Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Carlton Fields

Carlton Fields

South Carolina District Court Finds Expert Report Does Not Satisfy Obligation Under Fed.R.Civ.P. 26(a)(1)(A)(iii) To Provide Method of Damages Calculation

by

A South Carolina federal court found that Companion Property and Casualty Insurance Company’s expert’s testimony did not satisfy its obligation to provide a damages calculation. Companion argued that its failure to disclose the precise method by which it calculated its alleged damages was immaterial because the method of damages calculation is the subject of expert evidence. But the Court held that mere reliance on expert evidence did not satisfy the disclosure requirement under Fed.R.Civ.P. 26(a)(1)(A)(iii).

Defendants specifically requested Companion provide a computation of damages, including those under the reinsurance trust agreement it allegedly had to pay from its own funds due to a shortfall of collateral in the trust accounts. Companion referred instead to its expert testimony on the issue, and the Defendants moved to compel disclosure.

The Court agreed with the Defendants that an expert report does not stand in the shoes of the required disclosure under the Fed.R.Civ.P., and ordered Companion to provide an initial estimate as to each damage category (except punitive damages) and a general analysis as to how that figure was computed.

Companion Property and Casualty Insurance Company v. U.S. Bank National Association, 3:15-cv-01300 (USDC D.S.C. June 24, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

MASSACHUSETTS FEDERAL COURT REJECTS PRE-AWARD CHALLENGE TO PARTY-APPOINTED ARBITRATOR

by

In a recent reinsurance case, a Massachusetts federal court denied a pre-award petition of a cedent to remove the reinsurer’s party-appointed arbitrator, finding that the Federal Arbitration Act (the “FAA”) did not authorize the court to remove an arbitrator before a final arbitration award has been issued.

With respect to the challenge to the reinsurer’s party-appointed arbitrator, the parties disputed whether the arbitrator qualification requirements of the arbitration clause in the agreement at issue precluded the appointment of an arbitrator that previously worked for entities that once were, but no longer are, affiliates of the cedent. The Massachusetts federal court first analyzed whether the FAA authorized the pre-award removal of an arbitrator. The cedent argued, in support of its pre-award petition for removal of the arbitrator, that the prohibition on judicial intervention is limited to pre-award challenges for arbitrator bias and that there is an exception for pre-award judicial removal of an arbitrator based on the failure to meet the criteria specified in the arbitration clause. The court rejected this argument, finding that “challenges to a party-appointed arbitrator, such as allegations of bias, are properly considered by courts only at the conclusion of the arbitration,” and that the FAA “provides no express authorization for pre-award judicial intervention regardless of the grounds for removal.” The court also rejected the cedent’s argument that permitting a pre-award challenge supports the goals of speed and efficiency that arbitration and the FAA were intended to foster. Thus, the Massachusetts federal court held that it did not have the authority under the FAA to remove the reinsurer’s arbitrator prior to the conclusion of the arbitration and directed the parties to proceed with the arbitration.

John Hancock Life Ins. Co. (U.S.A.) v. Employers Reassurance Corp., No. 15-cv-13626 (USDC D. Mass. Jun. 21, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

CALIFORNIA COURT REVERSES ORDER COMPELLING ARBITRATION RELATING TO LEGAL MALPRACTICE

by

Last month, a California appellate court reversed an order compelling legal malpractice claims to arbitration under an arbitration provision found in a business operating agreement. The dispute arose after an attorney and existing clients decided to go into business together. Some time later, it came to light that the attorney continued to bill his own company for the legal services that he was rendering through his law firm, and his business partners brought suit against him. Under the business’s operating agreement, the parties agreed that “any controversy between the parties arising out of this Agreement” shall be submitted to arbitration. Following a full arbitration, the attorney appealed whether the claims should have been arbitrated in the first place.

