by ~ Jessica H. Park (Email) (Web Site)
The first panel of the sixth annual MReBA Symposium kept up the excellent momentum from the keynote address by providing an engaging presentation on recent developments in property reinsurance. The panel featured insightful discussion by panelists Alex Henlin of Edwards Wildman Palmer LLP, Kristin Suga Heres of Zelle Hofmann Voelbel & Mason LLP, John Phillips of General Reinsurance Company, and Stephen Zera of AIG Property Casualty. Highlights included an informative look at economic sanctions and their impacts on reinsurers; a discussion of issues that may arise for insurers and reinsurers when regulatory measures are taken in the wake of large-scale loss events; an update on the status of efforts to renew the Terrorism Risk Insurance Act (TRIA); and commentary on the increasingly common inclusion of bad faith as an element of first-party property claims.
The first topic, insurance and reinsurance implications of economic and trade sanctions, provided an in-depth look at the use of sanctions by the U.S. and other governments to manage security threats and advance foreign policy goals. It was noted that the Office of Foreign Assets Control, or OFAC, maintains frequently-updated lists of people and entities with whom U.S. companies are prohibited from doing business-and the repercussions for ignoring sanctions and dealing with such prohibited parties can be severe. This presents insurers and reinsurers with a different set of challenges than those faced years ago, when the list of people and entities that were subject to sanctions was far narrower and was largely well-known. The modern landscape requires increased diligence by insurers and reinsurers at all stages - underwriting, claims-handling, and loss payment - since OFAC lists are constantly updated, and a relevant party could be added to such a list at any time. It was recommended that insurers and reinsurers frequently check the OFAC website and also consider employing policy language, such as geographic limitations and targeted exclusions, in an effort to avoid being placed in an untenable situation.
The discussion next turned to the potential impacts of regulatory measures that may be undertaken in the wake of large-scale destructive events such as hurricanes and major earthquakes. As an example, the presenter cited New York Insurance Circular Letter No. 8, issued in October 2013, which advised insurers of certain measures they could expect the Superintendent of Financial Services to take in the event of a catastrophe or disaster in New York State. The bulletin advised that the Superintendent could take steps such as declaring a moratorium on policy cancellations or non-renewals for nonpayment of premiums, imposing procedures to ensure prompt handling of claims, and others - some of which were measures that had been undertaken following Superstorm Sandy in 2012. It was observed that such post-disaster actions by insurance regulators introduce a great deal of uncertainty for insurers, who may find themselves faced with situations that were not contemplated by their policies or taken into account in their underwriting.
A third area of focus was the status of TRIA, which was initially passed in 2002, was renewed in 2005 and 2007, and is set to expire on December 31, 2014. Under TRIA (in its current form), the federal government provides certain funding for coverage of large-scale terrorism losses that meet required monetary thresholds and other criteria. The presenter noted that TRIA renewal was expected to happen - eventually - but that it was not clear whether such a renewal could be accomplished by the December 31 expiration date. Though the U.S. Senate had passed a bill approving TRIA's renewal in July 2014, and the House had passed its own bill in June 2014, the two bills had not been reconciled, a critical step in the renewal process. Major sticking points, it was noted, included the length of the renewal; the merits of a proposed bifurcation of the program under which nuclear, biological, chemical, and radiological attacks would be treated differently from other types of terrorism events; what insurer co-pay percentages should apply; and at what dollar value of loss the program should be triggered. With these issues unresolved, insurers and reinsurers await the expiration date in a state of uncertainty.
Finally, the panel's focus turned to the increasing emergence of bad faith claims asserted against insurers in connection with first-party property losses. The commentator noted that, while bad faith as an element of liability claims is nothing new, such claims have recently become more prevalent in the context of first-party claims as well, particularly in the wake of disasters such as Hurricane Katrina. An example cited was a January 2014 case, Jane Street Holding LLC v. Aspen Am. Ins. Co., 2014 WL 28600 (S.D.N.Y. Jan. 2, 2014), in which the plaintiff policyholder alleged that the insurer had shown bad faith in failing to pay for the loss of a generator due to flooding caused by Superstorm Sandy. The court ultimately granted summary judgment for the insurer on both the coverage claim and the bad faith claim, finding that there was no coverage (as the generator had not been located at a 'covered location'), and that since the insurer's interpretation of the policy had not been unreasonable, the plaintiff had failed to show bad faith. But the case is illustrative of policyholders' willingness to assert bad faith claims in connection with first-party coverage denials as well as in the context of liability claims.
Ms. Park is an associate at Sugarman, Rogers, Barshak & Cohen, P.C. She may be reached at park@srbc.com.
The 2014 MReBA symposium presentations were for educational purposes only. Views expressed by panelists at the symposium were their own and did not represent the views of their respective companies, law firms, or clients, nor do they represent the views of Sugarman, Rogers, Barshak & Cohen, P.C.
© 2014 Sugarman, Rogers, Barshak & Cohen, P.C. All rights reserved.
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