Category: Law

Sixth Circuit Affirms Subpoena For Reinsurance Arbitration

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Arbitrators have the power to issue subpoenas when necessary. Those subpoenas may be enforced in court. In reinsurance arbitrations, subpoenas are issued relatively rarely, but they do happen. The law surrounding subpoenas in arbitrations was in flux some years ago but since has normalized. Yet occasionally, disputes over the validity and enforceability of arbitral subpoenas arise as it did in a recent case involving a reinsurance dispute.

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Tortious Interference Claim Dismissed Again

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With the proliferation of runoff companies, which either take over distressed reinsurers or absorb legacy reinsurance obligations, comes claims by insureds and cedents against those companies and their affiliated administrators for various alleged offenses. For example, claims of tortious interference with contract have been brought against a number of runoff entities and their affiliates.

But claims of tortious interference are very difficult to sustain. In a recent case, an Illinois federal court dismissed tortious interference claims for the second time.

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Don’t Cry For Me – Reinsurance Judgment Against Argentina Vacated

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Legacy reinsurance liabilities against certain non-US reinsurers that have gone into insolvency or have been absorbed by non-US governments remain an issue for many US ceding companies. Some US ceding companies have fought long and hard to win arbitrations, enter judgments and then try to enforce those judgments against the non-US reinsurers or their governments. Success in doing this has been up and down. A recent case goes into great detail in addressing one cedent’s journey to enforce judgments against Argentina.

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Ten Years After – When Old Reinsurance Obligations Fail

It is quite common to have a transaction where a company essentially takes over another company and reinsures its obligations 100%. Several years later, the acquiring reinsurer may sell the acquired ceding company as a “clean shell.” Of course, the new acquiring company that buys the shell wants the original 100% reinsurance agreement to remain in force. After 10 years or more, sometimes things go awry.

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Reinsurer’s Attempt to Compel Arbitration Against Insureds Fails

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In certain relationships, a non-signatory to a contract with an arbitration clause may be compelled to arbitrate because of the benefits the non-signatory gains from the contract. But compelling a non-signatory to arbitrate is not an easy task. In a recent case, a reinsurer sought to compel insured school districts to arbitrate their claims, which the school districts brought against both the cedent risk management cooperative and the reinsurer when certain claims were not paid.

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Limitation on When Arbitration Can Be Brought For Arbitrator to Decide

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Who decides whether a contractual time limitation in a reinsurance contract on when an arbitration can be brought applies to bar arbitration? In a recent case, the Sixth Circuit Court of Appeals affirmed a district court’s decision sending the matter to arbitration for the arbitrators to decide on whether or how the limitation provision will be applied.

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Second Circuit Finds for Cedent in Follow-the-Settlements Asbestos Settlements Allocation Dispute

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Courts have long held that a cedent’s settlement allocation decisions fall within the follow-the-fortunes/follow-the-settlements doctrines. Nevertheless, with the many ways settlements and claims can be allocated to policies and then ceded to applicable reinsurance contracts there are bound to be disagreements that arise. In a recent case involving a cedent’s allocation of asbestos settlements to excess polices, the reinsurer raised various issues why it did not have to respond to the portion of the settlement billed to it, including that the cedent failed to exhaust the underlying excess policies. The case worked its way to the Second Circuit Court of Appeals, no stranger to follow-the-settlements and allocation decisions.

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Using US Federal Courts to Aide in Non-US Arbitrations Dealt a Death Blow By the US Supreme Court

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While it did not happen often, there have been occasions where insurance and reinsurance disputes outside the US looked to the US federal court to assist in discovery of documents or depositions in the US to aide the non-US arbitration. While the federal circuits were split, several circuits permitted the district courts to aide in the non-US arbitration.

In June 2022, the US Supreme Court addressed the issue of whether a non-US arbitration was a proceeding in a foreign or international tribunal so that the district court could aide in that proceeding under 28 U. S. C. §1782(a). Many articles and blog posts have been written about this case and I do not intend to get into the technical details of 1782(a) or the various arguments presented. I do, however, discuss below the ramifications for insurance and reinsurance arbitrations.

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Without a Contractual Relationship, Claims Against Reinsurers Fail

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To sustain a claim against reinsurers there has to be a contractual relationship between the party making the claim and the reinsurers. That is the prevailing rule in all jurisdictions, subject to rare exceptions. Nevertheless, policyholders, when left without a recovery from their insurer, will try to make out a claim directly against their insurer’s reinsurers. Typically, this effort meets with little success as we described in a blog post back in 2020.

Earlier this year, in a complicated credit insurance/reinsurance transaction involving a special purpose vehicle, a policyholder left without an insurance recovery tried again to recover its loss from its insurer’s reinsurers. The result was the same.

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