Reinsurance Focus

New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.

The Second Circuit affirmed the dismissal of a lawsuit alleging that the Republic of Indonesia and its state-owned social security insurer, P.T. Jamsostek, negligently supervised Jamsostek employees who perpetrated an international commercial reinsurance fraud scheme against plaintiff Anglo-Iberia Underwriting Management Company. Indonesia and Jamsostek moved for dismissal for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, arguing the defendants were not engaged in “commercial activity” under FSIA. FSIA abrogates sovereign immunity where a foreign state has engaged in commercial activity; a foreign state engages in commercial activity when it acts not as a regulator of a market, but in the manner of a private player within it. In ruling on the motion, the district court found, and the Second Circuit later agreed, that Jamsostek does not sell insurance to workers or employers “in any traditional sense,” and does not compete in the marketplace like a private insurer. Rather, as the default health insurer under Indonesia’s national social security program, Jamsostek provides a “floor” for health insurance, and ensures that certain Indonesian employers comply with the governmental mandate that they provide basic health insurance coverage to their workers. Thus, FSIA barred the suit. Anglo-Iberia Underwriting Management Co. v. P.T. Jamsostek (Persero), Case No. 08-2666 (2d Cir. Mar. 29, 2010).

This post written by Brian Perryman.

This dispute concerns sales commissions allegedly owed to three employees of Umpqua Bank (“Umpqua”) pursuant to a third-party brokerage agreement (the “Agreement”) between Umpqua and Woodbury Financial Services. Employment agreements between Umpqua and the employees required the matter to be submitted to arbitration. After the arbitrator issued an award granting damages for breach of fiduciary duty and attorneys’ fees and costs for two of the employees, Umpqua moved to vacate this award, arguing that this award exhibited manifest disregard of the law or was completely irrational because the arbitrator relied on the same provisions in the Agreement to deny damages for the third-party beneficiary claim and to award damages for the breach of fiduciary duty claim. The employees consequently moved to confirm the award and for attorneys’ fees and costs. The court disagreed with Umpqua’s argument, ruling that the arbitrator could rationally find a breach of fiduciary duty but not third-party beneficiary rights under the Agreement because the two claims have separate legal standards. The third-party beneficiary claim requires a showing of intent, and the breach of fiduciary duty claim does not require a showing of intent. The court thus granted the employees’ motion to confirm the award. Then, looking to the language of the employment agreements, the court confirmed the award of attorneys’ fees and costs and granted the employees’ motion for attorneys’ fees and costs incurred to enforce this award. Swarbick v. Umpqua Bank, Case No. 08-00532 (USDC E.D. Cal. Feb. 26, 2010).

This post written by Dan Crisp.

An Alabama federal judge dismissed a contract claim brought by the Alabama Municipal Insurance Corporation (“AMIC”) against Alliant Insurance Services, AMIC’s alleged managing general agent. AMIC alleged that Alliant breached a contract between the parties requiring Alliant to place and service certain reinsurance policies covering AMIC, by failing to serve timely notices to reinsurers, who then denied claims based on late notice defenses. From the allegations of the complaint, it appears the claims were ultimately paid by the reinsurers, but AMIC brought suit against Alliant seeking recompense for lost interest on the delayed payments. The Court found the allegations vague, and not adequately supportive of a contract action against Alliant under the new Ashcroft v. Iqbal pleading standard. The court dismissed the one-count complaint, allowing AMIC leave to amend. AMIC filed an Amended Complaint on March 2, 2010. Alabama Municipal Ins. Corp. v. Alliant Ins. Serv’s, No. 2:09-cv-928 (USDC M.D. Ala. March 1, 2010).

This post written by John Pitblado.

The New York Insurance Department has issued a new regulation, Regulation No. 194 (effective January 1, 2011), which addressees contingent compensation arrangements for brokers in the placement of insurance. While this Regulation contains an express exception stating that it does not apply to the placement of reinsurance, this Regulation is a major shift from the approach taken by former New York Attorney General Eliot Spitzer in this area, and the potential impact of this change in policy on the placement of reinsurance is unclear. The Regulatory Impact Statement for Regulation 194 states that ‘[t]here is nothing inherently improper about incentive-based compensation arrangement[s] between an insurer and the producer,” so long as there is proper disclosure of the arrangement. The Department has also published an Assessment of Public Comments relating to this regulation, and has amended its settlement agreements with three major brokers, Aon, Marsh and Willis, to permit them to engage in contingent commission arrangements subject to the disclosures required by Regulation 194. The Independent Insurance Agents and Brokers of New York, a trade association, has announced that it plans to sue to attempt to block the implementation of this regulation, on the ground that it imposes an undue burden on its members and exceeds the authority of the Department.

This post written by Rollie Goss.

On July 29, 2009, we reported on Willis Limited (“Willis”) settling a dispute with American Reliable Insurance Company and Assurant General Insurance Limited over alleged irregularities in Willis’ placement of personal accident reinsurance. Willis has now settled a similar placement dispute with CNA Financial Corporation for $130 million. The settlement includes a release and waiver of all claims and no admission of wrongdoing. Willis has filed a Form 8-K relating to this settlement.

