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New reinsurance-related and arbitration developments from Carlton Fields

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SECOND CIRCUIT REVERSES DISTRICT COURT ON APPLICATION OF STOLT-NIELSEN

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Recently, a group of retail sales employees appealed to the Second Circuit an order vacating an arbitration award on the ground that the arbitrator had exceeded her authority in light of the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). The Second Circuit reversed the judgment of the district court, concluding that the district court simply substituted its own interpretation of the parties’ arbitration agreement rather than examining whether the arbitrator had exceeded her authority under Supreme Court precedent. The Second Circuit explained that the district court failed to undertake the appropriate inquiry – whether the arbitrator had the authority to reach the issue at all, not whether the arbitrator decided the issue correctly. The Court noted that the district court had concluded that under Stolt-Nielsen, the arbitrator had improperly ruled that the parties’ arbitration agreement did not prohibit class arbitration. Because this analysis failed to consider the pertinent issue (as noted above), the Second Circuit reversed the judgment of the district court vacating the award and remanded the case with instruction to confirm the award. Jock v. Sterling Jewelers, Inc., No. 10-3247 (2d Cir. July 1, 2011).

This post written by John Black.

COURT CONFIRMS ARBITRATION AWARD, DESPITE AFFORDING LENIENCY TO PRO SE PARTY

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A somewhat exasperated-sounding opinion from a federal court in Maryland addressed a litany of allegations and procedural issues raised by a pro se defendant’s motion to dismiss the action seeking confirmation of an arbitration award, as well as a motion to continue the case, based on the defendant’s medical condition. While according the pro se defendant “leniency” in addressing a number of procedural defects, the court nevertheless found that the defendant failed in his various pleadings to meet the high standards for vacating an arbitration award under the FAA. The court also found that no continuance based on the defendant’s medical condition was necessary because the court had sufficient information to rule on the various motions. The court denied the defendant’s motion to dismiss, denied his motion to continue, and granted the petitioner’s motion for entry of a confirmation order. Colonna v. Hanners, Case No. 10-1899 (USDC S.D. Md. June 1, 2011).

This post written by John Pitblado.

COURT COMPELS ARBITRATION AND REFUSES TO DISQUALIFY A PARTY’S SELECTED ARBITRATOR

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A federal district court compelled arbitration and refused to disqualify a party’s selected arbitrator, notwithstanding that the arbitrator was a former employee and consultant of the objecting party’s parent company. Service Partners, LLC and American Home Assurance Co. entered into a payment agreement for insurance and risk management services that contained an arbitration clause providing that each party would select an arbitrator and the two selected arbitrators would choose a third. The clause prohibited the selection of an arbitrator under either party’s control and, further, provided that, if a party refused or neglected to select an arbitrator, either party could petition a New York state court to appoint one. American Home objected to Service Partners’ selected arbitrator and refused to arbitrate because the arbitrator was a former employee of American Home’s parent, and in the past had served as a party arbitrator for American Home, and as a consultant/expert witness for American Home’s parent. Thus, according to American Home, the arbitrator was not qualified because he knew American Home’s “playbook.”

Service Partners moved to compel arbitration, arguing that nothing in the parties’ agreement or federal law provided for the disqualification of an arbitrator before the entry of an award and, moreover, that the arbitrator was qualified. The federal district court granted the motion to compel. The court first determined that venue was proper–finding that the New York court could only be accessed where no arbitrator had been appointed, not where an arbitrator’s qualifications were in dispute. The court, moreover, held that the arbitrator was qualified under the parties’ agreement because, as a former employee of American Home’s parent, he was not currently under either party’s control. Further, the court held that, absent extraordinary circumstances that did not exist in the case, a challenge to an arbitrator’s qualifications or partiality should be made only after an award is rendered. Serv. Partners, LLC v. Am. Home Assurance Co., Case No. 11-01858 (USDC C.D. Cal. June 20, 2011).

This post written by Ben Seessel.

IMPLEADED REINSURER DISMISSED UNDER CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

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The plaintiff in a personal injury suit arising from an automobile accident amended his petition to add Lloyd’s of London to a state court suit initially brought against the alleged tortfeasor and the tortfeasor’s primary insurer (Lloyd’s cedent). Lloyd’s removed the suit to federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and sought dismissal based on the arbitration provisions of its contract with the insurer. The plaintiff did not oppose the dismissal, so long as it was without prejudice, and moved to remand the case back to state court. The court granted Lloyd’s motion to dismiss without prejudice and granted plaintiff’s motion to remand. Rossignol v. Tillman, Case No. 10-3044 (USDC E.D. La. June 17, 2011).

This post written by John Pitblado.

PRESIDENT APPOINTS INSURANCE EXPERT MEMBER OF FSOC

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President Obama has nominated Roy Woodall to fill the position designated for an insurance expert on the Financial Stability Oversight Council (“FSOC”). An attorney, Mr. Woodall served as Kentucky Insurance Commissioner, was President of the National Association of Life Companies for 13 years prior to its merger with the American Council of Life Insurers (“ACLI”), and continued with the ACLI as managing director for issues and vice-president and chief counsel for state relations. He later served as a senior insurance policy analyst in the Treasury Department and as an insurance consultant for the Congressional Research Service. If confirmed by the Senate, Mr. Woodall would be the long-awaited insurance “expert” in the FSOC’s work, including its deliberations concerning the criteria for designating companies as systematically important financial institutions. There is no indication yet as to when the Senate Banking Committee might hold a confirmation hearing for Mr. Woodall. With the Congress embroiled in the issue of the national debt, and the Senate scheduled to be in recess until July 10, and from August 8 to September 5, it may be a while before Mr. Woodall actually joins in the work of the FSOC (assuming he is confirmed by the Senate).

This post written by Rollie Goss.