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New reinsurance-related and arbitration developments from Carlton Fields

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Carlton Fields

COURT OVERTURNS SUBPRIME MORTGAGE REINSURANCE-RELATED BREACH OF CONTRACT RULING

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In a breach of contract action, Plaintiff Ambac Assurance sought to recover damages for the loss of more than $1 billion from investment accounts created to fund notes it guaranteed issued by a special purpose vehicle established to reinsure term life insurance policies. Ambac alleges that plaintiff J.P. Morgan Investment Management (“JPMIM”) failed to manage the accounts, and instead continued to hold toxic subprime securities in the accounts while its corporate parent (J.P. Morgan Chase) reduced its exposure to the same type of securities because they “could go up in smoke.” JPMIM moved to dismiss based on Ambac’s concession that JPMIM adhered to the contractual limitations on purchasing subprime securities. The New York Appellate Division reversed a New York Supreme Court ruling dismissing the action, and held that, at this stage of the proceedings, the court should have accepted the plaintiff’s allegations as true, given the plaintiff every possible inference, and simply ascertained whether the plaintiff’s allegations evidenced a cognizable cause of action (which the Appellate Division concluded Ambac had done). The case was remanded to the Supreme Court for further proceedings. Ambac Assurance UK Limited v. J.P. Morgan Investment Mgmt., Inc., No. 09-650259 (N.Y. App. Div. July 14, 2011).

This post written by John Black.

COURT COMPELS ARBITRATION UNDER U.S. SUPREME COURT’S RECENT CONCEPCION DECISION, ADDRESSING INTERPLAY WITH STOLT-NIELSEN

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A court has recently compelled arbitration in a pending putative class action lawsuit, based on the U.S. Supreme Court’s AT&T Mobility LLC v. Concepcion decision. The case involved a class action suit against title insurers for alleged price fixing. After the case had proceeded “for some time,” Concepcion was decided, which held that (1) the FAA preempts various state laws that invalidate arbitration agreements and that (2) courts must compel arbitration even in the absence of the opportunity for plaintiffs to bring their claims as a class action. The defendants then moved to compel arbitration. Plaintiffs resisted, arguing that the holding of Concepcion was limited to arbitration agreements that contained an express waiver of class treatment (the agreements in this case were silent on class issues). Plaintiffs contended that defendants had never been barred from seeking class arbitration previously, and had thus waived their right to seek arbitration at that late-stage of the litigation. The court disagreed and compelled arbitration, holding that a demand for class arbitration would have been futile prior to Concepcion due to the Supreme Court’s Stolt-Nielsen decision, which precluded class arbitration unless there was “a contractual basis for concluding that the party agreed to do so.” There may be further decisions sorting out the interplay between these two Supreme Court decisions. In re California Title Insurance Antitrust Litigation, Case No. 08-01341 (USDC N.D. Cal. June 27, 2011).

This post written by Michael Wolgin.

FOURTH CIRCUIT AFFIRMS ARBITRATION AWARD, FINDING ARBITRATORS HAD AUTHORITY TO DETERMINE VALIDITY OF AGREEMENT

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The Fourth Circuit Court of Appeal recently issued its decision concerning Central West Virginia Energy’s consolidated appeal of two judgments affirming an arbitration award handed down by a Charleston, WV arbitration panel in favor of Bayer Cropscience, arising out of actions by two different arbitral panels. The issue was whether the validity of a particular contract should have been decided by a court or the arbitral panels (and if by arbitrators, which ones). Interpreting the recent Stolt-Nielsen decision, the Fourth Circuit upheld the decision of the two district courts and determined that this was a procedural rather than a jurisdictional issue, and as such was subject to decision by the arbitral panels rather than the courts. The Court of Appeal, emphasizing the “highly deferential standard of review due arbitration awards,” upheld the award concluding that the Charleston Panel had not exceeded its powers. Central West Virginia Energy, Inc. v. Bayer Cropscience LP, No. 10-348 (4th Cir. July 14, 2011).

This post written by John Black.

ARBITRATORS ORDERED TO SELECT UMPIRE WITHOUT ATTORNEY INTERMEDDLING

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A federal court has ordered party-selected arbitrators to proceed with the umpire selection process “without intermeddling, obstruction, interference, or other direction from the parties or counsel.” Liberty Mutual’s petition claimed counsel for the reinsurer defendants “injected himself” into the umpire selection process, causing unnecessary complication and delay. The reinsurers’ memorandum in opposition claimed that Liberty Mutual’s petition was prematurely filed, and that the selection process had only been shut down by Liberty Mutual’s filing of a petition in court. The main point of contention was whether the reinsurance agreements at issue contained provisions requiring that prospective umpires fill out written questionnaires as part of the selection process. The court’s two-paragraph order avoids any analysis of the issues addressed by counsel, with the apparent implication that the umpire selection issues are to be worked out entirely by the arbitrators. Liberty Mutual Insurance Co. v. Nationwide Mutual Insurance Co., No. 11-10651 (USDC D. Mass. July 6, 2011).

This post written by John Pitblado.

CEDENT ORDERED TO PRODUCE CONSULTANT ANALYSES IN DISCOVERY

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A federal court granted in part a motion to compel filed by the defendant reinsurer, Clearwater, against the plaintiff cedent, Granite State. Clearwater reinsured Granite State under a facultative reinsurance agreement covering certain losses arising from underlying asbestos bodily injury claims against Granite State’s insured. Granite State made claim for payment under the agreement to Clearwater. Clearwater disputed its obligation to pay under the agreement, claiming that Granite State failed to promptly notify Clearwater of the claims. Granite State sued. In discovery, Clearwater sought information pertaining to Granite State’s reserving, relative to an underlying settlement of certain asbestos claim coverage disputes. Granite State objected to the request. The court, in a summary opinion, ordered Granite State to produce “copies of any final reviews, analyses or studies, conducted by any consultants or other third parties, on the principal subject of the adequacy of Granite State’s reserves for asbestos exposures, claims, and/or losses, during the period from 1980 through 2009.” Granite State Insurance Co. v. Clearwater Insurance Co., No. 09-Civ-10607 (USDC S.D.N.Y. June 27, 2011).

This post written by John Pitblado.