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GAO ISSUES REPORT ON NATURAL CATASTROPHE INSURANCE COVERAGE ISSUES

July 7, 2010 by Carlton Fields

The U.S. Government Accountability Office recently reported to Rep. Bachus, the ranking majority member of the House Financial Services Committee, of its findings pertaining to various proposals meant to address increasingly difficult insurance coverage issues arising from natural catastrophes. The GAO’s report analyzes various legislative proposals that generally increase federal involvement in insurance coverage for natural catastrophes, through the lens of furthering the public policy goals of (1) charging premium rates that reflect the risk of loss, (2) encouraging broad participation, (3) encouraging the private market to provide natural catastrophe insurance, and (4) limiting costs to U.S. taxpayers. The report identifies the trade-offs that would need to be balanced in legislative assessment of the proposals, such as the trade-off of, on the one hand, increased federal subsidies that would cause premium rates to inadequately reflect the risk of loss, thereby increasing public participation, but, on the other hand, discouraging private marketplace participation and decreasing pre- and post-event mitigation efforts, and encouraging unwise development in high risk areas. The report discusses the roles of and impact on the reinsurance and capital markets in dealing with the risk of natural catastrophe, mentioning that reinsurance issues were also covered in a prior report issued by the GAO in November 2007. It also includes a summary of the GAO’s briefing of the minority staff, and the resultant revisions to the final report.

This post written by John Pitblado.

Filed Under: Reinsurance Regulation

SPECIAL FOCUS: ALLOCATION OF SETTLEMENT AMOUNT AMONG INSURANCE AND REINSURANCE POLICIES

July 6, 2010 by Carlton Fields

In a recent opinion, the United States Court of Appeal for the Third Circuit addressed the applicability of the follow-the-fortunes doctrine to the post-settlement allocation of a settlement amount to a multi-layer insurance program, upon a challenge to the allocation by a reinsurer. Rollie Goss offers an expanded analysis of this case. Travelers Cas. and Surety Co. v. Ins. Co. of North America, Nos. 06-4100 and 08-1032 (3d Cir. June 9, 2010).

This post written by Rollie Goss.

Filed Under: Reinsurance Claims, Week's Best Posts

U.S. SUPREME COURT: ARBITRATOR HAS THE AUTHORITY TO DETERMINE WHETHER AN ARBITRATION PROVISION IS VOID DUE TO UNCONSCIONABILITY

July 5, 2010 by Carlton Fields

In Rent-A-Center v. Jackson, No. 09-497 (Sup. Ct. June 21, 2010), the U.S. Supreme Court considered whether a provision that delegated to an arbitrator the authority to decide whether any portion of an arbitration agreement was void or voidable is enforceable under section 2 of the Federal Arbitration Act (“FAA”), in a situation in which it was contended that the agreement was unconscionable under Nevada law The Court recognized that it had previously held that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether an agreement covers a particular controversy. The Court further recognized that there were two types of challenges to the validity of an agreement under section 2 of the FAA: (1) challenges to an agreement to arbitrate itself; and (2) challenges to the contract containing the arbitration agreement as a whole, “either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.” Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement is enforceable. Since an arbitration provision is severable from the remainder of the contract, a challenge must be specifically directed to the arbitration provision in order for the court to intervene. Since the challenge here was to the contract as a whole, rather than specifically directed to the arbitration provision at issue, the arbitration provision was enforceable, and the arbitrator had the authority to determine the issue of unconscionability.

This post written by Michael Wolgin.

Filed Under: Arbitration Process Issues, Week's Best Posts

PETITION TO CONFIRM ARBITRATION DISMISSED FOR LACK OF FEDERAL COURT’S SUBJECT MATTER JURISDICTION

July 1, 2010 by Carlton Fields

A limited liability corporation petitioned to confirm an arbitration award against an Illinois corporation in a California federal district court. The district court dismissed for lack of subject matter jurisdiction, as the parties were not diverse in their citizenship, as required by 28 U.S.C. § 1332. The LLC merely alleged it was incorporated in California and had its principal place of business there. These allegations were insufficient to establish the LLC’s citizenship, as an LLC must make allegations regarding the citizenship of each of its members and owners to properly allege its own citizenship. Kim-C1, LLC v. Valent Biosciences Corp., Case No. 1:10-cv-591 (USDC E.D. Cal. June 3, 2010).

