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New reinsurance-related and arbitration developments from Carlton Fields

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COURT STANDS BY “NERVE CENTER” DETERMINATION IN REINSURANCE DISPUTE

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On January 27, 2011, we reported on a court’s application of the “nerve center” test to dismiss for lack of diversity of citizenship a case seeking the return of excess reinsurance deposit. The insurer alleged its domicile in the complaint, but failed to allege the location of its principal place of business. The nerve center was the “single place” where direction, control and coordination originated. The court earlier found that to be the state where the insurer’s president, secretary, and director were located, and not the state where most of the insurer’s board of directors and board meetings were located. The court has now denied the plaintiff’s motion to reconsider that finding, holding that plaintiff’s motion was “nothing more than a request for a second bite at the apple.” Health Facilities of California Mutual Insurance Co., Inc. v. British American Insurance Group, Ltd., Case No. CV 10-3736 (USDC C.D. Cal. April 5, 2011).

This post written by Michael Wolgin.

REINSURANCE DISPUTE NOT CORE PROCEEDING IN BANKRUPTCY ACTION

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The Delaware federal district court issued an order directing the district’s bankruptcy court to determine whether an adversary proceeding constituted a “core” proceeding. PRS Insurance Group commenced a chapter 11 bankruptcy proceedings in 2001. Thereafter, the trustee appointed filed suit in Ohio against Westchester Fire Insurance Company and ACE INA Holding for breach of two reinsurance agreements and bad faith refusal to pay claims. After the case was transferred to the Delaware federal district court, that court granted the trustee’s request to refer the case to bankruptcy court, but only to determine whether the adversary proceeding constituted a core proceeding. The bankruptcy court concluded that the trustee’s action was not a core proceeding because the case was not under the court’s jurisdiction “under” title 11 or “arising under” title 11. Rather, the reinsurance dispute was separate from the bankruptcy proceeding. Finally, the reinsurance action did not fall under the court’s “arising in” jurisdiction because it did not involve a suit that could arise only in the context of a bankruptcy case. In re PRS Insurance Group, Inc., Case No 00-4070 (Bankr. D. Del. Mar. 30, 2011).

This post written by John Black.

NEW YORK HIGH COURT HOLDS CHOICE OF LAW SHOULD BE EMPLOYED FOR EACH POLICY IN MIDLAND INSURANCE LIQUIDATION PROCEEDINGS

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On March 17, 2010 we reported on the decision of a New York intermediate appellate court to apply New York law to disallowed claims under insurance policies issued by Midland Insurance Company, an insolvent multiline insurer placed into liquidation in New York. The appellate court based its decision, in part, on the New York “paramount state interest” of ensuring that distributions from an insolvent insurer are made “in an equitable manner.” The appellate court had reversed the trial court, which had found that New York’s standard choice of law analysis for contracts, known as a “grouping of contacts” or “center of gravity” test, should be conducted to determine which laws to apply to each Midland policy. The New York Court of Appeals has now reversed the appellate court and reinstated the trial court’s decision. The high court explained that because the claims of the policyholders “derive from the insurance policies issued by Midland prior to its insolvency,” choice of law analysis for each policy should be employed. In re Liquidation of Midland Insurance Co., 2011 N.Y. Slip Op. 02716 (N.Y. April 5, 2011).

This post written by Michael Wolgin.

CLAIMANT IN UK COURT ENTITLED TO ENGINEERING REPORTS OF DAMAGED HIGHWAY COVERED UNDER REINSURANCE AGREEMENT

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The UK Commercial Court, Queens Bench Division, recently decided a discovery matter in a reinsurance dispute. The litigation arose out of a dispute under a facultative reinsurance contract, which reinsured claimant Axa Seguros’ participation in an insurance policy covering risks of physical damage to a “Toll Road Network concession” in Mexico. After a hurricane caused damage to a highway, Axa Seguros initiated arbitration and subsequently filed suit against Allianz, seeking indemnity for sums said to be due under the reinsurance contract. Axa sought all reports and associated documents produced by Halcrow, an engineering company hired to inspect the damaged highway. Allianz, for its part, claimed a litigation privilege on the basis that it was obtained and prepared for the purpose of obtaining legal advice in connection with expected litigation. The presiding justice concluded that, although litigation was reasonably expected at the time the reports were made, the reports were not generated for the predominant purpose of anticipated litigation. Rather, they were generated to assess whether the highway had been constructed up to international standards, and to determine what damage had been caused by the hurricane. Accordingly, Axa was entitled to the materials sought. Axa Seguros, S.A. DE C.V. v. Allianz Ins. PLC, 2011 EWHC 268, Case No. 2007 Folio 1396 (Comm. Ct. Q.B. Feb. 3, 2011).

This post written by John Black.