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New reinsurance-related and arbitration developments from Carlton Fields

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Carlton Fields

COURT COMPELS ARBITRATION OF FEE DISPUTE ARISING FROM EARLIER ARBITRATION

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A federal judge in Indiana referred the parties to arbitration of the latest piece of a long running employment dispute between Masco Corporation and Peter Prostyakov, its former Director of operations in Moscow, Russia. After an arbitration award on the principal claims, which was confirmed in federal court, and affirmed by the Seventh Circuit, a further dispute erupted pertaining to payment of fees and costs in connection with the arbitration and subsequent litigation. Masco filed a petition in court, seeking a ruling that the fee dispute had been subsumed in and decided in the prior arbitration, and that Prostyakov was unfairly seeking a “second bite” at the apple. The court disagreed, finding it improper to decide this and other issues raised by the parties, citing their original agreement to arbitrate, and the pending second arbitration initiated by Prostyakov relating to the fee dispute. Masco Corp. v. Prostyakov, No. 1:09-cv-0500 (USDC S.D. Ind. Feb. 5, 2010).

This post written by John Pitblado.

NEW YORK LAW APPLIES TO ALL CLAIMS IN THE MIDLAND INSURANCE COMPANY LIQUIDATION PROCEEDING

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In this long-running legal saga surrounding the liquidation of Midland Insurance Company (“Midland”), the Superintendent of Insurance, Midland’s reinsurers, and certain major policyholders stipulated to a case management order for determining the issue of whether New York substantive law controlled the interpretation of the Midland insurance policies at issue or whether the New York choice-of-law test must be conducted for each policy to determine the applicable substantive law. The trial court granted the policyholders’ motion for partial summary judgment, declaring that a choice-of-law review for each policyholder must be undertaken. This appeal followed. The New York appellate court first recounted its 1990 decision involving Midland and another policyholder where the choice-of-law issue was not litigated but the court stated that New York substantive law applied so that Midland’s creditors would receive equal treatment. The appellate court then reversed the trial court’s order for the following reasons: (1) the application of New York law in the prior case is binding on the trial court under the doctrine of stare decisis; (2) the “law of the case” precluded the policyholders from re-litigating an issue decided in an ongoing proceeding, finding that the policyholders in this case had identical interests with the policyholder in the 1990 case; and (3) that public policy required the equal treatment of all creditors in a liquidation proceeding. Finally, the court granted the intervening reinsurers’ cross motion, declaring that New York substantive law controlled the interpretation of the Midland insurance policies. In re Liquidation of Midland Ins. Co., 2010 NY Slip Op 00209 (N.Y. App. Div. Jan. 12, 2010).

This post written by Dan Crisp.

ARBITRATION AWARD CONFIRMED WHERE ARBITRATOR RELIED ON THE SAME CONTRACTUAL PROVISIONS TO DENY DAMAGES FOR ONE CLAIM AND AWARD DAMAGES FOR ANOTHER CLAIM

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This dispute concerns sales commissions allegedly owed to three employees of Umpqua Bank (“Umpqua”) pursuant to a third-party brokerage agreement (the “Agreement”) between Umpqua and Woodbury Financial Services. Employment agreements between Umpqua and the employees required the matter to be submitted to arbitration. After the arbitrator issued an award granting damages for breach of fiduciary duty and attorneys’ fees and costs for two of the employees, Umpqua moved to vacate this award, arguing that this award exhibited manifest disregard of the law or was completely irrational because the arbitrator relied on the same provisions in the Agreement to deny damages for the third-party beneficiary claim and to award damages for the breach of fiduciary duty claim. The employees consequently moved to confirm the award and for attorneys’ fees and costs. The court disagreed with Umpqua’s argument, ruling that the arbitrator could rationally find a breach of fiduciary duty but not third-party beneficiary rights under the Agreement because the two claims have separate legal standards. The third-party beneficiary claim requires a showing of intent, and the breach of fiduciary duty claim does not require a showing of intent. The court thus granted the employees’ motion to confirm the award. Then, looking to the language of the employment agreements, the court confirmed the award of attorneys’ fees and costs and granted the employees’ motion for attorneys’ fees and costs incurred to enforce this award. Swarbick v. Umpqua Bank, Case No. 08-00532 (USDC E.D. Cal. Feb. 26, 2010).

This post written by Dan Crisp.

COURT DISMISSES INARTFULLY PLED CONTRACT CLAIM AGAINST MANAGING GENERAL AGENT

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An Alabama federal judge dismissed a contract claim brought by the Alabama Municipal Insurance Corporation (“AMIC”) against Alliant Insurance Services, AMIC’s alleged managing general agent. AMIC alleged that Alliant breached a contract between the parties requiring Alliant to place and service certain reinsurance policies covering AMIC, by failing to serve timely notices to reinsurers, who then denied claims based on late notice defenses. From the allegations of the complaint, it appears the claims were ultimately paid by the reinsurers, but AMIC brought suit against Alliant seeking recompense for lost interest on the delayed payments. The Court found the allegations vague, and not adequately supportive of a contract action against Alliant under the new Ashcroft v. Iqbal pleading standard. The court dismissed the one-count complaint, allowing AMIC leave to amend. AMIC filed an Amended Complaint on March 2, 2010. Alabama Municipal Ins. Corp. v. Alliant Ins. Serv’s, No. 2:09-cv-928 (USDC M.D. Ala. March 1, 2010).

This post written by John Pitblado.

GEN RE ATTEMPTS TO FINALIZE ITS FINITE REINSURANCE EXPOSURE

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General Re Corp. has agreed to a Consent Judgment with the SEC in settlement of allegations that it issued finite reinsurance to AIG and Prudential. The settlement requires that Gen Re disgorge $12.2 million in profits gained as a result of the transactions, with interest. As in prior similar agreements with other insurers, the SEC filed a Complaint in the Southern District of New York, issued a litigation release describing the agreement, and the Court entered a consent Final Judgment. In a twist, Liberty Mutual has filed a motion and memorandum of law seeking to intervene and claim a portion of the disgorged funds, alleging that the SEC rejected its request that it escrow the funds so that it could assert a claim against them. Liberty Mutual is concerned that the settlement with the government will preclude it from asserting a separate claim against Gen Re for what amounts to the same amounts. At the same time, at the request of Gen Re, another judge of the same court continues to seal a proposed class settlement with the Ohio Attorney General, acting on behalf of the Ohio Public Employees Retirement System in a claim relating to Gen Re’s transactions with AIG.

This post written by Rollie Goss.