealed his sentencing of 21 months each on two counts of corruption (to run concurrently), as well as a fine of £100,000. The convictions were affirmed on appeal, the court noting “there can be no doubt that corruption of foreign government officials . . . is at the top end of serious corporate offending both in terms of culpability and harm.” Regina v. Messent, [2011] EWCA Crim 644 (Eng. Ct. App.).

This post written by John Pitblado.

The Second Circuit affirmed a judgment against reinsurance broker Guy Carpenter, finding that its former client, Royal Palm Insurance Company, effectively terminated the parties’ brokerage agreement when it switched to another broker before the end of the agreement’s three-year term. Guy Carpenter contended the district court improperly relied on a Florida statute, which allows a reinsurer to terminate a brokerage agreement at any time. The Second Circuit affirmed, however, noting the statute was irrelevant given the plain terms of the brokerage agreement, which afforded Royal Palm the right to unilaterally terminate the agreement at any time. The three-year term was merely an outer time limit for the relationship, rather than a fixed term. Royal Palm Insurance Co. v. Guy Carpenter & Co., No. 10-2814-CV (2d Cir. May 27, 2011).

This post written by John Pitblado.

Insurance brokers are not subject to breach of fiduciary duty claims under California law, a court held. Workmen’s Auto Insurance Co. sued its reinsurance intermediary-broker, Guy Carpenter & Co., for negligence, breach of fiduciary duty, and breach of contract in connection with Carpenter’s placement of a finite quota share reinsurance agreement on Workmen’s behalf. The trial court granted Carpenter’s motion for summary adjudication with respect to Workmen’s allegation that Carpenter failed to secure the best terms for reinsurance, and sustained Carpenter’s demurrer on Workmen’s breach of fiduciary claim. A jury found for Carpenter on the negligence and breach of contract claims. Workmen’s appealed, but the court of appeal affirmed, holding that an insurance broker cannot be sued for breach of fiduciary duty. An insurance broker’s duties are defined by California insurance law, which ascribes to brokers a duty of care, not a fiduciary duty. The appellate court declined to address as untimely raised Workmen’s argument that the standard should be different for reinsurance brokers because the nature of the relationship with the client is more complex and comprehensive. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., No. B211660 (Cal. Ct. App. May 4, 2011).

This post written by Ben Seessel.

Connecticut Attorney General George Jepsen announced an antitrust settlement with Guy Carpenter & Co and Excess Re on January 31, 2011, concluding litigation pending for over three years. The settlement, amounting to $4.25 million, resolved allegations that the reinsurers were engaged in a series of antitrust conspiracies to fix prices, create closed reinsurance markets, and allocate reinsurance markets. The litigation against Guy Carpenter and Excess Re was the first such suit brought by a state or federal antitrust enforcement agency. The Hartford Financial Services Group settled similar claims with the Connecticut AG for $1.3 million in 2009.

This settlement is notable because, in addition the significant monetary payment, Guy Carpenter agreed as part of the settlement to reform a number of its nationwide business practices. The reforms, designed to prevent any suspicion of future antitrust violations, include disclosure of ownership interest in reinsurance companies, compensation arrangements, descriptions of facilities, disclosure of factors leading to its brokers making placement recommendations, implementation of minimum competitive bid requirements and a nationwide sampling program. State of Connecticut v. Guy Carpenter & Company and Excess Reinsurance Company, Case No. 07-4033778 (Conn. Super. Ct. Jan. 31, 2011).

This post written by John Black.

In September, 2010, Instituto Nacional de Seguros filed an amended complaint against two reinsurance brokers (Hemispheric Reinsurance and Howden Insurance) alleging breach of contract, negligence, and breach of fiduciary duty, alleging that the two brokers failed to provide reinsurance slips and other requested information, and when finally forced to do so, the documents revealed significant brokerage overcharges. Howden subsequently filed a motion to dismiss. A Florida state court General Magistrate has recommended the denial of the motion, finding that INS did not impermissibly commingle separate and distinct claims in a single count. Instituto Nacional De Seguros v. Hemispheric Reinsurance Group, LLC, Case No. 10-33653 (Fla. Cir. Ct. Dec. 13, 2010).

This post written by John Black.

