Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Carlton Fields

Carlton Fields

ILLINOIS APPELLATE COURT AFFIRMS STAY OF STATE COURT DECLARATORY JUDGMENT ACTION PENDING INTERNATIONAL ARBITRATION

by

Boeing insured satellites it manufactured partly through a Bermuda captive, which reinsured 100% of the risks, partly through Lloyds’ syndicates, which syndicates also assumed part of the risk as direct insurers. When a satellite sold to a Middle Eastern company failed, an arbitration was commenced under the auspices of the International Chamber of Commerce in Paris, France, with the governing law being the civil laws of Abu Dhabi, United Arab Emirates. The rules of that proceeding provided for limited discovery. The Lloyds’ syndicates filed a declaratory judgment action against Boeing in Illinois state court, seeking a declaration of their obligations as both direct insurer and reinsurer. The court stayed the lawsuit pending the outcome of the arbitration. The court of appeals affirmed, finding that the action was premature prior to the determination of liability in the arbitration, and that it was an improper attempt to obtain discovery for use in the arbitration. The dual roles of some of the parties in the two proceedings played an important role in the decision. This opinion presents a very interesting analysis of the interface between these two proceedings. Certain Underwriters at Lloyds’ v. Boeing, No. 1-07-1667 (Ill.Ct.App. Je. 30, 2008).

This post written by Rollie Goss.

IS A SERVICE OF SUIT CLAUSE SUFFICIENT TO TRUMP AN ARBITRATION CLAUSE?

by

Reinsurance treaties often contain so-called “service of suit” clauses. The clause typically states something to the effect that “in the event of the failure of Reinsurer hereon to pay any amount claimed to be due, Reinsurer hereon, at the request of the Reinsured, will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.” Practitioners may wish to consider the interaction of this clause with an arbitration clause co-existing in the same treaty. Specifically, does the reinsurer’s submission to the jurisdiction of the courts take precedence over the right to arbitrate disputes between the parties? Different courts have reached different results, with the different decisions generally being reconcilable based upon varying language in the service of suit and arbitration provisions of different agreements. In Ace Capital Ltd. v. CMS Energy Corporation [2008] EWHC 1843 (Comm. July 30, 2008), the UK Commercial Court held that it does not. The court acknowledged what it characterized as the minority view that the more specific service of suit clause should prevail over a general arbitration clause, where the single issue of the service of suit clause is a “failure . . . to pay” an amount “claimed to be due” under the treaty, and the arbitration clause broadly refers to “any dispute” arising out of the entire contract. However, the court favored an apparent majority view that a service of suit clause is merely an aid to enforcing awards granted to reinsureds through arbitration.

This post written by Brian Perryman.

DISTRICT COURT CERTIFIES STANDING ISSUE FOR INTERLOCUTORY APPEAL IN CAPTIVE REINSURER KICKBACK CASE

by

On July 21, 2008, we reported on the decision of a court denying a motion to dismiss, which contended that the filed rate doctrine barred claims relating to alleged kickbacks on mortgage insurance placed with a captive reinsurer. One of the issues addressed was whether the plaintiffs, who are borrowers, have standing to assert claims that their lender and a mortgage reinsurance company violated the Real Estate Settlement Procedures Act by collecting illegal referral payments in the form of excessive reinsurance premiums. The district court has denied a motion for reconsideration, but has certified the issue of whether the plaintiffs have standing to sue for interlocutory appeal pursuant to 28 U.S.C. §1292(b). Under §1292, the Third Circuit has discretion to accept or decline to accept the interlocutory appeal. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (USDC E.D. Pa. Aug. 4, 2008).

This post written by Rollie Goss.

DISPUTE ARISING OUT OF SLIPS FALLS WITHIN ARBITRATION CLAUSE OF ORIGINAL REINSURANCE AGREEMENT, FEDERAL COURT RULES

by

We previously posted on April 14, 2008, about a reinsurer’s successful bid to remove a lawsuit to federal court based on the plaintiff insurer’s improper joinder of the reinsurer’s agent as a defendant. Now, in a related companion case, the United States District Court for the Middle District of Florida has granted the same reinsurer’s motion to compel arbitration of the claims between the parties. The insurer sought a declaratory judgment that it was entitled to more than $10 million from the reinsurer under four reinsurance placement slips. While the parties’ original reinsurance agreement contained an arbitration provision, the slips did not. The court, therefore, characterized the dispute as whether the claims arising out of the placement slips were covered by the agreement’s arbitration provision. It held that they were. These contracts all governed the same ongoing relationship between the same parties concerning the same subject matter (viz., obligations arising out of vehicle service contracts) and for overlapping time periods. The slips merely “upgraded” the level of reinsurance coverage provided in the agreement. That the placement slips and reinsurance agreement did not expressly refer to each other was not dispositive since the “broad terms” of the arbitration provision were not limited to claims brought directly under the agreement. Northbrook Indemnity Company v. First Automotive Service Corporation, Case No. 07-683 (USDC M.D. Fla. Aug. 1, 2008).

This post written by Brian Perryman.

COURTS CONFIRM ARBITRATION AWARDS, RULING ON CLAIMS OF MANIFEST DISREGARD OF LAW

by

Four recent opinions confirmed arbitration awards, in part rejecting claims that the award was in manifest disregard of law. In three of the cases, there was no discussion of the impact of the Supreme Court’s Hall Street Associates opinion on the manifest disregard of law doctrine.

  • A district court has confirmed an arbitration award which adjudicated claims relating to underwriting fees allegedly owed in connection with a municipal bond transaction, holding that the arbitrators: (1) properly found an oral agreement subject to arbitration; (2) reasonably concluded that the arbitration was commenced timely; (3) afforded the parties a fundamentally fair hearing by considering all evidence offered; and (4) did not manifestly disregard the law. The court did not discuss Hall Street Associates. Finally, the court found that an award that was not a reasoned award was not arbitrary and capricious. Grigsby & Associates, Inc. v. M Securities Investment, Inc., Case No. 06-23-35 (USDC S.D. Fla. July 30, 2008).

  • In an action concerning the collection on a promissory note, a court has confirmed an award over claims that it was in manifest disregard of law, except to vacate it to the extent that the award provided for pre-judgment interest, which was clearly contrary to “controlling Tennessee law.” There is no discussion of Hall Street Associates. Hicks v. The Cadle Co., Case No. 04-2616 (USDC D. Col. July 23, 2008).

  • In Remote Solution Co. v. FGH Liquidating Corp., Case No. 06-4 (USDC D. Del. July 31, 2008), the court confirmed an award, finding no manifest disregard of law (without discussing Hall Street Associates), and that the arbitrator did not exceed his authority by awarding attorneys’ fees pursuant to a contractual provision. The agreement called for a reasoned award, and the arbitrator provided a very brief one paragraph “tentative ruling,” with an offer to provide a more detailed award if requested. The court found this to be sufficient, in part because no one requested a more detailed award.

  • In Supreme Oil Co. v. Abondolo, Case No. 07-6479 (USDC S.D.N.Y. July 31, 2008), an arbitration of ERISA and Labor-Management Relations Act (“LMRA”) claims, the court held that the manifest disregard of law doctrine was not a basis to vacate an award under the FAA after Hall Street Associates, but that it was unclear whether the doctrine survived with respect to claims under the LMRA. The court declined to reach that issue, however, based upon its finding that the facts before it did not demonstrate manifest disregard of law.

This post written by Rollie Goss.