This case involves an attempt to reduce to a UK judgment in favor of Lloyd’s to a US judgment. We reported on the court’s decision on a motion for judgment on the pleadings on April 25, 2007. The case came before the Court on cross motions for summary judgment. The court granted Plaintiff’s motion for summary judgment as to Count I, seeking recognition of an English judgment, pursuant to Florida’s Uniform Out-of-Country Foreign Money Judgment Recognition Act. The court also granted Defendant’s motion for summary judgment as to Count II, which relied on the Ohio Recognition Act.. Lloyd’s v. Sumerel, Case No. 06-329 (USDC M.D. Fla. July 20, 2007).
ENGLISH COURT OF APPEALS RESOLVES DISPUTE ARISING FROM SALE OF SHARES IN LLOYD’S BROKER
Claimant, Square Mile Partnership (“Square Mile”), entered into an agreement with Robert Bruce Fitzmaurice Group (“RBF Group”) for the purchase of the shares of Robert Bruce Fitzmaurice (“RBF”), RBF Group’s direct subsidiary, a Lloyd’s broker. The agreement provided for the transfer of RBF’s “accumulated net worth” to Square Mile. The day before completion of the agreement, the transfer took place in favor of Fitzmaurice McCall (“Fitzmaurice”), RBF’s ultimate holding company. The amount of the payment was calculated on the basis of RBF’s distributable dividends.
After completion of the agreement, a dispute arose between Square Mile and Fitzmaurice concerning the exact meaning of the expression “accumulated net worth.” According to Square Mile, it referred only to RBF’s distributable profits, while according to Fitzmaurice it meant the whole of RBF’s net assets.
The court concluded that the expression “accumulated net worth” was intended to cover all the nets assets of RBF. As to Square Mile’s argument that the amount actually transferred from RBF Group to Fitzmaurice a day before completion of the agreement, the court explained that to the extent to which this argument relied on evidence of precontractual negotiations it could not be admitted. While English law does offer some exceptions to the general rule that precontractual negotiations are inadmissible as evidence for the interpretation of a written agreement, the Court concluded that the exceptions were not warranted in this case. The Square Mile Partnership Ltd v. Fitzmaurice McCall Ltd, [2006] EWCA Civ. 1689 (Dec. 18, 2006).
LEGISLATIVE UPDATE
Many state legislatures have ended their session, and following is an update on a number of reinsurance-related bills previously reported in this blog:
- captives: There has been a good deal of activity on the captive front, and there have been a number of articles in the trade press about domestic jurisdictions attempting to become more competitive with each other and with off-shore locations. Hawaii has enacted general changes in HB 272 (effective July 1, 2007), allowing captives to be licensed as limited liability companies and changing tax, capital and surplus rules. Delaware has amended its statutes (HB 214, signed July 18, 2007) to allow special purpose financial captives, with new minimum capital requirements for such entities. Missouri has enacted legislation (SB 215, effective August 28, 2007) which provides for the formation of captive insurance companies.
- alternative financing: Maine has allowed the edtablishment of special purpose reinsurance vehicles to facilitate the securitization of insurance risks. LD 1390, effective June 21, 2007.
- reinsurance placement: New Hampshire has adopted rules (HB 782, effective January 1, 2008) clarifying its law with respect to reinsurance intermediaries, brokers and managers. Texas has proposed modifying its provisions relating to the placement of reinsurance with an unauthorized reinsurer. SB 1136, pending – see page 247 of 409.
- credit for reinsurance: Connecticut has amended its regulations relating to credit for reinsurance with respect to the assets of a single beneficiary trust, effective May 30, 2007.
- health reinsurance: Oregon has enacted provisions, effective June 25, 20007 (SB 183) making emergency provisions for a reinsurance program for medical progessional liability insurance policies provided by the state's Accident Insurance Fund.
- voluntary restructuring: Rhode Island continues to legislate in the area of voluntary restrcturing of solvent insurers, expanding the definition of commercial run-off insurer effective July 6, 2007 to include a Rhode Island domestic insurer formed or re-activated for the purpose of entering into a voluntary restructuring.
ARBITRATION AWARD CONFIRMATION DECISIONS
Six recent opinions, four from US Courts of Appeal, have considered confirmation or vacation of arbitration awards. Five of the opinions rejected claims that the arbitration awards were in manifest disregard of law. Five Star Parking v. Union Local 723, Case No. 06-2012 (3d Cir. July 24, 2007) (reversing the vacation of an arbitration award relating to a collective bargaining agreement, finding that the award interpreted a contract); Aldred v. Avis Rent-a-Car, Cased No. 06-14883 (11th Cir. July 24, 2007) (affirming confirmation of award relating to collective bargaining agreement interpreting a contract); HSM Construction Services, Inc. v. MDC Systems, Inc., Case No. 06-2584 (3d Cir. July 16, 2007) (affirming confirmation of an arbitration award, finding no manifest disregard of law and no evident partiality); Caja Nacional de Ahorro y Seguros in Liquidation v. Deutsche Ruckversicherung AG, Case No. 06-5826 (USDC S.D.N.Y. Aug. 1, 2007) (confirming award pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the federal Arbitration Act, finding no manifest disregard of law, that the Panel did not exceed its authority and that questions regarding the admissibility of evidence did not provide a basis for vacating the award); Buechner v. Mid-America Energy, Inc., Case No. 07-109 (USDC W.D.Ky. July 27, 2007). The sixth opinion vacated an award dealing with attorneys' fees on the basis that it was partially in manifest disregard of law and partially in violation of an enabling statute. Porzig v. Dresdner, Kleinwort, Benson, North America LLC, Case No. 06-1212 (2d Cir. Aug. 7, 2007).
INSURED’S “FOLLOW-THE-FORTUNES” ARGUMENT FALLS SHORT
This breach of contract case arose out of a dispute between insurer-plaintiff National Union Fire Insurance Company of Pittsburg (“NU”) and its reinsurer-defendant, Clearwater Insurance Company (“Clearwater”). NU alleged that Clearwater breached its reinsurance agreement by failing to fully indemnify it for losses incurred from the settlement of an underlying dispute. While Clearwater paid for roughly ¼ of the $1.9 million dollars sought by NU, Clearwater claimed it was not responsible for the remaining amount since some portion of the settlement payment was to settle consequential damages claims not covered by the reinsurance certificates. In response, NU asserted the “follow-the-fortunes” doctrine and moved for summary judgment. Clearwater moved to compel additional discovery.
The Court denied NU’s motion for summary judgment, reasoning that “a genuine issue of material fact exists as to whether the settlement did indeed involve payment in some substantial amount of the consequential damages claims. . ..” The Court appear to accept that if it could be proven that a portion of the payment was for losses not covered by the reinsurance agreement, that the follow-the-fortunes doctrine would not apply to those amounts. The Court granted in part and denied in part Clearwater’s request for additional discovery. National Union Fire Ins. Co. v. Clearwater Ins. Co., Case No. 04-CV-5032 (S.D.N.Y., July 19, 2007).