The defection of three brokers from Global Risks, a Lloyd’s insurance and reinsurance broker, to competitor Tyser & Co., gave rise to claims of breach of contract, violation of employment and fiduciary duties and conspiracy, due to the alleged solicitation by the defectors of clients and employees of Global Risks. The court rejected the claims for different reasons for each claim, including lack of duty, failure of proof and lack of damage. If you are interested in a description of how a Lloyd’s broker works, this would be an interesting opinion to read. Lonmar Global Risks Limited v. West, [2010] EWHC 2878 (Queen’s Bench Nov. 11, 2010).

This post written by Rollie Goss.

In a dispute between reinsurance brokers, Guy Carpenter sued its competitor, Lockton, arising from broker fees alleged owed to Guy Carpenter as a result of its placement of reinsurance on behalf of two reinsurers, whose business went (after placement) to Lockton when one of Carpenter’s brokers switched his employment to Lockton. Carpenter asserted that the broker fees, which were established and became payable upon placement of the reinsurance at issue, were improperly withheld by Lockton after they were received from the reinsurers. Lockton moved to dismiss all three claims asserted by Carpenter, including conversion, tortious interference with contract, and unjust enrichment. The court denied the motion (save for its dismissal of the unjust enrichment claim), notably holding that the monies owed to Carpenter constitute an “identifiable chattel” and thus supported the conversion claim. The court also held that Lockton’s alleged withholding of money owed pursuant to the broker agreement between the reinsurers and Carpenter adequately stated a tortious interference with contract claim. Guy Carpenter & Co., LLC v. Lockton Re, LP, No. 10-Civ-4932 (USDC S.D.N.Y. Nov. 4, 2010)

This post written by John Pitblado.

A New York federal court granted judgment on the pleadings to the Gen Re defendants in the consolidated AIG securities litigation (about which we have previously posted on July 17, 2008 and November 17, 2009). The partial judgment under Rule 54 does not affect the other defendants. In 2008, Gen Re and certain of its individual officers moved for judgment on the pleadings, arguing that they were not liable to AIG as a matter of law for alleged “fraud on the market” in connection with alleged statements made pertaining to AIG, as a result of the U.S. Supreme Court’s decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008). In its recent ruling, the court agreed, holding that AIG’s pleading failed to allege the elements of “material misrepresentation or omission,” and “reliance upon that misrepresentation” under the standards set in Stoneridge, and therefore granted judgment on the pleadings to the Gen Re defendants. In re American International Group, Inc. Securities Litigation, No. 04-cv-8141 (USDC S.D.N.Y. Sept. 10, 2010)

This post written by John Pitblado.

We have reported several times on the ongoing developments in the Insurance Brokerage Antitrust Litigation MDL proceeding. In the most recent development, following a third District Court dismissal of the RICO and Sherman Act claims, the Third Circuit Court of Appeals issued a 200 page opinion affirming in part, vacating in part, and remanding for further proceedings. The Court of Appeals vacated the District Court’s dismissal of the Sherman Act claims with respect to defendants alleged to have engaged in bid rigging in the Marsh-centered commercial conspiracy, the dismissal of the RICO claims based on the same issue, and the dismissal of the alleged CIAB enterprise with respect to defendant brokers. The Court also vacated the dismissal of the state law claims. The District Court’s judgment was affirmed in all other respects. The Third Circuit remanded for further proceedings consistent with the opinion. In re: Insurance Brokerage Antitrust Litig., MDL No. 1663 (3d Cir. Aug. 16, 2010).

This post written by John Black.

The State of Connecticut brought an action pursuant to Connecticut’s Unfair Trade Practices Act against Acordia, Inc. alleging unfair trade practices that harmed a class of insurance companies. Acordia is an independent insurance agent and broker working through a contingent commission program called the Millennium Partnership Program, in which which five insurers (Travelers, The Hartford, Chubb, Atlantic Mutual and Sun Alliance) agreed to participate. The Connecticut Superior Court found that Acordia’s non-disclosure of the MPP to its clients constituted a conflict of interest in violation of its fiduciary obligations which in turn violated Connecticut’s Unfair Trade Practices Act. However, because the violation was predicated on 1999-2002 common law (and does not constitute a violation of public policy in 2010) the Court declined to issue an injunction. Acordia was, however, order to account for non-disclosed MPP based commissions for products purchased by consumers in the State of Connecticut. State of Connecticut v. Acordia, Inc., Case No. 074020455S (Conn. Super. Ct. Apr. 10, 2010).

This post written by John Black.