Reinsurance Focus

The Eighth Circuit affirmed a district court’s finding that LoRoad, LLC (“LoRoad”) failed to accept an agreement with Global Expedition Vehicles, L.L.C. (“Global”) that would allow LoRoad to enforce the arbitration contained within.

LoRoad negotiated with Global to build a custom expedition vehicle. The terms of the “Assembly Agreement” called for a nonrefundable $120,000 deposit. During the exchange of agreement drafts, LoRoad sent Global $120,000 along with a modified—allegedly signed—agreement shortly thereafter. As the relationship soured, Global stopped work on the expedition vehicle. LoRoad alleged that it did not have a final set of documents, as prior draft exchanges were simply contract negotiations. LoRoad sought to compel arbitration to handle the dispute per the agreement, asserting that the arbitration provision was enforceable because the parties exhibited the requisite intent to form a binding contract. In addition, LoRoad alleged that the arbitration provision was enforceable because that particular provision remained the same throughout multiple agreement draft iterations. The court focused on LoRoad’s intent. LoRoad’s only conduct to indicate an agreement was its payment of $120,000. However, it also argued that this sum was only a “good faith deposit” and not a payment per the agreement. Further, LoRoad sent emails to Global indicating that the agreement was “not yet executed.” Without an executed agreement or a free-standing agreement to arbitrate, arbitration could not be compelled. LoRoad, LLC v. Expedition Vehicles, LLC, Case No. 14-2636 (8th Cir. June 1, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

Plaintiffs alleged that AXA Equitable Life Insurance Company violated New York insurance law prohibiting misrepresentations by insurers of their financial condition, because AXA had not disclosed “shadow transactions” in its filings with the New York Department of Financial Services (“NYDFS”). NYDFS defines “shadow insurance” as the use of captive reinsurers in foreign jurisdictions with lower reserve requirements to do an “end-run around higher reserve requirements.” Plaintiffs contended that AXA was not as financially sound as it had represented because in failing to disclose “shadow transactions,” AXA received higher ratings from rating agencies and was able to post fewer reserves thus selling a product that had undisclosed risks and created an “increased risk to the insurance system as a whole. . . .”

The court denied class certification and granted AXA’s motion to dismiss for lack of Article III standing. Plaintiffs did not allege that their premiums were higher because of the alleged “shadow transactions” nor that they had relied upon AXA’s representations in filings with the NYDFS. Violation of rights created by state law (as opposed to federal law), standing alone, does not allege an “injury” sufficient to establish Article III standing. Plaintiffs needed to have established that at least one of them had suffered an “invasion of a legally protected interest which is . . . concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” The Court also explained that since plaintiffs never alleged that they would not have purchased the policies had the disclosures been made or that they had suffered any financial harm because of the misrepresentations, the alleged risk of harm was only in the future and was a very tenuous risk at that. Jonathan Ross v. AXA Equitable Life Insurance Co., Case No. 14-CV-2904 (USDC S.D.N.Y. July 21, 2015).

This post written by Barry Weissman.

See our disclaimer.

We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. In this ruling, the court granted defendant’s partial motion to dismiss the plaintiff-intervenor’s amended complaint with prejudice and to strike certain allegations from the remaining pleading.

Previously, the court granted the plaintiff-intervenor leave to file an amended complaint to cure deficiencies identified in the court’s order for partial judgment on the pleadings against the plaintiff-intervenor for failure to plead sufficient facts. In that August 2014 order, the court found that PHH’s loan disclosure documents had adequately placed the tolling subclass on notice of their claims, and that no extraordinary circumstances justified the late filing. The court also found that the plaintiff-intervenor failed to sufficiently plead a claim of fraudulent concealment apart from the underlying RESPA claim.

