Major revisions to reinsurance accounting regulations in

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Major revisions to reinsurance accounting regulations in Powered By Docstoc
					                  Volume II, Issue 1
                  April 2006
                                                                                                                                    Reinsurance &
                                                                                                                                    Litigation News
pAGE 2
Second circuit rules That bMc           Major revisions to reinsurance accounting
32 Endorsement Still Only Applies
to Motor contract carriers
                                        regulations in california Proposed to take effect
…Federal Motor Carriers Safety
Administration (“FMCSA”) may
                                        in July 2006 are the subject of Much debate
continue to require only motor          by Ellen r. clarke, David A. robinson
carriers acting as common carriers to
provide minimum amounts of cargo
insurance.                              In the wake of                                           denial of reinsurance credit;     contracts, statement credit may be
                                        recent debacles                                          different risk transfer           denied unless an agreement transfers
pAGE 3                                  over finite reinsurance and                              regulations) would lead           an insurance risk for which there is a
breach Of The cooperation               insurer insolvencies, the                                to a decrease in available        reasonable possibility of a significant
clause in New Jersey – A                California Department                                    reinsurance, an increase in       loss to the reinsurer, and recoveries
Question of intent?                     of Insurance (DOI) has                                   the cost of reinsurance, and      due to the cedant are paid without
A policyholder has an affirmative       drafted draconian new                                    ultimately more expensive         delay. Transfer of risk is determined
duty to cooperate with its insurer      accounting regulations.                                  insurance for California          by application of the NAIC
                                                                            Ellen r. clarke
and abstain from any conduct that       Most notably, these                                      consumers.                        Accounting Guidance.
might interfere with that insurer’s     regulations govern the
contractual rights.                     conditions under which                                   risk transfer regulations         california contractual
                                        insurers may take statement                                  For Life & Disability         requirements for
pAGE 4                                  credit for reinsurance;                                  reinsurance contracts, if a       statement credit
As SOX Section 404 is chipped           impose mandatory contract                                letter of intent precedes the         With respect to California
Away, Will Underwriters lose A          language in reinsurance                                  execution of a reinsurance        domiciled insurers’ contracts, and
Valuable Tool?                          contracts with California
As a result of business and political                                      David A. robinson
                                                                                                 contract, then the agreement      material reinsurance agreements of
                                        licensees; require prior                                 must be executed no later
pressure, Congress and the SEC are                                                                                                 foreign insurers licensed in California
                                        approval for transactions involving           than 90 days later. In contrast, the
endeavoring to re-work Section 404                                                                                                 with significant California business,
                                        in excess of 50% of the insurer’s             NAIC standards and other states
of SOX.                                                                                                                            the reinsurance agreements must:
                                        total premium or liabilities; require         allow for nine months. Also, statement       disclose every separate contract
pAGE 5                                  licensing of reinsurance intermediaries
                                                                                      credit may be disallowed for admitted        affecting losses to the parties;
Silence iS Not Always Golden:           for certain transactions; and
                                                                                      insurers with disability business, if, for   contain an integration clause; report
The Effects Of criminalizing            reinsurance recoverables that are due
                                                                                      instance, the treaty does not reinsure       premiums and losses on a quarterly
Disaster investigations                 more than 90 days from a reinsurer
                                                                                      all of the significant risks inherent in     basis and require payment of losses
“How and why did this accident          may be required to be reported as
                                                                                      the business being reinsured.                within 30 days of submission of
occur?” [The trouble is that] this      non-recoverable assets, resulting in
                                                                                          For Life and Disability, and             proofs of loss; and must be consistent
quest for the truth can be confounded   denial of credit. The regulations apply
                                                                                      Property & Casualty reinsurance              with NAIC Accounting Guidance not
if a criminal investigation begins.     not only to insurers licensed
                                        and domiciled in California,                                                                         otherwise inconsistent with
pAGE 6                                  but in many cases apply to                                                                           these regulations.
calculating punitive Damages            foreign insurers licensed in                                                                         Additional requirements
in california post-campbell             California but domiciled                                                                             apply to California domiciled
The United States Supreme Court’s       outside the state.                                                                                   insurers’ contracts, and
decision in State Farm v. Campbell          Cedants and reinsurers are                                                                       to material reinsurance
is the latest decision by the Court     fighting the adoption of the                                                                         agreements of foreign
reviewing the constitutionality of      regulations, asserting that the                                                                      insurers licensed in California
punitive damages awards.                regulations are burdensome,                                                                          with significant California
                                        and significantly depart                                                                             business. Specifically,
pAGE 7
                                        from the NAIC model act                                                                              reinsurance contracts must
New York High court Finds No
                                        which results in incompatible                                                                        contain an insolvency clause
Employer Duty For Second Hand
                                        reinsurance accounting                                                                               consistent with the statutory
Asbestos Exposure
                                        regulations with other states.                                                                       insolvency clause, which
The New York Court of Appeals
                                            At a recent public hearing,                                                                      requires that in the event of
(New York’s highest court) in a 6-0
                                        the RAA stated that the                                                                              insolvency, claims be paid
decision, held that an employer was
                                        additional transactional costs                                                                       without diminution because
not responsible when an employee’s
                                        caused by the regulations                                                                            of insolvency (“Pink clause”)
spouse contracted an asbestos-related
                                        (greater capital commitment;                                                                         on the basis of claims
                                        restating financial statements;                                                                      allowed, and must contain
 pAGE 8                                                                                                                                              CONTINUED ON PAGE 4
 Mendes news
                                                                                        Reinsurance &
2                                                                                       Litigation News

second circuit rules that bMc                                                            FMCSA required common carriers
                                                                                         to maintain cargo insurance of
                                                                                                                                   that the ICCTA’s abolishment of
                                                                                                                                   the distinction between common
32 endorsement still only applies                                                        $5,000 per vehicle and $10,000 per        and contract carriers, rendered the
                                                                                         occurrence in the same fashion that       BMC 32 Endorsement applicable
to Motor contract carriers                                                               the ICC had.                              to all motor carriers. The district
                                                                                             In Fortunoff, the plaintiff ’s        court agreed and granted summary
by leo W. Frasier, iii, Jose r. Serrano                                                  goods had been damaged in-transit.        judgment to Fortunoff, ruling that by
                                                                                         Although the motor carrier held both      abolishing the distinction Congress
the UnIted states coUrt of                      individual shipments. In contrast,       a common carrier certificate and a        had intended to require BMC 32
aPPeals for the Second Circuit                  common carriers usually provided         contract carrier permit, its agreement    Endorsement coverage for all motor
recently held that the Federal Motor            their services to less sophisticated     with the plaintiff specified that every   carriers.
