Discovery of Reserve and Reinsurance Communications – Part I

In cases where an insurer is a party to an action, numerous discovery disputes have centered on a litigant’s ability to discover the insurer’s loss reserve information and communications with its reinsurers.  The litigant (generally the insured or a co-insurer) may request this information in discovery, hoping to find something in the insurer’s internal communications and information that comports with the litigant’s theory of the case.  There is no clear rule as to the discoverability of reserves and reinsurance communications.  Many courts have noted that this information often has little, if any, relevance, because they reflect the insurer’s compliance with statutory reserving requirements and internal business decisions.  Typically, this information is not relevant to coverage determinations.  A number of courts, however, have held that this information can be relevant and discoverable particularly in bad faith cases, depending on the allegations, as issues related to the insurer’s subjective opinions and knowledge may be implicated.  While the results of similar discovery disputes cannot be predicted with crystal clarity, examining rulings from various jurisdictions and case circumstances provides some guidance.    In the next few posts, we will explore these issues further.

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Caught Between a Rock and a Hard Place?

Rock of GibraltarElite Insurance (“Elite”) entered the UK insurance market in 2005 with a promise to address risk like no other insurer. It said that it would focus on individual insurance needs, rather than adopting a “one size fits all,” when writing property and construction professional indemnity and legal expenses risks.   Rapid expansion followed with Elite offices opening in Spain and Italy and re-domiciling to Gibraltar in 2011. It is thought that Elite now has around 1.5 million policyholders across Europe.

It was then with some surprise that on 4 July 2017, Elite announced that it was closed to new business and would run off existing policies. No reasons were given at the time for the decision.

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When the Court Picks Your Arbitrator

One of the criticisms leveled at arbitration is the length of time it takes to select the arbitration panel and specifically the third arbitrator or umpire.  Most arbitration clauses either specify an arbitral authority to assist the parties in selecting the arbitration panel or specify in the arbitration clause the method for selection and criteria for the arbitrators.  In insurance and reinsurance contracts, arbitration clauses tend to require that the arbitrators be present or former officers of insurance or reinsurance companies or underwriters at Lloyd’s of London.  Some arbitration clauses go further and require that the arbitrators be experienced with a particular type of insurance or business.

When the parties cannot agree on an umpire because they cannot agree on the qualifications of the candidates proposed, they are often relegated to the court to help them resolve the impasse.   In a recent case, the court did just that and appointed an arbitrator consistent with the criteria mandated by the arbitration clause, but one who was opposed by a party because of the arbitrator’s affiliation with ARIAS•U.S.

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Arbitration Award Clarification Confirmation

BoardroomGenerally, when an arbitration panel issues a final award the panel is “functus officio“; its powers expired and its duties relieved because it has finished its work and there’s no more to be done.  Sometimes, however, an arbitration panel will retain jurisdiction for a period of time after the final award is issued in case the parties cannot resolve reconciliation or other issues based on the final award. Retaining jurisdiction holds off the functus officio doctrine for that brief period of time.

There are also judicial exceptions to the functus officio doctrine, which allow an arbitration panel to correct a mistake apparent on the face of the award, or where the award fails to adjudicate an issue submitted to arbitration for resolution, or where the award results in an ambiguity that requires clarification. In a recent case, the latter situation arose and the court had to determine whether it could confirm a clarified award.

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Court Won’t Decide Motion to Compel Arbitration Until Insurer Posts a Bond

A close-up of the word bond with a yellow tintA number of states, New York included, have provisions in their insurance law that require an unauthorized foreign or alien insurer to post a bond or procure a license before filing any pleading in any proceeding against it in a court in that state.  The reason for this provision is to make sure that an insurance company that is not licensed in the state, but provides an insurance policy to a policyholder in the state, has sufficient financial accountability in the state to satisfy any potential judgment against it from any legal proceeding brought against it in the state.  One question that periodically arises in disputes over whether a bond must be posted in a proceeding is whether the filling by the unlicensed insurer is a “pleading.”  This issue was recently addressed by a New York Bankruptcy Court in the context of a motion to compel arbitration.

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Additional Insured Endorsement Clarified By New York Court of Appeals

Tunnel WorkerThe New York Court of Appeals recently issued an important decision on how the Additional Insured endorsement to a Commercial General Liability insurance policy should be interpreted.  It did  so in a split decision and by reversing a decision by the Appellate Division. A vigorous dissent accompanied the opinion.  Commentators are already discussing the ramifications of this decision, including whether the Insurance Services Office (“ISO”) will modify its Additional Insured endorsement because of this decision. What follows is a brief analysis.

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June 2017 Reinsurance Newsletter

This quarter’s Squire Patton Boggs Reinsurance Newsletter leads off with a summary of a New York federal case where an arbitration award was vacated for evident partiality.  It also features an update on the US-EU Covered Agreement.

Please enjoy.

Ratification and Rescission of Insurance Policies

businessman is holding a burning contractRescission of an insurance contract is a drastic remedy. It generally requires a showing of fraud or material misrepresentation in the policy application and underwriting process.  Once an insurance company obtains the requisite knowledge of the policyholder’s fraud, it must seek rescission in a timely fashion. If, after obtaining that requisite knowledge, the insurance company commits an act that ratifies or affirms the insurance policy, the insurance company can no longer seek rescission of the policy. In a recent case, the Second Circuit Court of Appeals explored the ratification issue in a case seeking rescission of an insurance policy.

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