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New reinsurance-related and arbitration developments from Carlton Fields

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FEDERAL COURT GRANTS CEDENTS’ REQUEST FOR EXPEDITED DISCOVERY IN REINSURANCE DISPUTE

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A federal court in Georgia recently granted the plaintiffs-cedents’ motion for leave to conduct certain expedited discovery from their reinsurer, holding that the potential prejudice to the cedents if discovery is not allowed outweighs the prejudice to the reinsurer.

Canal Insurance Company and Canal Indemnity Company brought suit alleging that Golden Isles Reinsurance Company fraudulent transferred amounts due Canal under two reinsurance agreements. Golden Isle and certain individual defendants moved to dismiss in lieu of answering Canal’s complaint. While that motion was pending, Canal sought limited discovery from Golden Isles related to certain bank transfers it made to the various individual defendants. Defendants opposed on the grounds that such discovery was premature, given that their motion to dismiss was pending and no answer had been filed. Notwithstanding that, the United States District Court for the Northern District of Atlanta granted Canal’s motion for leave to conduct limited discovery, finding that their need for pre-answer discovery “outweighs the prejudice” to Golden Isles, warranting a deviation from the applicable local rules of procedure which conditioned discovery upon the filing of an answer. While the expedited discovery sought would not unduly burden or prejudice Golden Isles, the delay might impact Canal’s substantive claims. Canal Insurance Co. v. Golden Isles Reinsurance Co., Case No. 15-cv-3331 (USDC N.D. Ga. July 22, 2016).

This post written by Rob DiUbaldo.

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COURT CONFIRMS INTERIM AWARD OF INJUNCTIVE RELIEF BUT REFUSES TO CONFIRM NON-FINAL OPINION OF ARBITRATOR THAT ARBITRATION WAS BINDING

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In a real estate broker commission dispute, the arbitrator had granted injunctive relief in favor of the plaintiff broker, ordering a percentage of the sale of certain real estate to be placed in an escrow account pending the outcome of the arbitration. The arbitrator had also suggested in an email to the parties, his belief that the arbitration proceeding was binding. The plaintiff then sought to confirm these two “awards.” Regarding the award of injunctive relief, the defendants contended that the arbitrator committed a manifest disregard of the law by misconstruing the legal standard for entry of an injunction. The court, however, confirmed the injunction award, finding that there was no record of the basis for the arbitrator’s injunction, and therefore the court could find no manifest disregard of the law. Regarding the arbitrator’s email stating that the arbitration would be binding, the court refused to confirm, holding that there were no formal orders or opinions memorializing that ruling. Bowers v. Northern Two Cayes Co. Ltd. Lighthouse Reef Resort Ltd., Case No. 1:15-cv-00029-MR-DLH (USDC W.D.N.C. July 7, 2016).

This post written by Joshua S. Wirth.

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EXCALIBUR REINSURANCE CORPORATION PLACED INTO LIQUIDATION

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Excalibur had been in run-off status since 2003, and under regulatory supervision since at least 2013. A Pennsylvania court has now placed Excalibur into liquidation based on three grounds: (1) insolvency – Excalibur’s admitted assets did not exceed its liabilities plus the greater of its capital and required surplus or capital stock; (2) Excalibur’s total adjusted capital was less than its mandatory control level risk-based capital; and (3) Excalibur’s board of directors and sole shareholder consented to liquidation. Under Pennsylvania law, the Insurance Commissioner was appointed Statutory Liquidator vested with certain powers and title to Excalibur’s property. Additionally, various procedures related to winding down the company and notifying interested parties were put in place. A separate order was also entered staying all litigation and legal claims against Excalibur and directing all relief sought against the company to be pursued by filing a proof of claim in the liquidation proceedings. Miller v. Excalibur Reinsurance Corp., Case No. 1 ERC 2016 (Pa. Comm. Ct. July 18, 2016) (Liquidation Order & Order Granting Stay).

This post written by Michael Wolgin.
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SECOND CIRCUIT UPHOLDS CONFIRMATION OF MEXICAN ARBITRATION AWARD AND DENIAL OF COMITY TO A CONTRARY MEXICAN JUDGMENT

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On December 12, 2013, we reported on a United States District Court’s confirmation of a roughly $400 million Mexican arbitration award entered against an oil company affiliated with the Mexican government, notwithstanding that a Mexican court had subsequently nullified the award based on a subsequent change in Mexican law governing arbitration. The U.S. court had held that the Mexican judgment “violated basic notions of justice in that it applied a law that was not in existence at the time the parties contract was formed and left [the party in arbitration] without an apparent ability to litigate its claims.” The case was then appealed to the Second Circuit.

The Second Circuit has determined that the trial court did not violate the Panama Convention on enforcement of foreign judgments when the trial court refused to afford comity to the Mexican judgment. The Mexican judgment, the Second Circuit explained, amounted to a taking of property by the government without compensation and for the sole benefit of the government; i.e., if the action were to be enforced in the United States, it would be an unconstitutional taking. The Second Circuit, for these and other reasons, thus upheld the original confirmation of the arbitration award that pre-dated the change in Mexican law. The court concluded that “in the rare circumstances of this case,” the trial court “did not abuse its discretion by confirming the arbitral award at issue because to do otherwise would undermine public confidence in laws and diminish rights of personal liberty and property.” Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex‐Exploración Y Producción, Case No. 13-4022 (2d Cir. Aug. 2, 2016).

This post written by Joshua S. Wirth.

See our disclaimer.

FINAL JUDGMENT ENTERED AND NOTICE OF APPEAL FILED IN LONGSTANDING REINSURANCE DISPUTE

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In the ongoing reinsurance dispute between cedent Utica Mutual Insurance Company and reinsurer Clearwater Insurance Company, about which we most recently posted on February 9, 2016, two developments occurred on July 14, 2016. First, the district court entered final judgment and resolved the dispute between the parties regarding the calculation of nearly $1 million in prejudgment interest on the multiple billings for reinsurance made by Utica to Clearwater. And second, the Utica filed a notice of appeal to the Second Circuit from various prior rulings to the extent those rulings imposed a cap on the amount that it is entitled to recover. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. July 14, 2016) (Summary Order & Notice of Appeal).

This post written by Michael Wolgin.
See our disclaimer.