Reinsurance Focus

A superior court in New Hampshire has entered two orders – one concerning Arrowood Surplus Lines Insurance Company, the other concerning Providence Washington Insurance Company – approving commutations regarding The Home Insurance Company. Separate motions – one for Arrowood, the other for Providence Washington – were brought by New Hampshire’s Insurance Commissioner as Home’s liquidator regarding liabilities ceded from Home to Arrowood and Providence Washington to Home. Home has been in liquidation since 2003. In the Matter of the Liquidation of the Home Insurance Co., No. 03-E-0106 (N.H. Super. Ct. June 15, 2015).

This post written by Zach Ludens.

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A federal district court in New Hampshire has held that a service of suit clause contained in reinsurance contracts waives the reinsurers’ rights to remove a litigation brought against them in state court by the Insurance Commissioner of the State of New Hampshire, in his capacity as liquidator for the Home Insurance Company. The liquidator had filed the action in state court to collect reinsurance under the contracts. The reinsurers removed the case to federal court and the liquidator moved to remand, citing the reinsurance contracts’ service of suit clause which states that the reinsurer “will submit to the jurisdiction of any court of competent jurisdiction within the United States” and will “abide by the final decision of any such Court.”

The liquidator argued the clause was a mandatory forum selection clause requiring litigation in the forum chosen by the insured, and thereby constituted a waiver by the reinsurers of their right to remove. The reinsurers contended that the clause was a permissive forum selection clause which constituted merely a consent to jurisdiction and did not mandate litigation in any particular forum. The court agreed with the liquidator and granted the motion to remand, finding the clause mandated exclusive jurisdiction in the New Hampshire state court. The court denied, however, the liquidator’s request for costs and expenses, finding the removal was “not objectively unreasonable.” Sevigny v. British Aviation Insurance Co., Case No. 15-cv-127 (USDC D.N.H. June 16, 2015).

This post written by Renee Schimkat.

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An Illinois circuit court entered an agreed order of rehabilitation against a reinsurer, Millers Classified Insurance Company, following a complaint for rehabilitation filed by the Illinois Department of Insurance. Millers Classified’s board of directors had passed a corporate resolution on December 16, 2014 agreeing to the entry of the order of rehabilitation. The effect of the order was to create an estate comprising of all of the company’s assets and liabilities to be managed by an appointed rehabilitator. The order specifically allowed all policies where Millers Classified was the ceding company to remain in place subject to further review. All policies where Millers Classified was the assuming or retrocessional reinsurer were cancelled on a cut-off basis effective upon the order’s entry. State of Illinois ex. rel. Stephens v. Millers Classified Insurance Co., Case No. 2015CH (Ill. Cir. Ct. Jan. 20, 2015).

This post written by Leonor Lagomasino.

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A Pennsylvania Court has approved the commutation, settlement and release agreement between Legion Insurance Company (In Liquidation) and Midwest Employers Casualty Company. Legion was judicially determined insolvent in 2003, and the Pennsylvania insurance commissioner was appointed as liquidator. Legion and Midwest previously litigated in separate proceedings coverage of over 43 separate reinsurance certificates issued by Midwest to Legion between 1994 and 2001. In approving the commutation, settlement and release agreement, the Pennsylvania court noted that no objections to approval had been presented. The court also granted leave for the liquidator to file the agreement and its supporting affidavit confidentially under seal. In re Legion Insurance Co. (In Liquidation), 1 LEG 2002 (Pa. Commw. Ct. Dec. 30, 2014) (order approving commutation & order granting leave to file under seal).

This post written by Michael Wolgin.

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On November 18, 2014, we reported on the Seventh Circuit’s decision in Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, in which Pine Top claimed that Banco de Seguros owed it $2,352,464.08 under certain reinsurance contracts.  The Seventh Circuit affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, agreeing that Pine Top’s assigned rights under the reinsurance contracts were limited to the collections of certain debts and did not include the right to arbitrate.  The Seventh Circuit also had affirmed the trial court’s denial of a motion to strike Banco Seguros’s pleading for failure to post security, holding that such pre-judgment security is a form of attachment that violates the Foreign Sovereign Immunities Act.  On December 22, 2014, the Seventh Circuit denied Pine Top’s petition for rehearing and rehearing en banc, as no judge requested a vote on the petition, and the judges on the prior panel voted to deny rehearing.  Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Dec. 22, 2014).

This post written by Michael Wolgin.

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The Delaware Court of Chancery has denied U.S. Bank, N.A.’s request for an order establishing its right to retain cash and securities valued at $156 million and maintained by Freestone Insurance Company, a reinsurer now in receivership, in a custodial account at the Bank. When Freestone’s delinquency proceedings began, it maintained assets valued at $175 million with the Bank, which held the assets in trust to secure the insurer’s right to payment from Freestone (and others) as reinsurer. The Bank turned over only $19 million of the assets and moved for an order establishing its right to retain the rest, arguing it was entitled to keep the assets as security for potential indemnification claims and present and future expenses. The court denied the Bank’s motion, finding the Bank was not entitled to retain indefinitely assets valued at $156 million nor was it entitled to a security interest in those assets. Instead, the court ordered the Bank to turn over the $156 million to the Insurance Commissioner of the State of Delaware, allowing the Bank to keep only its current administrative fees to the extent incurred as of a date thirty days after the date the commissioner demanded the assets’ return. In the Matter of the Liquidation of Freestone Insurance Co., C.A. No. 9574-VCL (Del. Ch. Dec. 24, 2014).

This post written by Renee Schimkat.

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A Pennsylvania court overseeing Reliance Insurance Company’s liquidation proceedings approved the settlement agreement between Reliance and XL Reinsurance Company. The agreement allowed the liquidator to terminate and commute the obligations between Reliance and XL under the parties’ reinsurance agreement, such that the estate would receive a $7,248,830 economic benefit. In re Reliance Insurance Company in Liquidation, 1 REL 2001 (Pa. Commw. Ct. Oct. 2, 2014).

This post written by Leonor Lagomasino.

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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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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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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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