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New reinsurance-related and arbitration developments from Carlton Fields

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Carlton Fields

SECOND CIRCUIT REMANDS AXA v. AIG FOLLOWING $40 MILLION DOLLAR JUDGMENT

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Following the entry of a $40 million judgment against them at a jury trial on claims of fraudulent inducement with respect to two reinsurance facilities, the AIG defendants appealed to the Second Circuit, arguing in part that that the claims brought by AXA should have been arbitrated because they sound in contract. AXA, while not disputing that contract claims would be subject to arbitration, asserted that their claims sound in fraud and were properly litigated in the District Court. The Second Circuit concluded that the record was not clear as to whether the District Court properly considered whether AXA’s fraudulent inducement claims sounded in contract or fraud or whether AIG had waived its right to arbitration. The Court opined that in this case, it was of paramount importance to weigh the first and third waiver factors (time elapsed and prejudice) to determine whether AIG had indeed waived arbitration. The case was remanded to the District Court. AXA Versicherung AG v. New Hampshire Ins. Co., Case No. 08-2521 (2d Cir. Nov. 6, 2009).

This post written by John Black.

COUNTERCLAIMS ALLEGING FRAUD BY UNLICENSED INSURERS DISMISSED

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A motion to dismiss counterclaims alleging that a property and casualty insurer and reinsurer (collectively, “Everest”) fraudulently conspired to engage in insurance business without the appropriate regulatory approval has been granted. In the primary action, Everest had asserted claims against a group of guarantors for breach of their guaranty obligations. Everest moved for partial summary judgment seeking an order that the guarantors were required to post security in an arbitration, which the court granted. The guarantors filed counterclaims for civil conspiracy, fraud, and negligent misrepresentations, among others. The conspiracy claim was predicated on a violation of state insurance licensing regulations, for which no private right of action existed. The misrepresentation claims asserted that Everest falsely stated that it was validly licensed to write a particular line of insurance, but the claims were barred by the statute of limitations. The court applied a choice-of-law analysis, determining that Colorado limitations periods applied to the parties’ transaction. The court also granted Everest’s motion to strike certain affirmative defenses, holding that the defenses had not been raised at the time of the motion for partial summary judgment, and so had been waived. Everest National Insurance Co. v. Sutton, Case No. 07-722 JAP (USDC D.N.J. Oct. 14, 2009).

This post written by Brian Perryman.

DISTRICT COURT REMANDS CLAIM AGAINST LIQUIDATOR TO STATE COURT

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In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party. Though the case was properly removed, the Court explained that a Nebraska statute prevented the federal court from entering a judgment against the Liquidator, and that the McCarran-Ferguson Act prevented the Court from entering an order for distribution of any FCIC/RMA judgment proceeds. Rather than dismissing the claim against the Liquidator, the District Court remanded the claim to Nebraska state court while also granting FCIC/RMA’s request to transfer the claims against those parties to the District Court for the District of Columbia. Granite Reinsurance Co., LTD v. Ann M. Frohman, Case No. 08-410 (D. Neb. Oct. 26, 2009).

This post written by John Black.

COURT HOLDS THAT QUESTION OF ARBITRABILITY IS RESERVED TO ARBITRATORS BY PARTIES’ AGREEMENT

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A New York court has affirmed the trial court’s denial of the plaintiff’s motion to stay or enjoin arbitrations pending before the American Arbitration Association. Although noting that the question of arbitrability is generally an issue for judicial determination, the parties’ agreement incorporated the AAA rules, which provide that the arbitration panel had the power to rule on its own jurisdiction. The court therefore found that the scope and validity of the arbitration agreement were properly presented to the arbitators. One justice filed a concurring opinion expressing his view that the United States Supreme Court decision in Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), rendered unenforceable the agreement’s provision allowing for judicial review of legal errors by the arbitrator. The panel opinion had declined to reach that issue since it was included among the arbitrability issues to be decided by the arbitrators. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 194N 601244/08 (N.Y. App. Div. Oct. 13, 2009).

This post written by Brian Perryman.

THIRD CIRCUIT AFFIRMS DISMISSAL OF DI LORETO’S CLAIMS

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This dispute has spanned over two decades, and we have previously reported on: (1) the award of attorney’s fees and costs for an improper bankruptcy filing by the Superintendent of the New York State Insurance Department; and (2) the dismissal of Mrs. Di Loreto’s complaints that sought to prevent the execution of a $20 million judgment obtained against her for reinsurance moneys owed. In this latest installment, Mrs. Di Loreto has appealed the dismissal of her complaints, arguing that the $20 million judgment was obtained in violation of her due process rights. The Third Circuit disagreed, finding that the proceedings bore all the hallmarks of due process. The court thus affirmed the dismissal of her complaints. Di Loreto v. Costigan, No. 09-1812 (3d Cir. Nov. 6, 2009).

This post written by Dan Crisp.