Carriers Safety Administration                  shippers according to a schedule of      shipment was deemed to have been              Upon appeal by Peerless, the
(“FMCSA”) may continue to require fixed rates and without the benefit of tendered to the carrier as “a motor                       Second Circuit reversed the district
only motor carriers acting                                a negotiated contract.         contract carrier.” The agreement also     court’s judgment, holding that the
as common carriers                                            In order to comply with    provided that the carrier would keep      ICCTA did not mandate that BMC
rather than contract                                      the ICC’s requirements,        in force and effect insurance policies    32 insurance coverage be available
carriers to provide                                       common carriers had            in amounts required by the ICC for        for all functions performed by all
minimum amounts of                                        to attach to their cargo       common carriers.                          motor carriers. The Court found
cargo insurance under                                     insurance filings the BMC          Due to its insolvency, the carrier    that Congress had given the FMCSA
the so-called “BMC                                        32 Endorsement, which: (a) failed to compensate Fortunoff                discretion to require some motor
32 Endorsement.” M.                 leo W. Frasier, iii
                                                          made the insurer primarily     for its loss. Fortunoff then sought       carriers to carry cargo insurance,
Fortunoff of Westbury                                     liable for cargo losses of     coverage under the BMC 32                 and the FMCSA had properly
Corp. v. Peerless Insurance                               up to $5,000 per vehicle or    Endorsement filed with respect to         exercised its discretion in continuing
Company, 432 F.3d 127                                     $10,000 per occurrence; (b)    the carrier’s status as a common          to distinguish between common
(2d Cir. 2005). In doing                                  did so notwithstanding any     carrier. The insurer, Peerless, denied    and contract carriers as to the
so, the Second Circuit                                    conditions or exclusions in    coverage on the basis that the BMC        requirement for cargo insurance.
reversed a lower court                                    the policy; and (c) continued 32 Endorsement only provided               Although recognizing that through
decision, which had                                       coverage in force until such   coverage where the carrier was            the ICCTA Congress had sought
held that the BMC 32                 Jose r. Serrano      time as the                                                                                to eliminate the
Endorsement had applied                                   insurer filed a                                                                            separate licensing
to all carriers in all circumstances            notice of cancellation                                                                               requirements for
ever since Congress had abolished               with the ICC.                                                                                        common and
the distinction between “common                       Upon enactment of                                                                              contract carriers,
carriers” and “contract carriers”               the ICCTA, the FMCSA                                                                                 the Court did not
under the Interstate Commerce                   replaced the ICC as the                                                                              consider that fact to
Commission Termination Act of                   agency responsible for                                                                               be dispositive of the
1995 (“ICCTA”).                                 the regulation of the                                                                                case. With respect
    Prior to enactment of the ICCTA, trucking industry. The                                                                                          to cargo insurance,
the federal government regulated                ICCTA also abolished                                                                                 the Court held that
the trucking industry through the               the distinction between                                                                              Congress had left
Interstate Commerce Commission                  a common carrier                                                                                     the question of
(“ICC”). The ICC recognized two                 and a contract carrier,                                                                              whether it should
types of motor carriers: common                 merging them into                                                                                    be required to
carriers and contract carriers.                 a single category                                                                                    the discretion of
Common carriers provide trucking                of “motor carrier,”                                                                                  the Secretary of
services to the general public on               defined as any “person                                                                               Transportation.
a non-continuing basis, whereas                 providing motor                                                                                      The Court found
contract carriers provide services to           vehicle transportation                                                                               that § 13906(a)(3)
specific, individual shippers, based            for compensation.”                                                                                   did not mandate
on contracts. Historically, the ICC             The ICCTA required                                                                                   that the Secretary
required common carriers to file                a motor carrier to file                                                                              require insurance of
proof of both liability and cargo               “a type of security                                                                                  all motor carriers,
insurance, but only required contract sufficient to pay a                                                                                            but rather reserved
carriers to file proof of liability             shipper or consignee for                                                                             to the Secretary the
insurance. The distinction rested               damage to property.”                                                                                 authority to require
upon the ICC’s view that contract                     Notwithstanding                                                                                cargo insurance of
carriers provided their services to             the language of the                                                                                  motor carriers on a
sophisticated shippers pursuant to              ICCTA, the FMCSA                                                                                     case-by-case basis.
bilateral contracts that had been               continued to observe a distinction       functioning as a common carrier                      Thus, as Fortunoff ’s
individually negotiated on an arms-             between common carriers and              rather than as a contract carrier.        motor carrier had contracted on the
length basis. As such, the shipper              contract carriers, at least with respect Fortunoff filed suit, and eventually      basis that it was a motor contract
and the carrier could negotiate the             to requiring that they maintain cargo moved for summary judgment                   carrier, the BMC 32 Endorsement
amount of insurance available for the insurance. By way of regulation, the               against Peerless on the ground            did not apply.
                                                                                           Reinsurance &
                                                                                           Litigation News                                                                   3
                                                                                          oath as to the cause of the fire Id. at     Service of New England v. Midland
breach of the cooperation clause                                                          *1. The assured based his refusal           Ins. Co., 218 N.J. Super 49, 55 (App.
in new Jersey - a Question of Intent?                                                     upon his fifth amendment right against
                                                                                          self-incrimination. Id. In refusing to
                                                                                                                                      Div. 1987).
                                                                                                                                          There, plaintiff sought coverage
An Assured Has an Affirmative Duty Not to Interfere                                       void the policy, the court analyzed the
with the Insurer’s Contractual Rights under the Policies                                  rational of Cooper, supra, and found        An insurer should be
                                                                                          that the essential ideal behind Cooper      required to show prejudice
by John M. Deitch, robert F. priestley                                                    was a reluctance to strip an assured
                                                                                          of coverage, where the actions of the       before it can disclaim
the dUty to cooPerate wIth                     in New Jersey with the decision of
                                                                                          assured were innocent. Id. at *4. In
one’s InsUrer has been generally               Cooper v. Government Employees Ins.
