REINSURANCE ARBITRATION AWARD CONFIRMED, REACHING RESULT CONTRARY TO PREVIOUS AWARD AGAINST DIFFERENT REINSURER

On March 11, 2014, we reported on the First Circuit’s ruling in a contested arbitration between OneBeacon America Insurance Co. and certain of its reinsurers over reinsured asbestos claims. The reinsurers filed a declaratory relief action, seeking to preclude OneBeacon’s claims based on an adverse ruling that OneBeacon received in a previous arbitration against a different reinsurer. The First Circuit affirmed the order dismissing the action and compelling arbitration, holding that the preclusive effect of a prior arbitration award is an arbitrable issue and not an issue for the court to determine.

The arbitration has concluded and an award in favor of OneBeacon has been reached and confirmed by the court. The award found that the phrase “same causative agency” in the governing multiple line reinsurance treaty permitted OneBeacon to accumulate claims of multiple insureds and cede losses as a single occurrence, notwithstanding a contrary finding of the previous adverse arbitration award. The panel also determined the procedure by which OneBeacon must apply its self-insured retention across multiple treaty years. OneBeacon America Insurance Co. v. National Casualty Co., Case No. 1:14-cv-12570 (USDC D. Mass. Aug. 21, 2014).

This post written by Michael Wolgin.

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COURT REJECTS MANIFEST DISREGARD OF LAW CLAIM

A district court in Pennsylvania has denied a motion to vacate a prior arbitration award based on the arbitrator’s alleged manifest disregard of the law, and instead granted a motion to confirm the award in a case arising out of the termination of the claimant’s employment. The claimant, Mrs. Cartwright, contended that the arbitrators committed manifest disregard of the law when they dismissed her Title VII retaliation claim. The Court found that based on the evidence and testimony from the President and CEO the bank which had employed Mrs. Cartwright, Ms. Cartwright’s own efforts to hinder the company’s planned merger could well have been the reason for her firing. While the Court noted that evidence stood both for and against Ms. Cartwright’s claims, this fact did not mean “that particular claim was a ‘but for’ cause of her dismissal.”

Ms. Cartwright also contended that the arbitrators committed manifest disregard of the law when they awarded damages on her breach of contract claim but dismissed an additional fraud claim. The Court noted that fraud claims can be enmeshed with breach of contract claims. As both the fraud and breach of contract claims were based on the same set of facts, the arbitrators had a basis to bar the fraud claim. Cartwright v. Fidelity Bank, No. 2:12-cv-01502 (W.D.Pa. Sep. 24, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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NLRB REAFFIRMS ITS D.R. HORTON DECISION, RULING THAT EMPLOYMENT AGREEMENTS REQUIRING INDIVIDUAL ARBITRATION ARE UNLAWFUL

On February 16, 2012, we reported on the National Labor Relations Board’s D.R. Horton decision, which ruled that arbitration agreements that are signed as a condition of employment and preclude employees from bringing joint, class or collective claims over working conditions are unlawful. Subsequently, that opinion was rejected by the Fifth Circuit Court of Appeals, on which we reported on December 19, 2013, and disagreed with by other courts. Notwithstanding these adverse court decisions, on October 28, 2014, the NLRB reaffirmed D.R. Horton, ruling that the arbitration agreements of Murphy Oil USA Inc., which barred employees from pursuing class actions, were unlawful. The majority held that Murphy Oil violated the National Labor Relations Act by requiring employees to arbitrate employment claims on an individual basis, and by seeking to enforce its agreements in court after the employee filed a Fair Labor Standards Act suit. While the dissent accused the NLRB of ignoring “clear instructions” from the U.S. Supreme Court about the interpretation of the NLRA and the FAA, the majority disagreed, although it acknowledged that its opinion was likely not “the last word on the subject.” Murphy Oil USA, Inc., Case No. 10-CA-038804 (N.L.R.B. Oct. 28, 2014).

This post written by Michael Wolgin.

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INSURANCE CARRIER BATTLES REINSURER FOR EXPENSES IN ADDITION TO LOSSES

On December 4, 2014, the Second Circuit addressed whether a facultative reinsurance certificate (“certificate”) covering an umbrella policy obligates a reinsurer to indemnify expense payments in addition to losses. The Court found the certificate ambiguous as to whether the reinsurer’s reimbursement liability included expense payments and consequently remanded and vacated the instant action back to the Northern District of New York.

