A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).
COURT AFFIRMS INTERPRETATION OF AVIATION REINSURANCE CONTRACTS TRIGGERED IN THE WAKE OF 9/11
In a summary order, the Second Circuit Court of Appeals has affirmed a federal district court’s interpretation of certain reinsurance contracts in favor of AIOI Nissay Dowa Insurance Company. The central issue in dispute was the scope of AIOI Nissay’s obligations to a group of insurers under contracts that those insurers had purchased from a reinsurance pool, of which AIOI Nissay was a member. The contracts were triggered in the wake of the aviation losses associated with the September 11, 2001 terrorist attacks. The Second Circuit rejected all of the arguments raised by the group of insurers on appeal, recognizing that the primary objective in contract interpretation is to give effect to the intent of the parties. While short on facts, the summary order stated that the “more natural reading” of contractual terms controlled, which was the interpretation advanced by AIOI Nissay, and the court therefore affirmed judgment in favor of AIOI Nissay on its breach of contract claim. AIOI Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., No. 13-2689 (2d Cir. Apr. 22, 2014).
COURT CONSTRUES AMBIGUOUS ARBITRATION CLAUSE BROADLY AND COMPELS ARBITRATION
The dispute involved a claim for benefits under a policy insuring a marine construction site damaged in 2008 by Hurricane Ike. The insured contended that the policy did not provide for arbitration, but instead provided only for appraisal to set an amount of loss. The court disagreed, finding that the policy contained a clause entitled “Arbitration” and contained “multiple references to arbitration,” although that clause was ambiguous because the policy was silent as to “what precisely triggers arbitration.” The court then analyzed extrinsic evidence, including the language of a “draft” of the arbitration clause, and compelled arbitration, finding “ample evidence in the record to demonstrate [the parties’] intent to arbitrate any and all disputes under the policy.” Aker Kvaerner/IHI v. National Union Fire Insurance Co. of Louisiana, et al., Case No. 2:10-cv-00278 (USDC W.D. La. Feb. 10, 2014).
This post written by Michael Wolgin.
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NY DFS AMENDS INSURANCE REGULATION 41 TO CONFORM WITH NRRA
The NY DFS announced an amendment to its regulations governing excess line placements to conform with the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), which prohibits any State, other than the insured’s home state, from requiring a premium tax payment for nonadmitted insurance. The new regulation sets forth capital and surplus requirements for non-admitted insurers, and otherwise conforms the regulations to the NRRA, as adopted by New York and signed into law in 2011, amending Chapter 61 of the Insurance Laws.
This post written by John Pitblado.
INSURER MUST FOLLOW THE SETTLEMENTS, NOTWITHSTANDING CLAUSE PURPORTING TO LIMIT SETTLEMENT TO SETTLING INSURERS ONLY
Interest holders in a vessel insured a 50% interest with certain Lloyd’s Syndicates, and a 30% interest with Aigaion Insurance Company. The terms of the Aigaion policy contained a clause reading, “Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments” (the “Follow Clause”). When the Syndicates later settled a claim after the vessel was damaged, a dispute between the insureds and Aigaion arose over whether Aigaion was required to follow the settlement. Aigaion contended that it need not follow the settlement due to the following provision in the settlement agreement between the Syndicates and the insureds (the “Settlement Clause”): “The settlement and release pursuant to the terms of this Agreement is made by each Underwriter for their respective participations in the Policy only…and do not bind any other insurer providing hull and machinery cover in respect of the [vessel].” The insureds disagreed that this provision was enforceable by Aigaion, and argued that Aigaion was obligated to follow the Syndicates’ settlement under the Follow Clause.
The court interpreted the plain meaning of the Aigaion policy and ruled that the Follow Clause did indeed require Aigaion to follow any settlement made by the Syndicates. The court rejected Aigaion’s argument that the clause’s purpose was only to make the Syndicates Aigaion’s agent to negotiate settlement of disputed claims. The court also found that, although it interpreted the Settlement Clause as an attempt to exclude other parties from the settlement between the insureds and the Syndicates, Aigaion was not an intended third-party beneficiary of that agreement, Aigaion was bound under the Follow Clause, and Aigaion therefore could not rely on the Settlement Clause to avoid liability to the insureds. San Evans Maritime Inc., et al. v. Aigaion Insurance Co. SA, [2014] EWHC 163 (U.K. High Court of Justice, Comm. Div. Feb. 4, 2014).
This post written by Michael Wolgin.
See our disclaimer.