                                                                                          addressing the rational of Cooper,          for environmental liabilities arising
held to be a material provision of             Co., 51 N.J. 86, 90 (1968).1
                                                                                          supra, the Yannitsadis court stated: “It    out of its disposal of waste at certain
the policy and compliance therewith                 There, plaintiffs failed to provide
                                                                                          would be unfair to require an insured       hazardous waste sites. Solvents, 218
a condition precedent                          their automobile carrier with notice of
                                                                                          to forfeit coverage, absent a showing       N.J. Super. at 51. One of Plaintiff’s
to the carrier’s liability.                                an accident until they were
                                                                                          by the insurer that it will likely suffer   carriers, The Home, sought rescission
Cooperation clauses, which                                 served with a complaint
                                                                                          “appreciable prejudice” from the            of its policy based upon, among
include such a duty, are                                   some two years after the
                                                                                          insured’s actions, where the insured        other things, the policyholder’s
designed to protect the                                    accident. Id. at 89. The
                                                                                          has reasonably refused to submit to         breach of the policy’s assistance and
interests of the insurer                                   Coopers’ carrier denied
                                                                                          examination due to valid concerns           cooperation clause. Id. at 53.
and prevent collusion                                      coverage upon the issue of
                                                                                          that he would be compromising his                 There was no dispute that Solvents
between the insured                                        late notice. The Coopers
                                                                                          Fifth Amendment privilege against           had not complied with the terms of
and the claimant(s). As              John M. Deitch        sued their carrier, claiming
                                                                                          self-incrimination by so submitting.”       the assistance and cooperation clause.
a result, a policyholder                                   that they had given notice
                                                                                                                                      Id. at 54. However, as the court
has an affirmative duty                                    “as soon as practicable”
                                                           as required under their                                                    noted in its decision, “[t]here is. . .no
to cooperate with its                                                                                                                 allegation that the insured acted other
insurer and abstain from                                   policy. Id. at 90. In
                                                           allowing coverage,                                                            than in good faith.” Id. Recognizing
any conduct that might                                                                                                                      that the policyholder’s breach
interfere with that insurer’s                              despite admittedly
                                                           late notice, the                                                                   was admittedly inadvertent
contractual rights. Griggs v.                                                                                                                   or “innocent,” the court held
Bertram, 88 N.J. 347 (1982).
                                    robert F. priestley    Court over-
                                                           ruled Whittle,                                                                        that: “where the insured
    Questions surrounding an                                                                                                                      has acted in good faith, the
assured’s duty to cooperate arise most supra, which held that                                                                                     consequences of a violation
commonly when the assured enters               compliance with the
                                               terms and conditions of                                                                            of the condition that the
into settlements, usually without                                                                                                                insured cooperate with the
notice to the insurer. In considering          an insurance contract was
                                               a condition precedent to                                                                         company and afford the
whether the cooperation clause has                                                                                                             company the right to control
been breached, New Jersey courts               coverage under the contract.
                                               Id. Instead, the Court found                                                                   both the litigation and the
have focused upon the conduct of                                                                                                            settlement of claims should [not]
the assured and whether the assured’s that the assured’s actions were                                                                   weigh any more heavily in favor of
conduct was a) an intentional                  reasonable, in good faith, and did
                                               not breach the contract of insurance.                                                  forfeiture of coverage [than violations
uncooperative act or b) a lack of                                                                                                     of the policies’ notice provisions],
cooperation which was something                Id. at 94. In dicta, the Cooper Court
                                               set forth its modern view of insurance                                                 absent a showing of appreciable
short of an intentional failure. Since                                                                                                prejudice.”
                                               contracts as contracts of adhesion and     Yannitsadis, at *5.
the New Jersey courts treat each
                                               commented that an insurer should               While the Yannitsadis decision,               Accordingly, under Solvents, if the
category distinctly, so shall we in this
                                               be required to show prejudice before       and its “reasonableness” test, is cause     assured’s failure to cooperate was in
                                               it can disclaim based upon lack of         for concern when litigating in the          “good faith” (a term not defined in
a. an assured’s negligent                      notice.                                    District of New Jersey, it’s holding        the Solvents decision) the carrier must
    failure to Provide assistance                   The dicta in Cooper continued to      is not controlling in the State courts.     show appreciable prejudice in order to
    and/or cooperation.                        flourish in our case law and became        Indeed, even the Courts of New              avoid liability.
    It was once the law in New                 a rallying point for counsel for           Jersey would permit a finder of fact              Unfortunately for all, in rendering
Jersey that compliance with the                assureds to excuse almost any failure      to draw an adverse inference based          its decision, the Appellate Division
terms and conditions of an insurance           by the assured to comply with its          upon the assured’s assertion of his /       failed to take into account several
contract was a condition precedent             obligations under an occurrence based      her Fifth Amendment Right against           prior Appellate Division decisions
to suit under the contract. Whittle            policy of insurance.2 These public         self-incrimination. See, e.g., Duratron     directly on point, mistakenly stating:
v. Associated Indemnity Corp., 130             policy arguments were subsequently         Corp. v. Republic Stuyvesant Corp.,         “. . .[T]he question of whether there
N.J.L. 576 (E&A 1943). However,                discussed further in Yannitsadis v.        95 N.J. Super. 527 (App. Div. 1967)         may be a disclaimer without proof
that purely contractual view of                Mission National Ins. Co., 1986 WL         cert. denied, 50 N.J. 404 (1967).           of prejudice in circumstances where
insurance agreements was slowly                1706 at *4 (D.N.J. 1986). Where, the           Approximately one year after            there has been a violation of the
eroded over time by the “modern”               District Court for the District of New     Yannitsadis, the Appellate Division         [assistance and cooperation clause]
view of insurance contracts that swept Jersey was asked by the defendant                  had the opportunity to address the          has not been the subject of a reported
the country during the 1960’s. The             insurer to void a policy of fire           standard to be applied to an insured’s      decision in our state.” Solvents ID
erosion of the purely contractual              insurance based upon the assured’s         breach of the cooperation clause            at 54. Each of the three decisions
view can be said to have culminated            refusal to provide a statement under       in the matter of Solvents Recovery          overlooked by the Solvents court will
                                                                                                                                                        CONTINUED ON PAGE 4
                                                                                                 Reinsurance &
4                                                                                                Litigation News

CONTINUED FROM PAGE 3                             (App. Div. 1954); 8 Appleman, op. cit.,    the “appreciable prejudice” test                CONTINUED FROM PAGE 1
BREACh OF ThE COOPERATION ClAUsE...               § 4773, at 158. As the court tersely       because the “detriment inherent in              MAjOR REvIsIONs TO REINsURANCE
                                                  stated in the Kindervater case, supra,     less than strict enforcement of the             ACCOUNTING REGUlATIONs...
be addressed below, and each supports
                                                  120 N.J.L. at 377, 199 A. at 608:          notice requirements far outweighs any
the argument that a non-negligent                                                                                                            a provision stating that no provision
failure to cooperate will void coverage.          “An interpretation that would require a    benefit to be gained by adopting a rule         may reduce payment in the event of
                                                  demonstration of substantial detriment     requiring the insurer to demonstrate            insolvency. Reinsurance contracts may
b. an assured’s non-negligent                     to the insurer, as the result of the       appreciable prejudice where the failure         contain a set-off clause which states
failure to Provide assistance                     breach of such a condition, would          to report is not willful.” Id. at 497.3         that it is inapplicable in liquidation,
and/or cooperation will Void                      seriously impair its practical efficacy.                                                   except to the extent permitted by law.