Utica Mutual Insurance Company (“Utica”) issued an umbrella policy to Goulds Pumps Inc. (“Goulds”), exposing the carrier to significant payment obligations stemming from asbestos claims against Goulds. As reinsurer, Munich Reinsurance America, Inc. (“Munich”) paid out $5 million dollars, the limit under the certificate. Utica filed suit for additional unpaid and future expense payments associated with the Goulds’ policy. The trial court granted summary judgment for Munich reasoning that the certificate’s $5 million limit of liability applied to expenses and therefore Munich’s obligation for reimbursement had been met.

Distinguishing prior case law that found certificates “unambiguously expense-inclusive,” the Second Circuit found this certificate ambiguous as to expense-inclusion. They reasoned that Munich’s obligations to Utica for “losses or damages” to the liability limit on the certificate could be construed as specifically excluding expenses. The Court also noted that “settlement payments,” while not expressly included in the liability limit, were considered part of the calculation. The Court remanded the action to allow the trial court to interpret the certificate’s inclusion or exclusion of expenses. Utica Mut. Ins. Co. v. Munich Reins. Am. Inc., No. 13-4170-cv (2d Cir. Dec. 4, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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FEDERAL COURT ISSUES SUBPOENAS FOR USE IN FOREIGN ARBITRATION

A federal judge in New Jersey recently granted an ex parte application for issuance of subpoenas for use in a London arbitration. The court’s basis for the ruling was 28 U.S.C.A. § 1782, the federal statute titled “Assistance to Foreign and International Tribunals and to Litigants Before Such Tribunals.” Without discussion, the court concluded that a proceeding before the London Maritime Arbitrators Association constitutes a “foreign tribunal” for the statute’s purposes. The court found that all of the statutory factors had been met and that the discretionary factors weighed in favor of issuing the subpoenas. In re Application of Owl Shipping, LLC & Oriole Shipping, LLC, No. 14-5655, 2014 WL 5320192 (D.N.J. filed Oct. 17, 2014).

This post written by Catherine Acree.

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APPEAL DISMISSED IN INSTITUTO NACIONAL DE SEGUROS v. HEMISPHERIC REINSURANCE GROUP, L.L.C. ET AL.

We have posted on this case filed against two reinsurance brokers several times.  Since our last posting regarding this case, which reported on the results of the trial, an appeal was filed in Florida’s Third District Court of Appeal.  The appeal has been dismissed pursuant to a joint stipulation. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, LLC, No. 3D14-1590 (Fla. Ct. App. Nov. 14, 2014).

This post written by Kelly A. Cruz-Brown.

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REINSURER’S LIABILITY CAPPED AT AMOUNT STATED IN LIABILITY CLAUSES

In a case on which we previously reported on January 29, 2014, a federal court in New York recently ruled that a reinsurer was not required to pay amounts in excess of the sums stated in the Liability Clauses of two facultative certificates, even though the word “limit” was not used. Rather, the reinsurer’s liability was stated as a percentage share of the underlying policy limit. The reinsured argued that certain defense expenses must be reimbursed, even though they exceeded the agreed-upon percentage share, because the facultative certificates were silent on whether defense expenses count toward the amount reinsured. Applying Second Circuit and New York law, the court concluded that the contract was unambiguous and that the reinsurer’s overall liability for both indemnity and defense expenses was capped at the amount stated in the Liability Clauses of the facultative certificates. The Court ruled that a percentage share of an underlying policy limit is itself a limit on liability. The court also denied the reinsured’s request for discovery regarding the “custom and practice” related to limit-of-liability provisions in reinsurance contracts. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Nov. 20, 2014).

This post written by Catherine Acree.

