Reinsurance Update

In 2005, then-Attorney General Eliot Spitzer led a bid-rigging probe against Marsh & McClennan, Aon, and Willis Group Holdings alleging that their practice of accepting contingent commissions from insurance companies was anticompetitive.  Attorney General Spitzer negotiated a Settlement Agreement, also approved by the Attorneys General of Illinois and Connecticut, under which the brokers paid hundreds of millions of dollars and were banned from accepting contingent commissions.  Although these brokers have been operating under these restrictions for the last five years, the New York State Insurance Department now contends that the settlements have caused the country's biggest brokers to operate "under different rules from the majority of brokers nationwide."

To remedy this discrepancy, the New York State Insurance Department announced last week that it had entered into an Amended and Restated Settlement Agreement with the three brokers to eliminate the ban on contingent commissions.  (Late last year, the state of Illinois released the fourth broker, Arthur J. Gallagher & Co. from its own contingent fee ban).  In announcing the repeal, the New York State Insurance Department stated that lifting the ban would provide "a level playing field for insurance intermediaries on which they can easily be compared."  In addition, the amended settlement requires the brokers to immediately begin to abide by the Insurance Department's new regulations, scheduled to go into effect in 2001, that require disclosure of contingent commissions.  These regulations also require brokers to reveal the amount of  their compensation, if requested to do so by their clients.

Supreme Court Defines "Place Of Business" For Purposes Of Personal Jurisdiction
Hertz Corp. v. Friend et al., Case No. 08-1107, Feb. 23, 2010

In Hertz Corp. v. Friend, No. 08-1107, the Court considered whether the location of a nationwide corporation’s headquarters can be considered for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. § 1332. Plaintiffs brought a class action suit against Hertz in a California state court and Hertz sought to remove the case to a federal district court based on diversity jurisdiction. The Plaintiffs, California citizens, argued that there was no diversity of the parties because Hertz was also a California citizen. Hertz argued that its principal place of business was in New Jersey where its corporate headquarters were located. The district court found that it lacked diversity jurisdiction because it determined that California was Hertz’s principal place of business and not New Jersey as Hertz had argued. The Ninth Circuit affirmed. The Supreme Court reversed and remanded, holding that a corporation’s principal place of business refers to the place where the corporation’s officers "direct, control, and coordinate the corporation’s activities."Justice Breyer delivered the opinion for a unanimous Court.

House Bill Would Eliminate Certain Reinsurance Premium Tax Deductions

A bill pending in the U.S. House of Representatives, H.R. 3424, calls for a repeal of the deduction for  insurance companies' excess non-taxed reinsurance premiums paid to affiliates.  The law currently allows U.S.-domiciled insurers to reinsure U.S. risks with a foreign affiliate  with no taxes on the profits when the affiliate is in a low-tax or no-tax country.
 
The bill appears to have wide support from wholly-domestic U.S. insurers  because it would eliminate tax advantages currently enjoyed by U.S. insurers with foreign affiliates.

John Jacobus, 202.429.6276 or jjacobus@steptoe.com
Jon Neumann, 602.257.5220 or jneumann@steptoe.com

For information regarding Steptoe's Government Affairs & Public Policy Group, please contact:

Scott Sinder, 202.429.6289 or ssinder@steptoe.com