This post written by Dan Crisp.

In a 94 page opinion, the Third Circuit Court of Appeals has affirmed the approval of the class settlement of certain consolidated cases of alleged insurance brokerage antitrust litigation arising from the New York Attorney General “bid-rigging” investigation in 2004. The district court approved proposed settlements involving the Zurich-affiliate defendants (see prior post dated March 5, 2007) and the Arthur J. Gallagher & Co.-affiliate defendants (see prior posts dated September 25, 2007 and October 15, 2007), and denied the objections to the proposed settlements. The objectors to the Zurich settlement challenged the attorneys fee award to class counsel as based on improper inclusion of work done on other non-settled aspects of related litigation, failure to properly account for work done on behalf of the public by attorneys general involved in the litigation, class counsel’s performance of its gatekeeper function, and the overall amount of the fees, which totaled approximately $29,000,000. The objectors to the Gallagher settlement challenged the amount of the settlement, the requirements of the proposed claim form, the allocation of settlement funds, and whether the requirements of class certification were met. The Third Circuit Court affirmed the district court’s approval of both settlements and the attorneys fee award in the Zurich settlement, and affirmed the denial of each of the objections. In re Insurance Brokerage Antitrust Litigation, Nos. 07-1759 et al (3d Cir. Sept. 8, 2009).

This post written by John Pitblado.

We have previously reported on the ongoing action between UNG and Aon for indemnity and contribution. On July 24, 2009, the Eastern District of Pennsylvania decided two post-trial motions arising out of a reinsurance agreement between United National Insurance Co. (“UNG” as plaintiff) and its Italian reinsurer Riunione Adriatica di Sicurta and UNG’s broker, Aon, Ltd. (defendant). In 1999 RAS commenced arbitration seeking to rescind the reinsurance agreement alleging it had been misled by one or both of the other parties. The arbitrator ruled in favor of RAS; UNG subsequently filed the present action for indemnity or contribution against Aon. The jury, applying Pennsylvania law, returned a $16.8 million dollar indemnification verdict for UNG. Following the trial, Aon filed a Motion for Judgment as a Matter of Law or for a New Trial. UNG, for its part, filed a motion for a discretionary grant of interest on its awarded damages.

The district court denied Aon’s motion for a new trial, holding that it was reasonable for a jury to conclude that Aon was in the business of supplying information as a broker (and did so in connection with this reinsurance agreement). The court found no error in the jury’s conclusions, and found it inappropriate to order a new trial. Conversely, the court granted UNG's motion to alter or amend the judgment, finding that an interest award was appropriate under Pennsylvania law, and applied the interest grant to the entire award including attorneys’ fees and costs. The court granted UNG an additional $8.2 million in damages. United Nat’l Ins. Co. v. Aon Ltd., Case No. 04-539 (USDC E.D. Pa. July 24, 2009).

This post written by John Black.

Willis Group Holdings Limited has filed a Form 8-K with the Securities and Exchange Commission describing the settlement reached by one of its subsidiaries, Willis Limited, with American Reliable Insurance Company and Assurant General Insurance Limited (“the Assurant companies”). The settlement pertains to personal accident reinsurance placed with and on behalf of the Assurant companies in the excess of loss market in London and elsewhere. Willis acted as the reinsurance broker for the transactions, which led to the Assurant companies suing Willis in the UK Commercial Court in London, alleging irregularities in Willis' placement of reinsurance. Under the settlement, Willis will pay the Assurant companies a total of $139 million.

This post written by Rollie Goss.

Reliastar Life Insurance Company (“Reliastar”) sued Aon Re, Inc. (“Aon”) in state court, alleging, under various legal theories, that Aon misled Reliastar to believe that Reliastar continued to be reinsured through a reinsurance pool (“the Pool”), when in fact it had less coverage than it had been led to believe. Reliastar alleged that Aon, and an individual broker working with Aon, were Reliastar’s agents responsible for administering Reliastar’s reinsurance needs through the Pool, and fraudulently misrepresented the level and extent of reinsurance protecting Reliastar.

Aon’s defense was two-fold. First, it asserted that another broker exclusively handled Reliastar’s reinsurance placement, and thus Aon was not Reliastar’s agent relative to the conduct at issue in the suit, and thus Aon had no duty to ensure Reliastar had any particular reinsurance protection through the Pool. Second, Aon contended that Reliastar was an active participant in the administration of reinsurance through the Pool, and as such was fully aware that certain other Pool members had withdrawn from participation, leaving Reliastar with a greater share of the overall risk. After a lengthy trial, the jury returned a verdict in favor of Aon. Reliastar Life Insurance Company v. Aon Re, Inc., No. 3916-03 (N.J. Super. Ct. March 26, 2009). Details of the case are available in the Final Joint Pre-Trial Order.

This post written by John Pitblado.