“This is a public court…It belongs to the citizens. I believe in hearing everything in open court if I can.”
Federal District Judge L.T. Senter, Bossier v State Farm
Open court is not a place where Judge Senter presides. Instead, it is the envelope of the litigation process – the structural architecture holding together our system of justice for all.
Like the envelope of homes that stood against Katrina’s wind and water, not all damage to our system of justice is visible to the naked eye.
Neither was the damage to the Bossier’s home. Continuing with the analogy, tort reform and other system changes simply hide the cracks. What is needed is change that strengthens the structural architecture of the envelope, Open court – change that Judge Senter can make:
Modify the Mediation Order so that the period of mediation immediately follows the filing of a Complaint and Answer.
Improve the quality and oversight of the mediation process and require plaintiffs to attend a pre-mediation session conducted by the court that fully explains the process.
Require all motions for a protective order to fully comply with the Rules requiring specificity in the documentation of “good cause” and deny any that do not with prejudice.
Insist settlement conferences are documented with the technology used for video depositions and privately review the tapes before sealing.
I sometimes pinch myself someone as financially sophisticated as Mr CLS posts with us on Yahoo Allstate. Before I get to his post there is one concept that must be understood in reinsurance. Under traditional reinsurance the ceding party (such as State Farm) gets to take a credit on their balance sheets for the risk transferred to the reinsurer for the amount of reinsurance purchased. A problem with Cat Bonds is the lack of specific attachment points in loss payments (unlike traditional reinsurance) means the collection of the cat bond trust proceeds is de-coupled from the amounts actually paid to the insureds for their losses making it possible for an unsavory insurer to both collect for losses via the Cat bonds and stiff their insureds.
So what happens when traditional reinsurance is then backed by Cat bonds for a homeonwers policy which was also bundled and sold via securitization (think life settlements)? Mr CLS asked that exact question this morning and as per usual he followed the money to Bermuda:
Securitization for HURRICANE risks ABOVE the Hurricane Storm Surge water line.
“If I couldn’t differentiate between wind and water, I could NOT pay”, said adjuster Matthew Thiele.
The final version said “When the investigation indicates that the damage was caused by excluded water and the claim investigation does not reveal independent windstorm damage to separate portions of the property, there is NO COVERAGE available under the homeowners policy.
So where is the “Transfer of risk” through securitization?
What was the “credit” taken on liability balance sheets or off balance sheets for this transfer of risk?
Would a balance sheet credit be taken (say in the securitized HO policy of Bossier) for:
a) $2,300 (the initial payment loss)
b) $93,480 (the supplemental payment 4 years later)
c) $650,000.00 (the full policy limits)