                                                  It suffices if the condition has been      conclusion
coverage, without a showing of                                                                                                               Under Prudential Re, setoffs for mutual
                                                  breached in a material or essential            Although the New Jersey Supreme
appreciable Prejudice.                                                                                                                       credits and debts arising from mutual
                                                  particular.”                               Court in Cooper, supra, did not
     If an assured fails to provide                                                                                                          reinsurance agreements are allowed
                                                  Pearl Assur. Co 58 N.J. Super. at 491.     address the cooperation clause, or
assistance and cooperation, and the                                                                                                          in liquidation proceedings. Also, if
                                                                                             consider the effect of an assured’s
failure is the result of more than mere            In Sutera, 67 N.J. Super. 554,                                                            the agreement includes an arbitration
                                                                                             breach of the policy, the Appellate
negligence, the assured’s conduct will         the assured was the owner of an                                                               clause that excuses the arbitrators
                                                                                             Division is effectively split as to the
vitiate coverage without any need              automobile involved in an accident.                                                           from strictly following the terms of
                                                                                             appropriate standard to be applied to
for the insurer to show appreciable            The assured claimed to have been                                                              the agreement or the rules of law, the
                                                                                             an assured’s failure to cooperate due
prejudice. Pearl Assur. Co. v. Watts,          operating the vehicle at the time of the                                                      provision must exclude its application
                                                                                             to the Solvents court’s reliance upon
58 N.J. Super. 483 (App. Div. 1959);           accident, despite witness testimony to                                                        from liquidation proceedings.
                                                                                             Cooper in its decision.
Sutera v. Provident Ins. Co. of New            the effect that a man was operating
                                                                                                 On the one hand, the Solvents               oversight of reinsurance
York, 67 N.J. Super. 554 (App. Div.            her car. Id. After jury selection, the
                                                                                             “good faith” standard requires the              transactions
1961), certif. denied, 36 N.J. 131             assured admitted to her attorney that
                                                                                             carrier to show appreciable prejudice               A licensee’s surplus must
(1961) and Arigato Stables v. American         there was a man operating her car,
                                                                                             flowing from the breach. On the                 be reasonable in relation to its
Livestock Ins. Co., 201 N.J. Super. 492        and that she ordered him to “beat
                                                                                             other hand, Pearl Assur. Co., holds             outstanding liabilities, and failure to
(App. Div. 1985).                              it” before the police came to the
                                                                                             that a breach of the cooperation                maintain adequate ratios can lead to
     In Pearl Assur. Co. plaintiff             accident scene. Id. at 558. A mistrial
                                                                                             clause concerning “a material or                license revocation. Prior approval is
insurer sought a declaration of its            was declared, and the carrier denied
                                                                                             essential particular” is sufficient to          required for the purchase or sale of
rights under a homeowner’s policy              coverage. Id. Ultimately verdicts
                                                                                             avoid coverage without the need for             substantially all of a carrier’s property
it issued to defendants. There, in the         were entered against the assured,
                                                                                             a showing of appreciable prejudice.             or business (75% of total premium
underlying action, the parents of              and coverage was sought. The trial
                                                                                             While the two lines of cases may                or liabilities). This rule applies to
defendant Bertha Watts sued Bertha             court found coverage and the carrier
                                                                                             appear, at first blush, to be two sides         California domiciled insurers and
and her husband, in negligence, for            appealed. Id. In reversing the trial
                                                                                             of the same coin, their import is               foreign insurers licensed in California
her mother’s fall down a back flight           court, the Appellate Division relied          dramatically different as any insurer
of steps at the Watts’ home. Id. at 487.       heavily upon the opinion in Pearl                                                             with significant California business.
                                                                                             seeking to prove appreciable prejudice          For the purchase or sale of 50% of
The parents’ claim was submitted               Assur. Co., supra., ultimately holding:       faces a difficult task.
to the carrier, which conducted                   Thus, if there is a deliberate falsehood                                                   a carrier’s property or business, the
                                                  to the company by the assured on
                                                                                                 Perhaps the only general rule               carrier must submit the transaction
an investigation. Id. During the                                                             that one may infer from the various
                                                  a matter or in a respect material                                                          for review to ensure that it is not
investigation, Mr. Watts stated that the                                                     decisions is that the outcome will
                                                  or essential either to liability of the                                                    materially deficient. With respect to
railing in question was secure and had            assured to the claimant or to the          be determined by the intent of the
not been loose. Id. However, during                                                                                                          foreign insurers without significant
                                                  defense of the claim, there is a breach    assured. Bad actors will be punished,
his deposition, Mr. Watts testified                                                                                                          California business, prior approval
                                                  of the cooperation clause forfeiting the   and the innocent will be covered, it’s
that the railing was never secure, and            policy coverage.
                                                                                                                                             is required only when requested by
                                                                                             all a question of intent.
stated that he knew of its infirmity               Since the assured’s falsehoods, and                                                       the Commissioner or insurers may
several months before the fall. Id.            resulting loss of credibility, were found                                                     elect to seek prior consent from the
                                                                                               Cooper has recently been reaffirmed
Plaintiff based its declaratory action         to be material and essential to the             by our Supreme Court in the matter of:        Commissioner. The Commissioner’s
upon this change in testimony. At              defense as a matter of law, coverage for        Gazis v. Miller (A-32, September Term         consent is based on a demonstrated
trial, the Superior Court, Chancery            the loss was avoided. Id. at 562.               2005, Decided March 20, 2005) and has         business necessity for the transaction.
Division, found coverage and Plaintiff             In Arigato Stables v. American              been extended by that case to apply to        Special rules apply to inter-company
                                                                                               policies of excess insurance.                 pool transfers of 100% of total
appealed. Id. at 487.                          Livestock Ins. Co., 201 N.J. Super. 492       2
                                                                                               Our Court has flatly rejected the Cooper      premium.