This post written by Brian Perryman.

Filed Under: Jurisdiction Issues

RULINGS ON ARBITRATION AWARDS – AN UPDATE

June 30, 2010 by Carlton Fields

A number of significant arbitration award decisions have been handed down over the past several weeks.

Orders generally confirming or vacating arbitration awards

  • The Ninth Circuit recently reversed the vacatur of an award finding that the award was not excessive in size and that the arbitration panel did have jurisdiction to enter a punitive damages award. However, the Ninth Circuit also found that Lloyds Underwriters failed to establish the partiality of two of the arbitrators. Lagstein v. Certain Underwriters at Lloyd’s, London, Case No. 03-01075 (9th Cir. June 10, 2010).
  • In Perhach v. Option One Mortgage Corp., Case No. 08-60637 (11th Cir. June 15, 2010), the Eleventh Circuit affirmed the district court’s denial of Albert Perhach’s pro se motion for relief from an order compelling arbitration and his motion to vacate the arbitrator’s award in favor of his former employer Option One Mortgage Corp.
  • The Southern District of New York in Rai v. Barclays Capital Inc., Case No. 10-1675 (S.D. N.Y. June 15, 2010) denied Rai’s motion to vacate an arbitration award against him and entered an order confirming the award in Barclays’ favor.
  • Hearing cross-motions to confirm and vacate an arbitration award in Petrie v. Clark Moving & Storage, Case No. 09-06495 (W.D.N.Y. May 17, 2010), the Western District of New York confirmed the arbitrator’s award in favor of the Petries finding no manifest disregard of the law.
  • The Northern District of California denied Pacific Development Partners motion to vacate or modify an arbitration award in favor of Elem Indian Colony of Pomo Indians. The Court affirmed the arbitrator’s ruling that a contract for casino development was void. Elem Indian Colony of Pomo Indians v. Pacific Development Partners X, LLC, Case No. 09-1044 (N.D. Cal. May 19, 2010).
  • In Adams v. Barnes, Case No. 09-1860 (N.D. Tex. June 17, 2010), the District Court denied former Dallas Cowboy Flozell Adams’ motion to vacate an arbitration award in favor of his former agent Roosevelt Barnes. The Court confirmed the award.
  • In International Brotherhood of Teamsters, Local 701 v. CBF Trucking, Inc., Case No. 09-5525 (D. N.J. June 10 2010), the District Court granted the union’s motion to dismiss CBF Trucking counterclaim and confirmed an arbitration award in favor of the Teamsters.

Violation of public policy

  • In American Postal Workers Union, AFL-CIO v. United States Postal Service, Case No. 09-1084 (N.D. Tex. May 14, 2010), the District Court dismissed plaintiffs’ Complaint to Vacate Arbitration Award and confirmed defendant’s motion to confirm the award. The Court held that the award did not violate Texas public policy and that the award was not a result of any factual error in the arbitrator’s findings.

Attorneys fees

  • Illinois Union Ins. Co. v. North County Ob-Gyn Medical Group, Case No. 09-2123 (S.D. Cal. May 18, 2010): The Southern District of California confirmed an arbitration panel’s ruling that legal fees paid by the insurance company on the medical group’s behalf eroded the liability of a policy issued by IU to NCOG.
  • In First Automotive Service Corp. v. First Colonial Ins. Co., Case No. 07-682 (M.D. Fla. June 16, 2010), the District Court denied motions to remand the case and for sanctions under Rule 11 and confirmed a modified arbitration award as to attorneys’ fees and costs. Judgment was entered in favor of First Automotive and Northbrook Indemnity Co.

Interest

  • In Diaz v. Cruz, Case No. 09-286 (Mass. Ct. App. May 21, 2010), the Massachusetts Court of Appeals determined that, while the Superior Court had jurisdiction to hear a motion to confirm an arbitration award, it erred in granting prejudgment interest in favor of the plaintiff.

This post written by John Black.

Filed Under: Confirmation / Vacation of Arbitration Awards

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