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New reinsurance-related and arbitration developments from Carlton Fields

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UK SUPREME COURT ENJOINS FOREIGN COURT ACTION IN FAVOR OF POSSIBLE LONDON ARBITRATION

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Since reinsurance disputes are sometimes multi-jurisdictional we occasionally post on appellate UK and US court opinions dealing with the relationship between proceedings in different countries. The latest example of this involves two parties which entered into a contract concerning a hydroelectric plant in Kazakhstan. The contract is governed by Kazakh law but contains a London arbitration clause. When a dispute arose one party filed suit in Kazakhstan and secured a judgment from the Kazakh Supreme Court invalidating the arbitration provision. The other party filed suit in a UK court seeking a declaration that the arbitration provision was valid and enjoining the action in Kazakhstan. The UK trial court and Court of Appeals ruled that the Kazakh judgment was not binding, upheld the validity of the arbitration provision and enjoined the parties from proceeding with the Kazakh action. The UK Supreme Court agreed, and dismissed the appeal (the UK equivalent of affirming). The UK Supreme Court held that the refusal of the Kazakh court to enforce the arbitration provision compelled it to act to preserve the right to arbitrate. It is perhaps notable that no one had sought to commence an arbitration proceeding. The UK courts were acting to preserve the right of the parties to arbitrate, should they desire to do so. Ust-Kamenogorsk Hydropower Pland JSC v. AES Ust-Kamenogorsk Hydropower Pland LLP, [2013] UKSC 35 (June 12, 2013).

This post written by Rollie Goss.

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WEST VIRGINIA SUPREME COURT REVERSES “UNCONSCIONABILITY” HOLDINGS, COMPELS ARBITRATION

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In a consolidated appeal of two cases involving Credit Acceptance Corporation (“CAC”), the West Virginia Supreme Court reversed two trial court decisions denying motions to compel arbitration, and ordered both cases to proceed to arbitration. The trial court had found that the arbitral forums named in the agreements were unavailable, and that the agreements were unconscionable inasmuch as they contained a waiver of the right to a jury trial. It denied CAC’s motions to compel arbitration on those bases in both cases. The West Virginia Supreme Court reversed, finding that (1) while one of the arbitral forums mentioned in the agreement – the National Arbitration Forum – was no longer available for consumer arbitrations, the other entity mentioned – the American Arbitration Association – remained available; and (2) the fact that an arbitration agreement requires an explicit waiver of the right to a jury trial does not render it unconscionable or unenforceable. The Court remanded with directions to the trial court to compel arbitration. Credit Acceptance Corp. v. Front, No. 12-0545 (W.V. June 19, 2013).

This post written by John Pitblado.

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DISPUTE IN ADMINISTRATION OF CATASTROPHE BOND RESULTS IN LAWSUIT

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A lawsuit has been filed in the United States District Court for the Southern District of New York concerning the administration of the $100 million Mariah Re Ltd. cat bond, which covers severe weather event risks ceded to Mariah Re by American Family Mutual Insurance Company, with an attachment point of $825 million. The Complaint focuses on the modeling and reporting of a particular storm by ISO Services, Inc,. (d/b/a/ Property Claim Service (“PCS”)) and AIR Worldwide Corp. (“AIR”). Payments under the cat bond are based upon estimated loss modeling by PCS, rather than being indemnity based. The Complaint alleges that PCS impropery issued an amended bulletin reporting on the losses resulting from the storm after it had issued its “final report” concerning the storm, and that PCS improperly backdated the replacement report so that it apepared to have been issued prior to the date of its “final report.” It is alleged that as a result of the replacement report, AIR’s calculation of the losses purportedly chargeable to Mariah Re resulting from the storm increased from $62.2 million to approximately $180.1 million. Apparently, American Family withdrew the entire $100 million limit of the cat bond from the cat bond’s reinsurance trust, approximately $37.8 million more than what it is alleged should have been withdrawn.

Disputes over the administration cat bonds are rare. One source has suggested that this is the first lawsuit concerning the administration of cat bonds. This lawsuit raises the interesting question of whether the use of non-indemnity payment triggers in cat bonds exposes ceding insurers to potential litigation risks which an indemnity payment trigger would avoid.

This post written by Rollie Goss.

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UBS AG STATUTE OF LIMITATIONS ARGUMENT FAILS IN MOTION TO DISMISS

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For nearly five-and-a-half years, various banking and insurance corporations (“movants”) have engaged in extensive discovery to attempt to prove that Michel and Ramy Lakah, acting as an alter ego for bond guarantor Lakah Funding Limited, are bound by arbitration agreements that they had not signed in a personal capacity. When the Lakahs sought to stay the arbitration, the movants filed a motion to dismiss that claim as being untimely filed. The movants allege that the petition was filed more than twenty days after notice was given, failing to comply with section 7503(c) of the N.Y. Code.

The court held that the movants had waived their right to argue that the stay petition was time-barred. The court explained that “[f]or almost five-and-a-half years . . .the movants did not inform this court or their opponents of their belief that the extensive rounds of discovery and related litigation . . . were completely unnecessary because the Lakahs were time-barred from seeking to stay arbitration on any ground.” In their answer, the movants failed to assert their statute of limitations claim as an affirmative defense, therefore waiving that right. Additionally, the court did not allow movants to amend their answer to include this affirmative defense principally because of their own “inordinate delay.” Lakah v. UBS AG, Case No. 07-cv-02799 (USDC S.D.N.Y. May 22, 2013).

This post written by Brian Perryman.

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UK HIGH COURT REFUSES TO STAY PROCEEDINGS DESPITE CONCURRENT ACTION IN TEXAS

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MacDermid Offshore Solutions LLC (“MacDermid”) sued Niche Products Limited (“Niche”) in Texas for misleading advertising. Soon thereafter, Niche sued MacDermid in the Patents County Court (“PCC”) in England under the British cause of action for malicious falsehood. Both intellectual property proceedings turned on whether a particular type of oil product was different. MacDermid filed an application with the PCC, requesting that the proceedings be heard in Texas. The PCC dismissed the application, and MacDermid appealed.

The High Court of Justice, Chancery Division, dismissed the appeal on the grounds that the judge had applied the correct test in holding that the claim should be heard in the English jurisdiction, despite a concurrent action in Texas. The High Court noted that the test remains whether the foreign jurisdiction is clearly more appropriate. The existence of prior foreign proceedings is not decisive, though it may be a factor to be taken into account, and the weight to be attached to such proceedings is a matter of judgment. MacDermid Offshore Solutions LLC v. Niche Products Ltd, [2013] EWHC 1493 (Ch) (May 6, 2013).

This post written by Brian Perryman.

See our disclaimer.