      In reversing the trial court, the        (App. Div. 1985) plaintiff presented            “appreciable prejudice” argument in the
Appellate Division set forth the               a first-party claim for the loss of             context of claims made policies, finding      reinsurance Intermediaries
state of New Jersey law regarding an           a thoroughbred racehorse. Id. at                that less than strict enforcement of the      Must be authorized by the
insured’s obligation to cooperate with         493. Defendant insurer moved for                notice provision would result in an un-       commissioner
its insurer:                                   summary judgment based upon the                 bargained for expansion of coverage as            If the cedant is a California
    [T]he present state of the law is to the   insured’s failure to provide notice             the transmission of notice is the event
                                                                                                                                             domiciled insurer, or a foreign insurer
    effect that a breach of a cooperation      of the horse’s infirm condition. Id.            which invokes coverage. See Zuckerman
    clause relieves the insurer from policy                                                    v. National Union, 100 N.J. 304 (1985).
                                                                                                                                             licensed in California with significant
                                               Defendant’s motion was granted at                                                             California business contracts, and
    liability regardless of whether actual                                                   3
                                                                                               It should be noted that the Court
                                               the trial level. Id. Plaintiff appealed                                                       the transaction involves a material
    prejudice to the insurer has ensued                                                        expressly found that “we are not dealing
    therefrom. Kindervater v. Motorists
                                               claiming that the appreciable prejudice         with a contract that will affect the rights   reinsurance agreement (equivalent
    Cas. Ins. Co., supra; Whittle v.           standard should be applied to reverse           of third parties who have liability claims    to 5% or more the cedant’s surplus)
    Associated Indem. Corp., 130 N.J.L.        the grant of summary judgment.                  as in Cooper.” Accordingly, one would         providing for transmission of
    576 (E&A 1943); Bankers Indem. Ins.        Id. In a split decision, the Appellate          be wise to use caution in referencing this    payments through a reinsurance
    Co. v. A.E.A. Co., 32 N.J. Super. 471      Division excepted this matter from              case outside of the first-party context.
                                                                                                                                                               CONTINUED ON PAGE 7
                                                                                         Reinsurance &
                                                                                         Litigation News                                                                 5

silence Is not always golden:                                                           criminal charges and consequences
                                                                                        that exist. That possibility
                                                                                                                                   quite shaken by the addition of
                                                                                                                                   criminal liability to the airman’s
the effects of criminalizing air                                                        always existed for intentional or
                                                                                        reckless conduct (for instance,
                                                                                                                                   modes of discipline. It can have
                                                                                                                                   the undesirable effect of silencing
disaster Investigations                                                                 pilots operating an aircraft while         communications between the airman
                                                                                        intoxicated), but now it seemingly         and the governing federal bodies.
by Nelson camacho, Tomas r. pantino                                                     can be applied to mere negligence.         The danger is that this can have a
                                                                                            The airframe mechanic is               retrogressive consequence on aviation
aVIatIon has changed a                       ValuJet flIght 592 (1996)                  tightly bound by statutory language        disaster investigative processes.
great deal since the time of                      The State (Florida) took an           governing his duties, conduct, and
Charles Taylor (the first aircraft           extraordinary step when the State          penalties for violation of those duties.
                                             Attorney’s office brought criminal         While Federal criminal guidelines          With potential criminal
mechanic for the Wright Brothers).
Today, an air disaster remains one           charges for an airline accident. The       are somewhat uniform, State                charges…aviation mechanics
of the most closely scrutinized              charges included 110 counts of             criminal laws are not. Beside added        may immediately invoke their
events in transportation,                                third-degree murder and        jurisdictional and procedural issues,      5th amendment right
government, and law.                                     manslaughter. Moreover,        the added component of punitive
Despite the infrequency                                  the Miami U.S. Attorney’s      damages and their determination
of major air disasters, a                                Office took the uncommon       needs to be considered.                       The fallout from a trend of this
single Boeing 747 can                                    step of criminally indicting       During NTSB investigations, the        type can include:
carry approximately                                      three of the mechanics that    general rule is to provide as much
550 passengers - or 550                                  had serviced Flight 592.       information as possible, to assist             • Witness/participant impedance
potential victims. When                                      Some believed that this    in the search for the truth, with          or refusal to cooperate;
                                    Nelson camacho
the Airbus A380 goes into                                was the first time in U.S.     the ultimate goal being to increase
                                                                                                                                       • An attitude shift using blame-
production, it will have the                             aviation history that a                                 aviation
                                                                                                                                   centered method of “correcting”
capacity to carry nearly                                 company and its                                              safety.
                                                                                                                                   behavior through severe punishment
900 people, depending on                                 aircraft mechanics                                                        for mistakes;
the configuration selected.                              had been
                                                                                                                                       • Corporate attitude of
Still, air travel is the safest                          charged with
                                                                                                                                   emphasizing penalties for mistakes,
mode of travel today.                                    homicide in
                                                                                                                                   thereby encouraging people to
     In spite of air travel’s       Tomas r. pantino
                                                                                                                                   conceal their mistakes; and
impressive safety record,                                with an air
                                                                                                                                         • Legal system delays due to
when an airplane accident occurs, the disaster, but this was
                                                                                                                                          absence or lack of access to
intense scrutiny begins.                     actually not true.
    An accident investigation can            In 1983, criminal
involve federal, state and local or          charges were brought
                                                                                                                                                   Some might argue the
international agencies, air carriers,        against director John
                                                                                                                                                potential for a positive
and manufacturers. All these parties         Landis and others for
                                                                                                                                                 consequence in a
are united in the interest of safety         the deaths of actor Vic
                                                                                                                                                   climate that enforces
by the question of “how and why              Morrow and two child
                                                                                                                                                    criminal liability,
did this accident occur?” This quest         actors resulting from a
                                                                                                                                                     in the form of an
for the truth can be confounded if a         helicopter accident while
                                                                                                                                                     enhanced level of
criminal investigation begins.               filming The Twilight Zone
                                                                                                                                                   and responsibility.
