Alex Silverman

This case arises from a protracted dispute between Applied Underwriters Captive Risk Assurance Co. and Milan Express Co. over amounts Milan allegedly owed Applied Underwriters under a reinsurance participation agreement. The agreement had an arbitration clause requiring arbitration under American Arbitration Association (AAA) rules. The parties had also executed a separate request to bind coverages and services, which had its own arbitration clause requiring arbitration under JAMS rules and in conformity with the Arbitration Act of the State of Nebraska.

A dispute resulted in Applied Underwriters initiating arbitration before the AAA based on the arbitration clause in the reinsurance participation agreement. That arbitration ended with a final award that the clause was unenforceable due to a Nebraska statute prohibiting arbitration clauses in insurance contracts. Applied Underwriters subsequently initiated a new arbitration, asserting the same claims, only this time before JAMS, based on the binder clause. Meanwhile, Applied Underwriters also commenced this litigation in Nebraska state court, in response to which Milan moved to stop the JAMS arbitration. Citing the AAA award deeming the arbitration clause in the reinsurance participation agreement unenforceable, the lower court granted Milan’s motion to end the arbitration on issue and claim preclusion grounds. Applied Underwriters appealed, relying on certain differences between the two arbitration clauses.

On appeal, the court rejected Applied Underwriters’ contention that the binder clause was enforceable despite the AAA award invalidating the arbitration clause in the reinsurance participation agreement, finding no meaningful distinction between the two clauses as it pertained to their enforceability. Because a panel of AAA arbitrators had already determined the arbitration clause in the reinsurance participation agreement to be invalid and unenforceable under Nebraska law, the appellate court agreed with Milan that the issue of the binder clause’s enforceability was barred from further consideration based on issue and claim preclusion principles. The court therefore affirmed the lower court’s order stopping the JAMS arbitration.

Applied Underwriters Captive Risk Assurance Co. v. Milan Express Co., No. A-18-570 (Neb. Ct. App. Mar. 17, 2020).

Petitioner, Catalina Holdings (Bermuda) Ltd. was involved in a reinsurance dispute with Legion Indemnity Co., an insolvent insurer, and its liquidator, Robert Muriel, acting director of insurance of the state of Illinois. Following an arbitration hearing, the panel issued an initial award that Muriel/Legion must pay Catalina $76,000 in unpaid premiums. After further briefing, the panel issued a final award granting Catalina an additional $437,501.04 in “costs,” which consisted of attorneys’ fees and expenses. Catalina moved to confirm the award in the Northern District of Illinois. Muriel moved to vacate or modify as it related to the award of attorneys’ fees.

The court denied Muriel’s motion, finding that the panel did not exceed its authority by awarding attorneys’ fees on a noncontractual basis, or any other bases. The arbitration clause at issue allowed the arbitrators to award “interest and costs” but was silent as to what “costs” may include. Noting that arbitrators are “pretty much at large in the formulation of remedies” when the arbitration clause is silent in that regard, the court disagreed with Muriel/Legion that the word “costs” left “no possible interpretive route to the award of attorneys’ fees.” The court also distinguished Seventh Circuit cases setting aside awards for lacking a contractual basis, finding that the arbitrators in those cases ignored contract language that was “clear, unambiguous, and not silent.” Under the circumstances here, the court found no basis to vacate. Further, since the panel had specifically invited briefing on the issue of attorneys’ fees before issuing the final award, the court found no basis to modify the final award under section11(b) of the Federal Arbitration Act. Catalina’s motion to confirm was therefore granted, and Muriel’s motion was denied in its entirety.

Catalina Holdings (Bermuda) Ltd. v. Muriel, No. 1:18-cv-05642 (N.D. Ill. Apr. 6, 2020).

The Seventh Circuit affirmed a district court order that the defendant waived its right to arbitrate by withdrawing a venue-based arbitration argument from its motion to dismiss. The arbitration clause in a joint venture agreement between the parties stated that “[a]ny matter in dispute, and which is not provided for in this agreement, shall be submitted to arbitration.” The plaintiff filed suit after a dispute arose, and the defendant moved to dismiss on various grounds, although it did not assert the arbitration provision. The district court ultimately granted the motion on jurisdictional grounds that were later cured. The defendant then moved to dismiss again, this time asserting improper venue based on the arbitration provision. Plaintiff’s counsel then wrote to defendant’s counsel demanding that the arbitration argument be withdrawn on the ground that it was waived, having not been asserted in the defendant’s first motion to dismiss. The argument was withdrawn the same day. One month later, the defendant moved to compel arbitration, claiming its earlier arbitration argument was not decided.

