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New reinsurance-related and arbitration developments from Carlton Fields

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BANKRUPTCY COURT PARTIALLY GRANTS OBJECTIONS ARISING OUT OF CAPTIVE REINSURANCE PROGRAM

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Frontier Insurance, in rehabilitation, filed proofs of claim following the Chapter 11 bankruptcy of Black, Davis & Shue Agency. The claims related to captive reinsurance program with Frontier. In turn, Westport Insurance, which had issued a professional liability insurance policy to BDS, objected to Frontier’s claims, asserting affirmative defenses and counterclaims. Frontier moved to dismiss those objections, or in the alternative, for a stay pending a ruling on BDS’s own objections to Frontier’s claims. The court found that Westport had standing to object to Frontier’s claims and was not precluded from doing so merely because its interest were adverse to BDS’s. Furthermore, it was premature to dismiss Westport’s objections, and the court reserved the issue for trial. However, the court ruled that amendments to Frontier’s claims to include interest under New York law and to plead negligence were proper. Accordingly, the motion to dismiss Westport’s objections altogether was granted in part, and denied in part. In re Black, Davis & Shue Agency, Inc., No. 06-00051 (USDC Bankr. M.D. Pa. Sept. 29, 2011).

This post written by John Black.

COUNSEL DISQUALIFIED FOR OBTAINING AND CONCEALING POSSESSION OF INTERNAL ARBITRATION PANEL COMMUNICATIONS

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On May 25, 2011, we reported on the denial of Northwestern National Insurance Co.’s petition to appoint a replacement arbitrator after opponent INSCO’s appointed arbitrator resigned in protest to perceived partiality by Northwestern’s appointee. The court has now disqualified INSCO’s counsel for improperly procuring from its former appointee, and then hiding, internal emails between members of the panel containing deliberations in the ongoing arbitration. INSCO’s counsel had requested the documents to substantiate its allegations that Northwestern’s appointed arbitrator was biased. The court found that it, rather than the panel, was the proper entity to determine attorney discipline and that INSCO’s counsel’s actions constituted “a serious violation of arbitral guidelines, as well as ethical rules.” Northwestern National Insurance Co. v. INSCO, Ltd., Case No. 1:11-cv-01124 (USDC S.D.N.Y. Oct. 3, 2011).

This post written by Michael Wolgin.

DISTRICT COURT REFUSES TO DISQUALIFY ARBITRATORS IN REINSURANCE DISPUTE

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IRB-Brasil and National Indemnity Company recently filed cross petitions concerning the ongoing arbitration between the parties. The arbitration arises out of a dispute over reinsurance policies issued by NICO to IRB. IRB sought to stay the arbitration, to disqualify NICO’s appointed arbitrator, and to appoint one in his place. It sought further to consolidate the two arbitration proceedings pending between the parties. In the alternative, IRB sought to form an arbitration panel to determine whether the arbitrations should be consolidated. NICO, for its part, sought to designate a neutral third-party arbitrator in one of the pending arbitrations. The court denied all petitions, concluding that under the Federal Arbitration Act it was not authorized to disqualify an arbitrator chosen in accordance with the parties agreement to arbitrate. The agreement specified only that the arbitrators be “active or retired officers of insurance or reinsurance companies,” a criterion that had been fulfilled. All other decisions before the Court stemmed from this conclusion and the petitions were accordingly denied. IRB-Brasil Resseguros v. National Indem. Co., No. 11-1965 (USDC S.D.N.Y. Oct. 6, 2011).

This post written by John Black.

FEDERAL COURT HOLDS IT HAS NO AUTHORITY TO TRANSFER ARBITRATION CONFIRMATION ACTIONS TO STATE COURT

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Subway International B.V., a Netherlands-based franchisor of Subway sandwich stores, brought three actions in Connecticut federal court, seeking enforcement of arbitration awards secured against certain Greek franchisees for breach of their respective franchise agreements. The franchisees had each separately brought actions to vacate the awards in New York State Supreme Court, and they each moved to transfer the Connecticut cases filed by Subway to that venue. The Court denied each of the motions to transfer, holding that it had no authority under federal procedural statutes to transfer actions to state court. In one of the actions, however, the Court granted a motion to dismiss for insufficient service of process. Subway Int’l B.V. v. Cere, Case No. 10-01713 (USDC D. Conn. Aug. 11, 2011), Subway Int’l B.V. v. P. Bletas and J. Bletas, Case No. 10-01714 (USDC D. Conn. Aug. 11, 2011); and Subway Int’l B.V. v. P. Bletas, Case No. 10-01715 (USDC D. Conn. Aug. 11, 2011).

This post written by John Pitblado.

COURT HOLDS TERMS OF ARBITRATION AGREEMENT REQUIRES PARTIES TO ARBITRATE DISPUTES ARISING UNDER SUBSEQUENT AGREEMENTS

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General Motors stripped franchisee Glen West of his stock and removed him as president and operator of one of its dealerships because West was allegedly self dealing and failing to keep proper records. West filed an action in state court seeking an injunction preventing General Motors from disposing of his dealership and an order reinstating him as president. General Motors removed the case to federal court and subsequently moved to compel arbitration, citing an arbitration agreement that the parties had executed when they entered into their first stockholders’ agreement in 2008. West argued that his claims were governed by a 2010 dealer sales and services agreement, and a 2010 stockholders agreement, both of which did not incorporate or reference the terms of the arbitration agreement. The court, however, compelled arbitration, finding that the parties had agreed to arbitrate any claim arising from any other agreement they entered into “whether executed before or after this Arbitration Agreement.” West v. Gen. Motors LLC, Case No. 3:11-00819 (USDC D.N.J. June 7, 2011) motion for reconsideration denied (Aug. 5, 2011).

This post written by Ben Seessel.