Process                                           After the District Court
                                                                                                                                                   Fear of criminal
    The National Transportation              in the ValuJet case sentenced
                                                                                                                                                 penalties could spur
Safety Board (NTSB) excludes                 the maintenance company to
                                                                                                                                                air carriers to promote
lawyers from its investigation               pay several million dollars in
                                                                                                                                              training and safety,
process. Through an independent              fines on the criminal counts, the
                                                                                                                                           while heightening quality
investigation, the NTSB uncovers             11th Circuit on appeal reviewed
                                                                                                                                        and reducing accidents.
facts related to the accident,               the criminal charges, and came to
                                                                                                                                    However, this argument is not
determines probable cause, and               the conclusion that the maintenance
                                                                                                                                based in fact. The potential for civil
makes safety recommendations.                company and its employees did not
                                                                                                                                lawsuits already accomplishes these
                                             intend to kill the ValuJet passengers.
                                                                                           Considering the amount of data       objectives, so as to obviate the need
    The FAA and NTSB jointly use             Because the district court improperly
                                                                                        compiled by the FAA and NTSB            for imposing criminal liability. Air
five different actions to enforce the        relied on the hazardous materials
                                                                                        regarding air disasters, an aviation    travel’s safety record, along with the
Federal Aviation Act of 1958 and the         regulations for the criminal charges,
                                                                                        mechanic’s silence for fear of criminal lack of any recent aviation-related
Federal Aviation Regulations (FARs): the convictions on the reckless counts             charges would have a tremendously       criminal charges appears to support
(1) administrative actions,                  were vacated.
                                                                                        negative effect on future accident      the position that exposure to civil
(2) re-examinations,                         effects of criminal liability              investigations and analysis.            liability is enough of a deterrent. The
(3) certificate actions,                          Maintenance companies and the                                                 unimpeded ability to obtain the truth
(4) civil penalties, and                     airman mechanic face a new level           conclUsIon                              when an accident does occur remains
(5) criminal investigations.                 of accountability with the specter of          The aviation world was              most important.
                                                                                       Reinsurance &
6                                                                                      Litigation News

calculating Punitive damages                                                              In its determination of
                                                                                      reprehensibility, the Supreme Court
                                                                                                                               substantial, a lesser ratio, perhaps
                                                                                                                               one equal to compensatory damages,
in california Post-campbell                                                           confronted an important issue – the
                                                                                      conduct that may be considered
                                                                                                                               may be necessary to be found
by James W. Hunt, Eduardo Martorell                                                   for a punitive damages award. The            With regard to the third
                                                                                      plaintiff sought to introduce evidence   guidepost, the Court made clear
the UnIted states sUPreMe                   the degree of reprehensibility is         ranging from 20 years of State Farm      that criminal penalties can be used
coUrt’s decIsIon in State Farm              the most important indicator of           policies that they argued indicated      to determine the seriousness of the
v. Campbell is the latest decision          reasonableness and therefore the          bad faith. The Court rejected such       action, but should not be used to
by the Court reviewing                                  most important factor in      evidence, stressing that a defendant     determine the amount of the award.
the constitutionality                                   the analysis. The Supreme     may only be punished for the type        It warned that the civil process must
of punitive damages                                     Court has provided five       of conduct that harmed the plaintiff,    never be used as a substitute for
awards. Properly applied,                               factors with which to         not for being an unsavory individual     the criminal process because that
the Campbell decision                                   determine the degree of       or business. The Court was careful       would ignore the differences between
is an important tool in                                 reprehensibility, whether:    to clarify that a recidivist may be      the two procedures, including the
controlling excessive                                   (1) the harm was physical     punished more than a first time          heightened burdens of proof unique
punitive damages awards.                                or economic; (2) the          offender, and that therefore, if the     to criminal proceedings.
                                    James W. Hunt                                                                                  Thus the Court held that the
A review of Simon v.                                    conduct showed an             plaintiffs had presented conduct
San Paolo and Johnson                                   indifference to or reckless   of the same type that injured the        punitive damage award was grossly
v. Ford Motor Co., two                                  disregard for the health      plaintiff, the evidence would have       excessive under the 14th amendment.
subsequent California                                   of others; (3) the victim     been considered.                         It reasoned that the compensatory
Supreme Court decisions,                                was financially vulnerable;       Turning to the second guidepost,     award already included a punitive
further demonstrate the                                 (4) the conduct involved      the Court addressed acceptable           component because it was based
Supreme Court’s intention                               repeated actions or was an    ratios between the compensatory          upon emotional distress, and noted
in Campbell, while also                                 isolated incident; and (5)    harm and the punitive damages.           the substantial size of the award.
                                   Eduardo Martorell
providing guidance for the                              the harm was
California courts on this important         a result of intentional
subject.                                    malice or deceit as
                                            opposed to an accident.
State Farm v. Campbell                      The absence of any of
    In 2003, the Supreme Court              the five factors makes
granted certiorari in Campbell              any award suspect,
in order to further explain the             while the presence of
constitutional limits of punitive           any one factor may not
damages that it addressed in BMW            be sufficient to support
v. Gore. In both cases, the Supreme         an award of punitive
Court held that grossly excessive and damages.
arbitrary awards are constitutionally           The Court also
prohibited by the due process clause        discussed the difference
of the 14th amendment because such          between compensatory
awards do not provide tortfeasors           and punitive
with fair notice of the severity of         damages, stating that
the penalty a State may impose for          compensatory damages
certain conduct. The constitutional         are to make the plaintiff
limitation, however, does not usurp         whole, while punitive
the discretion States have with regard damages are aimed at
to awarding punitive damages, it only deterrence, punishment,
delineates the issues that must be          and retribution.
considered in order to avoid violating
due process.                                application of the
    The Court in Campbell provided          guideposts in
three “guideposts” for deciding             campbell
the constitutionality of punitive               In Campbell, the wrongful             Without creating a bright line ratio,    Consequently, the Court ruled that
damages awards: (1) the degree of           conduct involved the defendant            the Court noted that few awards          the punitive damages in the case
reprehensibility of the defendant’s         State Farm’s bad faith refusal            exceeding a single digit ratio to a      should be at or near the amount of
misconduct; (2) the disparity               to settle a third party tort suit         significant degree will satisfy due      compensatory damages.
between the actual or potential             against their assured. The jury           process. Thus, ratios greater than
harm suffered by the plaintiff and          awarded the plaintiffs $1 million         that amount may only comport with        california supreme court’s
the punitive damages award; and (3) in compensatory and $145 million                  due process if involving especially      application of campbell
the difference between the punitive         in punitive damages. In ruling the        egregious conduct combined with a        and the guideposts
damages and the civil penalties             award to be grossly excessive and         small amount of economic damages.           In Simon v. San Paolo and
imposed in comparable cases.                unconstitutional, the Court analyzed      The court concluded by stating that,     Johnson v. Ford Motor Co., the
    Of these three guideposts,              the case under the three guideposts.      where compensatory damages are           California Supreme Court addressed
                                                                                                                                               CONTINUED ON PAGE 8
                                                                                       Reinsurance &
                                                                                       Litigation News                                                                  7
                                                                                                                                  a duty to the employee’s son. In Zimco
new york high court finds no                                                          argued that there was a duty of care
                                                                                      because the Port Authority was a            v. American Cyanamid, the court
employer duty for secondhand                                                          premises owner. The Court noted that
                                                                                      a landowner must use reasonable care
                                                                                                                                  noted that “a ‘no duty’ defense in a
                                                                                                                                  negligence case is seldom appropriate,”
asbestos exposure                                                                     An employer was not responsible when an employee’s
by richard c. Milazzo, Suzanna Morales                                                spouse contracted an asbestos-related disease.