The district court denied the motion to compel based on express waiver and found no grounds to allow the defendant to rescind that waiver under these circumstances. The Seventh Circuit agreed, finding that withdrawing the arbitration argument was a litigation choice “inconsistent with the right to arbitrate.” The court was sure to note that a party does not automatically waive the right to file a motion to compel arbitration by failing to do so immediately. Here, however, “[h]aving put the arbitration card on the table and then taken it back,” the court held that the defendant “was not permitted to play that card again later.”

Brickstructures, Inc. v. Coaster Dynamix, Inc., No. 19-2187 (7th Cir. Mar. 11, 2020).

Plaintiffs, former shareholders of a holding company for two New Jersey-based insurance companies, sued various affiliates of Aon Risk Services Companies alleging that Aon was negligent in failing to secure insurance coverage after the plaintiffs became obligated to indemnify the insurance companies for losses arising from a reinsurance program gone wrong. Aon moved to dismiss for lack of personal jurisdiction. In opposition, the plaintiffs argued that there was general jurisdiction over one of the Aon entities based on a “consent” theory. The court disagreed, finding that the U.S. Supreme Court’s decision in Daimler “precludes the exercise of personal jurisdiction over a corporation simply because the corporation is registered to do business in New Jersey.”

The plaintiffs also argued that there was specific jurisdiction over each of the defendants, including because Aon allegedly “agreed to notice claims under an insurance policy that primarily insured against a New Jersey risk.” Again, the court disagreed, finding that none of the Aon entities had sufficient contacts with New Jersey to confer jurisdiction. The court emphasized that any contact Aon had with New Jersey was “fortuitous” and did not stem from a “deliberate targeting” of the state but rather from the “unilateral activity” of a third party. The court therefore granted Aon’s motion to dismiss without prejudice.

Ferguson v. Aon Risk Services Companies, Inc., No. 3:19-cv-09303 (D.N.J. Feb. 26, 2020).

Defendants, Certain Underwriters at Lloyd’s and its third-party claims administrator, CJW & Associates, sought to enforce a mandatory arbitration clause in a Lloyd’s policy issued to the plaintiffs. Enforcement of the provision depended on the interplay between four laws: (1) a Washington statute barring mandatory arbitration clauses in insurance contracts; (2) Article II, Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which requires courts to enforce arbitration agreements; (3) the McCarran-Ferguson Act, which provides that state insurance law preempts any conflicting “Act of Congress”; and (4) Chapter 2 of the Federal Arbitration Act (FAA), which Congress amended to implement the Convention as it relates to disputes involving foreign parties.

Lloyd’s being a foreign party, the question before the Washington district court was whether amending Chapter 2 of the FAA was an “Act of Congress” within the meaning of the McCarran-Ferguson Act. If so, then the Washington insurance law would preempt the Convention and bar enforcement of the arbitration clause in the Lloyd’s policy.

While recognizing that federal courts have reached diverging conclusions on the issue, the court was persuaded by a California decision finding that the word “shall” in Section 3 of the Convention expressly directs courts to enforce arbitration agreements and thus gives Section 3 “automatic effect.” In other words, Section 3 was “self-executing,” and, consequently, no “Act of Congress” was necessary for it to be enforced. As such, the court held that the McCarran-Ferguson Act did not apply and that the arbitration clause at issue was not invalidated by Washington law. The court went on to find the clause enforceable under the Convention, as limited by Chapter 2 of the FAA. Although an issue arose as to the requirement that at least one party to the arbitration agreement not be an American citizen, the court found the commercial relationship between the parties was sufficiently tied to a foreign state, as the policy was underwritten by the London insurance market, which was created and remains governed by Parliament. Even though CJW was a nonsignatory to the Lloyd’s policy, as Lloyds’ claims administrator, the court found CJW had acted as Lloyd’s agent and thus was permitted to invoke the policy’s arbitration clause.

CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Ga., LLC, No. 3:19-cv-05785 (W.D. Wa. Dec. 26, 2019).