The court found that the allegations in the amended complaint would involve the re-litigation of these previously resolved issues. It reasoned that the amended complaint’s equitable estoppel and tolling claims “merely cloak[ed] the same facts or irrelevant facts in new legal theory, one amenable to the same defenses that have already prevailed” and were therefore barred under the law of the case doctrine. The court dismissed with prejudice because its previous order granted the intervenor one opportunity to amend, and the intervenor failed to cure the complaint’s deficiencies. Because the court had dismissed the claims with prejudice, it struck certain pleadings filed after the date of the order permitting the filing of an amended complaint as immaterial. Munoz v. PHH Corp., Case No. 08-00759 (USDC E.D. Cal. May 21, 2015).

This post written by Brian Perryman.

See our disclaimer.

The Court of Appeals for the Fourth Circuit recently remanded a case to the district court for full consideration of a request to compel arbitration, finding the lower court’s order “inconsistent with the emphatic federal policy in favor of” arbitration. The plaintiff, Dillon, sued several banks which were allegedly “complicit” in effectuating illegal payday loans by processing transfers on behalf of the lenders (tribal and out-of-state). The district court denied the banks’ initial motion to enforce arbitration clauses contained in the original loan agreements because the banks failed to provide authenticating evidence. When the banks renewed their motions to cure that deficiency by providing such evidence, the district court construed the motions as reconsideration motions, and denied them.

On appeal, the court analyzed the lower court’s perfunctory reasoning in construing the renewed motions as seeking reconsideration. The court rejected the idea that the banks only had one opportunity to invoke the Federal Arbitration Act’s enforcement mechanisms. Only when the party “is in default in proceeding with” arbitration does the Act foreclose the chance of obtaining a stay under its mechanisms. The court also distinguished the underlying issues presented by the initial and renewed motions to reject the notion that the law of the case doctrine justified denial. The district court’s ruling on the initial motions spoke to whether the pleadings established arbitrability did not, as law of the case, determine the renewed motions’ issue of whether Dillon consented to arbitration in the first place. The district court was instructed to, on remand, determine whether the claims are within the scope of the original loan agreement’s arbitration clause, and whether the banks forfeited those rights because they are “in default in proceeding” with arbitration. Dillon v. BMO Harris Bank, N.A., No. 14-1728 (4th Cir. May 29, 2015).

This post written by Brian Perryman.

See our disclaimer.

A district court in Kansas denied as moot defendant Liberty Mutual Fire Insurance Company’s motion to review a magistrate’s order granting plaintiff Great Plains Ventures, Inc.’s motion to compel reinsurance, reserves, and claims-related materials. The magistrate judge ruled in January that Liberty Mutual failed to establish why documents Great Plains had requested in a coverage dispute were irrelevant or privileged. Thus, the magistrate judge granted Great Plains’ motion to compel. Soon thereafter, Liberty Mutual requested that the magistrate judge stay his order in anticipation of its objection to the discovery order and its motion to review the order to compel. While the motion to review was pending, the magistrate judge denied the motion to stay and ordered Liberty Mutual to produce the documents. Liberty Mutual complied, and because it did so, the court ruled that its request for review was moot. Great Plains Ventures, Inc. v. Liberty Mutual Fire Insurance Co., No. 6:14-cv-01136 (USDC D. Kan. May 1, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

The Commercial Court (a subdivision of the Queen’s Bench Division of the U.K.’s High Court of Justice), recently held that an underwriter could not avoid the reinsurance contracts it had underwritten because it failed to convince the court that it would not have underwritten those contracts. In a case involving nondisclosure of loss statistics, the court determined that plaintiff reinsurer, Axa, could not avoid two reinsurance agreements that it had entered into with defendant insured, Arab Insurance Group (ARIG). The court made this finding even though ARIG failed to disclose – and perhaps even misrepresented – the loss statistics associated with its existing book of internal risk that was subject to the reinsurance. The court agreed with Axa that the misrepresentation of ARIG’s loss statistics was a material fact that should have been disclosed. However, even if ARIG had disclosed this information prior to the completion of the underwriting process, Axa would still have entered into the reinsurance agreements. Axa failed to prove they were induced by ARIG’s misrepresentation into the reinsurance contracts; they were therefore bound to those contracts. Axa Versicherung AG v. Arab Insurance Group [2015] EWHC 1939 (Comm).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