                                                                                      in activities on its premises in order to   and the defendant’s duty was “the
In IN Re NYC ASbeStoS                     reinstated plaintiffs’ cause of action,
                                                                                      protect people outside of the premises      general duty to act reasonably in view
LItIgAtIoN (decided Oct. 27, 2005)        and distinguished Widera because it
                                                                                      (the community at large). Relying on        of the foreseeable risks of danger to
The New York Court of Appeals             involved liability toward an infant in
                                                                                      this theory, the Holdampfs maintained       household members of its employees”
(New York’s highest court) in a 6-0       utero. The Appellate Division also
                                                                                      that the Port Authority negligently         through asbestos brought home by
decision, held that an employer was       granted leave to appeal to the New
                                                                                      allowed asbestos to “leave its sites.”      the employer. Therefore, like Olivo,
not responsible when an                            York Court of Appeals.
                                                                                      However, the Court of Appeals did           it appears that Zimco determined
employee’s spouse contracted                                                                                                      duty based upon foreseeability, which
                                                      the court of appeals            not agree.
an asbestos-related disease                                                                                                       the New York Court of Appeals in
                                                      decision                            The Court of Appeals also
allegedly caused by asbestos                                                                                                      Holdampf specifically stated is not
                                                          The Court of Appeals        distinguished Olivo v. Exxon Mobil
brought home on her                                                                                                               used to establish duty.
                                                      held that the Port Authority    Corp., a New Jersey appellate decision
husband’s work clothes.                                                                                                               Finally, the Georgia Supreme
                                                      owed no duty to Mrs.            involving similar facts, in which the
background                       richard c. Milazzo    Holdampf because there         landowner was found responsible             Court, in CSX Transportation Inc. v.
    Elizabeth Holdampf                                 was no relationship            because the duty of care was extended       Williams, relied upon Widera v. Ettco,
contracted mesothelioma, a                            between the Employer and        to manufacturers and suppliers of           to rule that there was no employer
fatal lung cancer associated                          the non-employee spouse.        asbestos. In distinguishing Olivo,          duty to a non-employee for secondary
with asbestos exposure,                               The Holdampfs argued            the Court of Appeals noted that             asbestos exposure.
allegedly as a result of,                             that the Port Authority was     manufacturers and suppliers did not         conclusion
laundering her husband’s                              in a position to control or     have the same duty in New York.                 Although this matter involves the
work clothes while he was                             prevent Mr. Holdampf from       Further, Olivo relied on foreseeability,    duty of a premises owner, and not the
employed at the Port              Suzanna Morales      going home with asbestos-      which, in New York, is not used to          duty of manufacturers and suppliers
Authority of New York                                  contaminated clothing, or at   determine whether a duty exists, but,       of asbestos, the decision in In re New
and New Jersey from 1960 to 1996.           least to warn employees and, through      instead, is used to determine the scope     York City Asbestos Litigation represents
Her husband allegedly handled               the employees, to warn household          of a duty once it is found to exist.        a positive development from the
products that contained asbestos            members. The Court, however, found                                                    standpoint of insurers. It appears that
while employed by the Port Authority. that the Port Authority was actually            decisions in other states
                                                                                                                                  courts in various states will continue
Ms. Holdampf filed suit for damages         dependant upon Mr. Holdampf’s                 Courts in other states have recently
                                                                                                                                  to deal with this issue, likely with
against the Port Authority.                 compliance with “risk-reduction           ruled on the issue of employer duty
                                                                                                                                  differing outcomes.
                                            measures.” For example, the Port          for secondhand exposure, with
Procedural history                          Authority had a laundry service, but      varying results. As noted above, the
    The Port Authority moved for            Mr. Holdampf only used the service        New Jersey Superior Court Appellate
summary judgment in the New York            approximately half of the time.           Division in Olivo held that such
County Supreme Court, relying on an             Further, the Holdampfs suggested      a duty exists. The matter is
Appellate Division decision, Widera v.      that the Port Authority “arguably” had    currently pending before the
Ettco Wire & Cable Corp., which held        some relationship to Mrs. Holdampf as     New Jersey Supreme Court,
that an employer does not owe a duty        the beneficiary of her husband’s work-    and was argued on January
to non-employees. The Supreme Court related benefits. The court, however,             18, 2006.
granted the Port Authority’s motion.        found no support for this claim.              Likewise, the Court of Appeal of
However, the Appellate Division                 Alternatively, the Holdampfs          Louisiana held that an employer had

CONTINUED FROM PAGE 4                     statement of cash flow no older than        claims, if the reinsurer had no             that the Department of Insurance
MAjOR REvIsIONs TO REINsURANCE            120 days old. This section will go into     reasonable basis for its decision,          failed to adequately consider the
ACCOUNTING REGUlATIONs...                 effect one year after the regulations are   or it failed to conduct a good faith        economic impact of the changes, as
                                          enacted, and therefore are likely to take   investigation of the claim.                 they are required to do. Insurers and
intermediary, then a reinsurance          effect in July 2007.                                                                    Reinsurers are seeking changes to the
intermediary must be authorized                                                       conclusion                                  proposed regulations which would
by the Insurance Commissioner. In         overdue reinsurance                             If approved by the California           more closely align them with the
order to obtain such authorization,           Paid losses and expenses which          agency overseeing the adoption of           NAIC Model Act. We understand that
a reinsurance intermediary must           are due more than 90 days from a            regulations, they are likely to be          in response to industry opposition
provide a financial statement for the     reinsurer to a domestic California          effective in July 2006. However, there      to the rules, the DOI is considering
last three years, a copy of an external   insurer may be required to be reported      has been significant opposition             rewriting some of the provisions
and internal audit report no older        as non-admitted assets. Moreover,           by cedants and reinsurers to the            which could well delay the proposed
than three years old from the time of     California licensed reinsurers may be       changes. In recent public hearing           July effective date.
application, or an unaudited balance      deemed to act in bad faith, and fined       insurance industry representatives              Stay tuned for further
sheet, income statement, and a            for their refusal to pay reinsurance        have made very credible arguments           developments.