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COURT REVERSES DENIAL OF PETITION TO COMPEL ARBITRATION

In Mahmud v. Ralph’s Grocery Company, No. B237636 CA 2/4 (Nov. 10, 2014), the California Second Appellate District reversed and remanded a trial court denying the petition of an employer (Ralph’s) to compel arbitration of a wage dispute with its former employee (Mahmud), which also includes certification of multiple classes of similarly situated Ralph’s employees. The California Second Appellate District relied upon the U.S. Supreme Court’s opinion in AT&T Mobility L.L.C. v. Concepcion, 563 U.S. ___,131 S.Ct. 1740 (2011), which effectively overruled Gentry v. Superior Court, 42 Cal.4th 443 (2007) and concluded that the National Labor Relations Act did not override the FAA. Furthermore, the Court determined that Mahmud would not prevail on demonstrating that Ralphs’ arbitration policy was unconscionable on both procedural or substantive grounds because she presented no evidence of the circumstances surrounding her application for employment or her decision to sign the arbitration agreement and failed to cite to any provisions of the arbitration policy to explain how the arbitration procedures set forth in the policy demonstrate unconscionability.

This post written by Kelly A. Cruz-Brown.

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COURT REJECTS CLAIMS OF ATTORNEY CLIENT AND WORK PRODUCT PRIVILEGE IN COMMUNICATIONS BETWEEN INSURER AND REINSURER

An Iowa federal district court addressed the alleged privileged relationship between an insurer and its reinsurer in the context of two discovery requests involving communications between Progressive Casualty Insurance Company and its reinsurers. Progressive disputed coverage under a directors and officers policy issued to its insured, Vantus Bank, following a suit by the FDIC against Vantus Bank’s directors and officers.

The first discovery issue involved Progressive-redacted portions of pre-litigation communications with its reinsurers on the basis of attorney-client and work-product privileges in response to the FDIC’s discovery requests. Progressive argued the communications contained opinion work-product information pertaining specifically to anticipated, and ultimately filed, coverage litigation involving Vantus, its officers and directors, and the FDIC. The documents included litigation and mediation strategies and reserve information which had previously been held as protected from disclosure. In response, the FDIC claimed the documents were prepared in the ordinary course of business and therefore not protected. Both the court disagreed with Progressive, holding that the documents were not protected from discovery because were not prepared in anticipation of litigation nor did they contain the lawyer’s mental impressions. The court cited Progressive’s admission that the documents were prepared in the ordinary course of business; that the documents at issue were in the nature of business planning documents; that neither Progressive nor the reinsurers were involved in giving legal advice or in mapping litigation strategy; and the communications served numerous business functions. The court also held that the same rationale applied to specific portions of the documents which Progressive argued were protected even if the entire document was not.

The second discovery issue concerned the production of certain documents which Progressive asserted were protected by the attorney-client privilege but which Progressive had previously disclosed to its reinsurers and brokers. Progressive asserted it shared a common interest with its reinsurers such that its voluntary disclosure of those documents did not waive the privilege. The court again disagreed, holding that Progressive and its reinsurers did not hold a common legal interest. The relationship between them was a commercial and financial one – not legal. Moreover, the court rejected the argument that “if Progressive loses, so do its reinsurers,” concluding that the nature of the reinsurance business in and of itself did not give rise to a common legal interest. Progressive Casualty Insurance Co. v. FDIC, No. C12-4041-MWB (USDC N.D. Iowa Aug. 22, 2014).

This post written by Leonor Lagomasino.

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U.K. TRIBUNAL FINDS BROKER ALLIANCE DOES NOT FALL WITHIN VAT EXEMPTION FOR INSURANCE-RELATED SERVICES BY BROKERS AND AGENTS

An upper tribunal in the United Kingdom has dismissed an appeal brought by Westinsure, an alliance of brokers formed to provide introductions and improve the business terms of its members, where Westinsure argued its services were tax exempt under a VAT Directive. That Directive exempts insurance and reinsurance transactions including “related services performed by insurance brokers and insurance agents.” The issue was whether Westinsure, which provides its member brokers commercial buying power, regulatory compliance assistance, and other business support, acts as a broker or agent when supplying these services. The tribunal found Westinsure’s services are not of a broker or agent and therefore not exempt under the VAT Directive or the Value Added Tax Act of 1994 (VATA). The tribunal further found that while Westinsure’s services are related to the supply of insurance, they did not have a sufficiently close connection to the insurance transactions themselves to come within the VAT exemption. Westinsure Group Ltd. v. Commissioners for Her Majesty’s Revenue and Customs, [2014] UKUT 00452 (TCC) Appeal No. FTC/96/2013 (Upper Tribunal (Tax and Chancery Chamber) Oct. 13, 2014).

This post written by Renee Schimkat.

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