New reinsurance-related and arbitration developments from Carlton Fields
On February 11, 2008, we reported on a district court decision holding that arbitrators, not the court, possessed the authority to decide whether reinsurance claims relating to two different hurricanes should proceed before separate panels or a single panel of arbitrators. The district court has denied a stay of its decision pending appeal. Dorinco Reinsurance Co. v. Ace American Ins. Co., Case No. 07-12622 (USDC E.D. Mich. Mar. 5, 2008).
This post written by Rollie Goss.
A reinsurance agreement reinsured crop insurance risks from two related cedents over a five year period, with an initial premium amount for the first two years, followed by annual premium payments thereafter. After paying the premium for the first two years, one cedent was placed in liquidation and the other was placed under supervision. Their parent filed for bankruptcy protection. The issue arose as to whether the reinsurance agreement was enforceable for the remaining three years, since the cedents had ceased writing crop insurance. While bankruptcy court ruled in favor of the cedents, a bankruptcy appellate panel of the US Court of Appeals for the Eighth Circuit reversed, finding that the reinsurance agreement was an enforceable five year agreement, allowing a claim by the reinsurer for the remaining $9 million of premium. The court of appeals based its decision on accepted principles of contract interpretation, rejecting the contention that there was a frustration of purpose when the companies stopped issuing crop insurance. The court reasoned that the cessation of writing crop insurance was foreseeable in the event that the companies did not maintain sufficient capital, and did not amount to frustration of purpose. In re Acceptance insurance Companies, No. 07-6027/6029 (8th Cir. Mar. 12, 2008).
This post written by Rollie Goss.
Phencorp is a reinsurance company organized under the laws of Barbados. Phencorp is a wholly owned subsidiary of Philip Services Corporation (“PSC”), a Delaware corporation. In 2004, Central States sued Phencorp to recover funds allegedly owed to it by PSC under ERISA. After improperly serving the complaint on one of Phencorp’s former employees, the court directed that Phencorp could be properly served through its attorneys. The parties were permitted to conduct discovery on the issue of jurisdiction. This matter came before the court on Phencorp’s motion to dismiss the Complaint for lack of personal jurisdiction.
The court denied Phencorp’s motion to dismiss, concluding that although Phencorp had no employees, physical place of business or real estate in the U.S., it had sufficient contacts to support personal jurisdiction. Specifically, the court found that Phencorp had entered into at least five reinsurance agreements with fronting companies that have operations in the U.S., and that Phencorp agreed to submit disputes arising under the reinsurance contracts to arbitration in New York. Additionally, Phencorp maintained a post office box in Florida through an agent. Lastly, the court noted that Phencorp maintained a bank account in the U.S. and requested to be treated as a domestic corporation for U.S. tax purposes. Central States v. Phencorp Reinsurance Company, Case No. 04 C 5655 (USDC N.D. Ill. Jan. 11, 2008).
This post written by Lynn Hawkins.
Two recent decisions addressed requests to vacate arbitration awards due to concerns over arbitrator qualifications and bias. In Woods v. P.A.M. Transport, Inc., Case No. 07-605 (USDC N.D. Tex. Feb. 8, 2008), a motion was filed to vacate an arbitration award on the basis that the arbitrator failed to disclose that he had been removed from the American Arbitration Association's list of approved arbitrators. The court held that insufficient evidence was presented that the arbitrator was not sanctioned by the AAA, or that such facts, if true, justified vacation of the award under the FAA. The court also held that the moving party had not demonstrated that the award was in manifest disregard of law. In In re Aviles v. Allstate Ins. Co., Case No. 2007-6808 (N.Y. Sup. Ct. App. Div.), the court reversed an Order vacating an arbitration award on the basis that the arbitrator was biased. There was no transcript of the arbitration hearing available, and a clearly insufficient record to support a determination that the arbitrator was biased.
This post written by Rollie Goss.
A Pennsylvania district court has held that a non-signatory insured is obligated to arbitrate claims against a reinsurer pursuant to the reinsurance contract’s arbitration provision. The plaintiff, a psychiatrist, purchased malpractice insurance from Transatlantic Reinsurance Company (“TRC”) using Legion Insurance as a fronting company. The insured later was sued for malpractice. Legion initially defended the action, but subsequently withdrew and a judgment was issued against the plaintiff.
Thereafter, Legion was declared insolvent and ordered into liquidation. Following a court ruling that Legion’s insureds could assert direct actions against TRC, the plaintiff filed an action against TRC for Legion’s breach of contract and breach of the duty of good faith and fair dealing and bad faith. The plaintiff also alleged bad faith against TRC for its own conduct.
TRC moved to compel arbitration arguing that as a third party beneficiary of the reinsurance contract, the plaintiff was bound to arbitrate the dispute. TRC also argued that the plaintiff was equitably estopped from disavowing the arbitration provision while simultaneously seeking to invoke the benefits of the agreement. The court granted TRC’s motion to compel arbitration finding in favor of TRC on both arguments. Doeff v. Transatlantic Reinsurance Company, Case No. 07-2110 (USDC E.D. Pa. Dec. 14, 2007).
This post written by Lynn Hawkins.