Utica Mutual Insurance Company (“Utica”) sued R&Q Reinsurance Company (“R&Q) in New York federal court for payment under reinsurance certificates R&Q issued to Utica covering umbrella policies Utica issued to its insured, Goulds Pumps, Inc. (“Goulds”) from 1979 to 1981. Some of the policies Utica issued to Goulds did not state the aggregate limits under the policies, but a settlement between Utica and Goulds in an earlier coverage dispute acknowledged that each of the primary policies at issue contained aggregate limits.

In connection with the reinsurance dispute, R&Q sought to compel the production of (1) documents concerning primary insurance policies issued by Utica to other insureds and correspondence reflecting the aggregate limits, and (2) deposition and hearing transcripts from a prior arbitration between Utica and R&Q.

The court declined to compel production of other insureds’ policies, noting that the aggregate limit issue had been litigated and resolved in prior litigation. However, it ordered that the transcripts be produced, but acknowledged that whether the testimony set forth in them would be admissible in the present Utica-R&Q dispute is a different issue. Utica Mut. Ins. Co. v. R & Q Reinsurance Co., Case No. 6:14-CV-00700 (USDC N.D.N.Y. June 2, 2015)

This post written by John A. Camp.

See our disclaimer.

A New York federal court entered a stipulated judgment in favor of the plaintiff reinsurer that prevailed on its declaratory claim in a summary judgment previously ordered, which judgment capped its exposure to the dollar amount stated in the “Reinsurance Accepted” portion of the reinsurance contracts at issue.  The litigation had remained ongoing due to the cedant’s remaining counterclaims, but it agreed to forego pursuing those claims in favor of a strategy allowing it to pursue appeal of the prior summary judgment order.

Global Reinsurance Corporation of America v. Century Indemnity Company, No. 1:13-cv-6577, (USDC S.D.N.Y. June 3, 2015).

This post written by Zach Ludens.

See our disclaimer.

Louisiana and North Dakota amended their surplus lines statutes in line with the Nonadmitted and Reinsurance Reform Act of 2010 (the “NRRA”), which was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”), signed into law in July 2010. Under the North Dakota amendment (HB 1146), definitions of “reciprocal state” were removed from the statute, and portions of the statute applying to taxes on out-of-state surplus lines insurance were removed. Under the Louisiana amendment (HB 259), portions of its statute were removed that dealt with collecting premiums based on risks located in Louisiana but insured by out of state surplus lines insurers.  The Louisiana bill repeals the authority for the Louisiana Insurance Commissioner to enter into NIMA, the Nonadmitted Insurance Multi-state Agreement compact, as to which we have posted, reducing the efficacy of the compact in achieving the premium tax provisions of the DFA.

This post written by Zach Ludens.

See our disclaimer.

The Second Circuit reversed the district court’s dismissal of a claim for vacatur without prejudice, which had been based on the panel’s finding that it lacked personal jurisdiction. The Second Circuit examined the merits of the vacatur claim and ruled that it should have been dismissed with prejudice. Based on that determination, the Second Circuit then affirmed the district court’s dismissal without prejudice of the second claim filed in the district court for relief on the merits of the dispute (a claim for breach of contract). The Second Circuit explained that dismissal of this claim without prejudice was appropriate due to the preclusive effect of the ruling in arbitration that personal jurisdiction was lacking. The court noted: “Although it may seem odd to deny the award preclusive effect over one claim and to grant it preclusive effect over another in the same suit, that is the logical result anytime a suit includes both a claim to vacate an award and other claims that might be precluded by a final award.” Global Gold Mining, LLC v. Ayvazian, Case No. 13-4759-cv (2d Cir. Apr. 27, 2015).

This post written by Michael Wolgin.

See our disclaimer.