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FEDERAL COURT REMANDS ACTION TO CONFIRM ARBITRATION AWARD: NO SUBJECT MATTER JURISDICTION

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A federal court in California recently rejected efforts to remove a state court arbitration confirmation proceeding to federal court. The underlying royalties dispute had been addressed in an arbitration, and ultimately the dispute arrived in California state court in a proceeding to confirm the arbitration award. The defendant opposed the petition for confirmation and filed a separate petition to vacate or modify the award. That pleading included a count for “Declaratory Judgment for No Liability under Federal Patent Laws.” Based on the assertion of federal relief in its own petition, the defendant filed a notice of removal. The federal court rejected the defendant’s assertion of jurisdiction and remanded the case back to state court. The court concluded that there was no subject matter jurisdiction — despite the patent-related request for relief — due to the limited nature of the proceedings before the state court. The court determined that the declaratory judgment count did not belong in the state court action in the first place, and it ruled that issues of patent law need not be decided to resolve the limited issues presented in the case. In sum, the court refused to allow the defendant “to create jurisdiction where none can possibly exist in order to bring a properly-situated case before a new forum.”

Amkor Tech., Inc. v. Tessera, Inc., 5:14-CV-03604 EJD, 2014 WL 4467715 (USDC N.D. Cal. Sept. 9, 2014).

This post written by Catherine Acree.

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COURT DETERMINES REINSURER OBLIGATION TO PAY FOR COMBINED LOSS AND EXPENSE CAPPED AT THE DOLLAR AMOUNT STATED IN THE REINSURANCE ACCEPTED SECTION OF CERTIFICATE OF REINSURANCE

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The United States District Court for the Southern District of New York granted partial summary judgment to plaintiff reinsurer seeking a declaration that the dollar amount stated in the “Reinsurance Acceptance” section of each of nine certificates of reinsurance caps the maximum amount that the reinsurer can be obligated to pay for combined loss and expenses.

The reinsurance certificates at issue in this case contained a “Subject to Clause” stating that the reinsurance was in consideration of the payment of premium and subject to the terms, conditions and amount or limits of liability set forth in the certificate and a “Reinsurance Accepted” section that stated a dollar amount of liability. The court relied upon the plain language of the certificates of reinsurance and the Second Circuit’s binding precedent in Bellefonte Reinsurance Co. v. Aetna Cas. And Sur. Co., 903 F.2d 910, 913 (2d Cir. 1990) and Unigrad Security Ins. Co. v. North River Ins. Co., 4 F.3d 1049, 1070-71 (2d Cir. 1993).

The court noted that the relevant language in the certificates of insurance at issue in this case were nearly identical to the language relied upon by the Second Circuit in Bellefonte and that the Bellefonte and Unigard courts made clear that all other contractual language must be construed in light of the certificate limit because to do otherwise would negate the reinsurance certificate language that the reinsurance is subject to the terms, conditions, and amount of liability set forth in the certificate. The court further noted that if the parties intended to exclude expenses from the total liability cap, the parties could have made that clear in the certificate language.

The court also rejected the defendant’s arguments that the “follow the fortunes” doctrine or the “in addition thereto” language in the reinsurance certificates obligated plaintiff reinsurer to pay for expenses above the certificate limit. The court again relied on Bellefonte, which held that neither the “follow the fortunes” doctrine nor the “in addition thereto” language in the reinsurance certificates exempted defense costs from the clauses limiting the reinsurers’ overall liability under the certificates, as all costs were subject to the express caps on liability set forth in the certificates. Global Reinsurance Corporation of American v. Century Indemnity Company, 1:13-cv-06577-LGS (USDC S.D.N.Y. August 15, 2014).

This post written by Kelly A. Cruz-Brown.

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RHODE ISLAND DIVISION OF INSURANCE AMENDS CREDIT FOR REINSURANCE REGULATION

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Effective September 2, 2014, Insurance Regulation 59 entitled “Credit for Reinsurance” is amended to update the regulation to the current version of the National Association of Insurance Commissioners (NAIC) Model Regulation and to make changes necessitated by amendment of Rhode Island’s Credit for Reinsurance Act, R.I. Gen Laws § 27-1.1-1 et seq.

The amendments to Insurance Regulation 59 also include the adoption of Forms CR-1, entitled “Certificate of Certified Reinsurer,” CR-F parts 1 and 2 entitled “Assumed Reinsurance as of December 31, Current Year” and “Ceded Reinsurance as of December 31, Current Year,” and CR-S entitled “Reinsurance Assumed Life Insurance, Annuities, Deposit Funds and Other Liabilities Without Life or Disability Contingencies, and Related Benefits Listed by Reinsured Company as of December 31, Current Year.”

This post written by Kelly A. Cruz-Brown.

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NEW YORK FEDERAL COURT ALLOWS ATTORNEY DISQUALIFICATION CLAIM TO PROCEED

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A New York federal court recently denied a motion to dismiss a claim filed by two reinsurers, Employers Insurance Company of Wausau and National Casualty Company. The claim sought a declaration disqualifying Hunton & Williams as counsel for their reinsured, Utica Mutual Insurance Company, in a subsequent arbitration dispute concerning the reinsurers’ obligations for the amounts paid in an underlying settlement. Hunton & Williams had represented Utica in negotiating the underlying settlement and in litigating coverage issues against Utica’s insured. The reinsurers argued that, in the underlying litigation, Utica had a “common interest” with its reinsurers to minimize the liability to Utica’s insured; therefore, the Hunton & Williams attorneys, in effect, represented the reinsurers’ interests in the underlying litigation. The reinsurers argued that the rules of professional conduct prohibit the attorneys from representing Utica in the subsequent arbitration because such representation was adverse to them. The district court concluded that the reinsurers had stated a valid claim to disqualify the attorneys based on the rules governing concurrent and successive representation, noting that even if the reinsurers were not the clients of Hunton & Williams in the “traditional sense,” an inquiry into the potential conflict was still warranted. The court also found that the reinsurers had plausibly alleged that the “witness-advocate” rule may apply in the case because the attorneys may be called as witnesses in the arbitration proceeding to testify concerning the reasonableness of the underlying settlement.

Utica Mutual Ins. Co. v. Employers ins. Co. of Wausau and Nat’l Cas. Co., No. 6:12-CV-1293 (USDC N.D. N.Y. Sep. 22, 2014).

This post written by Catherine Acree.

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ARBITRATION CLAUSE FOUND UNENFORCEABLE IN SERVICE CONTRACT ACTION

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Reversing the lower court, the Supreme Court of New Jersey found an arbitration provision in a service contract was unenforceable because it failed to notify the consumer clearly and unambiguously that, by entering into the agreement, the consumer was waiving the right to seek relief in a court of law. In this case, the arbitration clause stated that either party may submit any dispute “to binding arbitration”; that “the parties shall agree on a single arbitrator to resolve the dispute”; and that the arbitrator’s decision “shall be final and may be entered into judgment in any court of competent jurisdiction.” Basing its decision on the principle that an effective waiver requires a party to have full knowledge of his legal rights and intent to surrender those rights, the court found that the arbitration provision at issue failed to explain that the plaintiff was waiving her right to seek relief in court, what arbitration is, or how arbitration is different from a proceeding in a court of law. Patricia Atalese v. U.S. Legal Services Group, A-64-12 (072314) (N.J. Sept. 23, 2014).

This post written by Leonor Lagomasino.

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