Originally, the lower court compelled all of the claims between the parties to arbitration, including claims for legal malpractice, breach of fiduciary duty, and rescission of the legal fees paid. However, the appellate court found that the arbitration language was meant to be narrow – in the same operating agreement where the choice of law provision stated that it applied to “any action on a claim arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement.” The court reasoned that the legal malpractice, breach of fiduciary duty, and rescission claims preexisted the operating agreement and did not arise from it. The lower court erred in compelling these claims to arbitration. Rice v. Downs, No. B261860 & B264964 (Cal. Ct. App. June 1, 2016).

This post written by Zach Ludens.

See our disclaimer.

FEDERAL COURT DISMISSES CLAIMS AGAINST THIRD-PARTY ADMINISTRATOR

by

The Indiana Department of Environmental Management and the Environmental Protection Agency brought certain enforcement actions against Hartford Iron & Metal, Inc. to remediate alleged environmental damage at a scrapyard run by Hartford Iron. It sought coverage from Valley Forge Insurance Company, and the parties eventually entered into two settlement agreements obligating Valley Forge to pay for the remediation of the site and the defense of the regulatory actions. Valley Forge hired Resolute Management Inc. to act as a third-party claims administrator, and Resolute became heavily involved in managing the remediation of the site. Disputes arose from the remediation project and litigation followed. Hartford Iron brought a third-party complaint against Resolute asserting various claims, which it moved to dismiss. The court granted Resolute’s motion, finding that it could not be liable to Hartford Iron for breach of contract because there was no privity or contractual arrangement between those parties, irrespective of whether Resolute was the alleged reinsurer of Valley Forge policies. The Court likewise dismissed the various tort claims brought by Hartford Iron against Resolute, holding that these claims were premised solely upon unsupported legal conclusions. Valley Forge Insurance Co. v. Hartford Iron & Metal, Inc., No. 1:14-cv-00006 (USDC N.D. Ind. June 15, 2016).

This post written by Rob DiUbaldo.

See our disclaimer.

NEW YORK FEDERAL COURT HOLDS THAT AUDIT FIRM’S REVIEW OF TPA IS ATTORNEY WORK PRODUCT

by

In a case upon which we have reported on January 6, 2016, and November 24, 2015, a New York federal district court held that the work of an audit firm hired to review the billing practices of a third-party administrator (“TPA”) could constitute attorney work product and be shielded from disclosure in discovery. The case centers on a reinsurance dispute between AmTrust North America, Inc. (“AmTrust”) and SafeBuilt Insurance Services, Inc. (“SafeBuilt”). Specifically, AmTrust reinsured insurance policies underwritten by SafeBuilt and its subsidiaries on the understanding that SafeBuilt’s subsidiaries would enter into retrocessions, which included coverage for the expenses of using a TPA.

However, AmTrust’s TPA began charging costs as high as twenty percent of the premium — where SafeBuilt maintains that the average is typically about four percent. Because of SafeBuilt’s objections to the cost of the TPA, AmTrust retained an audit firm to conduct a comprehensive review of the TPA’s billing practices to ensure that they were legitimate. Later, in the heated litigation between AmTrust and SafeBuilt, SafeBuilt sought to compel the production of the audit firm’s “work product and related material.”

AmTrust took the position that the material was attorney work product because, even though the audit firm was not made up of attorneys, the review was done “in anticipation of litigation.” Because AmTrust’s executives continually testified that they consulted counsel regarding SafeBuilt’s failure to reimburse for the TPA prior to retaining the audit firm, the court concluded that AmTrust hired the audit firm “because of the prospect of litigation.” The court dealt with SafeBuilt’s argument that the audit firm was retained for “dual purposes”—i.e., for both business purposes and litigation—by noting that this argument only carries water where an expert would have been retained “regardless of litigation prospects and . . . would have carried out its analysis in essentially similar form irrespective of the litigation.” Thus, the court declined to compel production of the audit firm’s file.

AmTrust N. Am., Inc. v. SafeBuilt Ins. Servs., Inc., Case No. 14-cv-9494 (S.D.N.Y. June 10, 2016).

This post written by Zach Ludens.

See our disclaimer.