                                                                                   Reinsurance &
8                                                                                  Litigation News

CONTINUED FROM PAGE 6                    concluded that the reprehensibility      in a jury verdict of $17,800 in         the amount Ford saved through
CAlCUlATING PUNITIvE DAMAGEs...          was low.                                 compensatory and $10 million in         their fraudulent practices. Although
                                             In applying the second               punitive damages. The appellate         disgorgement is not completely
the topic of punitive damages, in
                                         guidepost, the California Court cited    court reduced the punitive damages      prohibited, it creates the possibility
consideration of Campbell, for the
                                         the Supreme Court’s preference for       to $53,000. The California Supreme      for many problems and therefore,
first time. Both cases, decided on
                                         single digit ratio’s and interpreted     Court reversed the Court of             the Court made clear, should be
the same day, provide an instructive
                                         anything above ten to one to be          Appeal’s decision, not because of       discouraged as a guideline. Thus,
view of the manner in which the
                                         presumptively suspect. They also         the amount of the reduction, but        disgorgement should not normally be
California courts are to apply the
                                         clarified that ratios under ten to       because the appellate court gave        considered in determining the proper
three guideposts.
                                         one are not presumptively valid,         no weight to the reprehensibility       punitive award.
     In Simon, the jury had awarded
                                         because lesser ratios may be found       of Ford’s repeated similar conduct.         In accordance with both
$5,000 in compensatory and $1.7 in
                                         unconstitutional when substantial        The Court explicitly held that          Campbell and Simon, the Johnson
punitive damages against a defendant
                                         compensatory awards that already         similar conduct by the defendant        court also confirmed that the due
who had committed promissory
                                         include a punitive element are           is potentially relevant to the          process limitations on punitive
fraud, but had not committed
                                         involved. The Court then turned to       reprehensibility of the conduct,        damage awards did not usurp the
breach of contract with respect to
                                         explaining the role the defendant’s      and hence to the permissible size       States’ discretion regarding punitive
the proposed sale of a building. The
                                         financial condition plays in the         of an award. The appellate court        damages. Punitive damages, rather,
central issue in the case involved
                                         analysis after Campbell. First, the      erroneously read Campbell to say        can be used by a State to protect the
the question of whether a jury
                                         Court reemphasized the point             that only the specific conduct toward   consuming public, not merely to
may consider uncompensated or
                                         in Campbell that a State may use         the plaintiffs in the case at hand      prevent a private wrong.
potential harm in awarding punitive
                                         punitive damages to punish and           could constitutionally be considered.
damages under the second guidepost,
                                         deter. Therefore the wealth of a         This interpretation came from the       conclusion
the potential harm here being lost
                                         defendant may be considered,             Campbell warning that a defendant          In addition to the ratio guidepost,
profits. The plaintiff argued that his
                                         in order to ensure the punitive          should not be punished solely for       many other factors should and
potential lost profit of $400,000 for
                                         amount is enough to make a               being an unsavory business. Similar     must be considered in determining
the defendant’s failure to sell the
                                         wealthy defendant take notice.           reoccurring conduct, it was held,       whether a punitive damages
building to him should be considered
                                         This is, however, subject to the         is relevant to an assessment of         award withstands constitutional
as the multiplier in the determination
                                         arbitrariness limitation of due          culpability.                            scrutiny. California’s decisions post-
of punitive damages. The jury,
                                         process if it is grossly excessive.          The Court then emphasized that      Campbell are important authority in
however, did not find that a breach
                                         Thus, the wealth of a defendant          although a defendant’s recidivism       understanding the current limits on
of contract had occurred. Instead,
                                         alone may not validate an otherwise      remains pertinent, it did not intend    excessive punitive damages awards.
the jury only found that a fraudulent
                                         unconstitutional award.                  for the $10 million award to be
promise had been made upon which
                                             The Court then provided              reinstated. The jury originally          (The assistance of Ms. Chase Kappel,
the plaintiff detrimentally relied,
                                         direction for the role of appellate      awarded punitive damages of $10          who will be joining our firm’s Los Angeles
thereby incurring expenses.
                                         courts. The Court made it a point        million as a disgorgement of profits,    office in September 2006, is gratefully
     The Court acknowledged that, in
                                         to instruct lower courts to apply        based on plaintiff ’s evidence of        acknowledged.)
some circumstances, consideration of
harm beyond compensatory damages         guidelines without absolutes.
is permitted, because the injury may     Appellate courts are also to

be hard to detect or the monetary        understand that their role is not to
                                         replace the jury, but must only serve

value of noneconomic harm might
be difficult to determine. The Court     as a check on arbitrary awards. For
declined to consider potential           this reason, the appellate courts
harm in Simon, however, because          must only determine what the
lost profits, the Court stated, result   maximum constitutional award is,
from a breach of contract, not from      not set the “right” level itself.
detrimental reliance. Because the            The California Supreme Court
jury had explicitly found no breach      then set the appropriate punitive
of contract had occurred, it was not     award in the case at $50,000, a ten to
                                         one ratio.
proper to consider the potential                                                  Robert M. Mangino, Jr. (New York Office) spoke at
harm in the case. The Court therefore        In Johnson, the defendant, Ford
                                         Motor, fraudulently concealed            the American Conference Institute on February 27, 2006 in
made clear that potential harm is
only to be considered when the harm      the repair records of a used car         New York regarding “Confidentiality and Access to Records in
                                         it sold to the plaintiff, resulting
is likely or intended to occur from                                               Reinsurance Contracts.”
the defendant’s conduct.
     The Court then applied the
three guideposts. With regard
to the defendant’s degree of
                                         contact Information:
reprehensibility, the Court found that   If you wish additional copies of this publication, desire a change in address or addition, or have any other
only one of the five factors applied,    questions, please contact or 212-261-8294 in our New York office.
that the defendant had acted with        750 Seventh Avenue                       725 So. Figueroa Street, 19th Floor            One Newark Center
intentional deceit. Thus, the Court      New York, NY 10019-6829                  Los Angeles, CA 90017-5419                     Newark, NJ 07102-5259
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