Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Carlton Fields

Carlton Fields

FOLLOWING REVERSAL OF ARBITRABILITY RULINGS ON APPEAL, COURT DISMISSES REINSURANCE LITIGATION BASED ON FORUM SELECTION

by

On August 15, 2014, we reported on a Tennessee district court finding unenforceable an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer. The insured had filed a lawsuit seeking to reform the RPA, and the reinsurer sought to compel arbitration. The court refused to compel arbitration, finding that the arbitration clause was invalid. Subsequently, the Sixth Circuit vacated this ruling, finding that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court. On remand to arbitration, the arbitrator then determined that the matter was not arbitrable based on the RPA’s forum selection clause. In response to that ruling, the reinsurer moved to vacate it, and to dismiss the lawsuit altogether based on the choice of a Nebraska forum in the RPA’s forum selection clause.

The court has now granted dismissal, holding that the forum selection clause was unambiguous, and it was mandatory. The court also found that the insured failed to demonstrate that the clause was obtained by fraud, duress or other unconscionable means, that a Nebraska court would not handle the suit properly, or that Nebraska was seriously inconvenient to the insured. The insured also failed to show that “public-interest” factors disfavored a dismissal. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Feb. 2, 2016).

This post written by Barry Weissman.

See our disclaimer.

APPELLATE COURT REVERSES ORDER GRANTING MOTION TO COMPEL ARBITRATION

by

In a three paragraph memorandum decision, the Ninth Circuit has reversed an order of a district court granting a motion to compel arbitration.  The Court  held that the district court erred in holding that the non-movant, GIB, had waived its right to a trial to determine the enforceability of a written arbitration agreement.  The Court stated that once GIB challenged the validity of the agreement the district court was obligated under the Federal Arbitration Act to hold a trial on the issue of the validity of the agreement.  Second, the Court held that the district court erred in holding GIB, which was not a signatory to the written arbitration agreement, bound by the agreement by the doctrine of estoppel, finding the factual record insufficient to support the district court’s ruling.  Finally, the Court held that the submission by GIB of a sworn declaration denying that the parties had entered into a written agreement, accompanied by e-mails which suggested a different, more informal, agreement, precluded the district court from deciding, as a matter of law, that the parties had entered into an agreement to arbitrate.  GIB, LLC v. Salon Ware, Inc., No. 14-55399 (9th Cir. Feb. 5, 2016) (unpublished).

This post written by Rollie Goss.
See our disclaimer.

SECOND CIRCUIT REVERSES AWARD OF ATTORNEYS’ FEES FOR CONFIRMATION OF ARBITRAL AWARD

by

The Second Circuit reversed a lower court’s decision granting attorneys’ fees for the cost of confirming an arbitration award. The dispute arose out of a shipping contract for overseas shipping of acrylonitrile, and the defendant in arbitration prevailed. Following arbitration, the district court awarded the prevailing party its fees in seeking to confirm the arbitration award under a provision in the charter agreement awarding fees for a breach of contract. The Second Circuit reversed, finding first that there was no breach of the agreement by the party losing in arbitration. Further, there could be no breach of the agreement by resisting the arbitral award’s confirmation—and even if there was—such a provision would be unenforceable. By agreeing to arbitrate, the parties “also consented to confirmation of the arbitral award in any court of competent jurisdiction,” which the court found to be an effective incorporation of the Federal Arbitration Act into the contract. The Second Circuit went further, however, in holding that any agreement purporting to limit the ability to challenge an arbitration award would be unenforceable because it would “divest the courts of their statutory and common-law authority to review both the substance of the awards and the arbitral process for compliance with § 10(a) and the manifest disregard standard.” Zurich American Insurance Co. v. Team Tankers A.S., No. 14-4036-cv (2d Cir. Jan. 28, 2016).

This post written by Zach Ludens.

See our disclaimer.

COURT DENIES MOTION TO STAY FURTHER REINSURANCE ARBITRATION PENDING APPEAL CONCERNING INITIAL ARBITRATION

by

At the end of January, the United States District Court for the Eastern District of Michigan denied a motion to stay arbitration pending appeal. The case involves a reinsurance dispute between National Union Fire Insurance Company of Pittsburgh and members of the Meadowbrook Insurance Group. Following an initial arbitration, National Union moved to confirm the award. The court confirmed in part but vacated the portion of the arbitration award dealing with prejudgment interest. As a result, the court ordered the parties to arbitrate the issue of prejudgment interest. Both parties appealed, and National Union filed a motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal.

According to National Union, the parties had already arbitrated the amount and interest in the first arbitration and the district court should have confirmed, vacated, or modified the awards—rather than submitting that question to a new arbitration—which National Union is appealing to the Sixth Circuit. However, the district court noted that the arbitration panel found in favor of National Union “in part because Meadowbrook failed to produce documentation” that would allow it to compute damages and prejudgment interest. Therefore, the district court reasoned, this issue had not already been arbitrated, and National Union was unlikely to succeed on the merits of its appeal. For this reason, among others, the court denied both National Union’s motion to amend the judgment and a motion to stay the subsequent arbitration pending appeal. Star Insurance Co. v. National Union Insurance Co. of Pittsburgh, Case No. 14-12915 (E.D. Mich. Jan. 27, 2016).

This post written by Zach Ludens.

See our disclaimer.

THIRD CIRCUIT FINDS THAT ALLEGED LEGAL ERRORS DO NOT JUSTIFY VACATUR OF ARBITRATION AWARD

by

The United States Court of Appeals for the Third Circuit recently confirmed an arbitration award in a dispute concerning the ownership of certain music rights, rejecting the argument that alleged legal errors constituted sufficient grounds to vacate the award. The underlying arbitration involved a dispute between The Pullman Group, LLC and its owner, David Pullman (collectively, “Pullman”), and the estates of John Whitehead and Gene McFadden, who were “an integral part of the Philadelphia music scene in the 1970s.” Pullman entered into a contract with Whitehead and McFadden to purchase their song catalogue, but the sale was never finalized. After the musicians passed away, Pullman and the estates agreed to arbitrate their dispute over ownership of the catalogue. An arbitration panel ruled in favor of the estates, and Pullman brought an action in federal court to vacate the award on the grounds that the panel had committed various legal errors.

The district court denied Pullman’s motion to vacate the award, which the Third Circuit affirmed. The court held that mere errors of law are insufficient to warrant vacatur of arbitration award, and that such outcome is only justified where an arbitrator’s legal error is so substantial that a party was deprived of a fair hearing. In this case, that the arbitration panel’s application of New York law and decision to exclude certain testimony was well-founded, and did not arise to the level of misconduct required to vacate the award. The Third Circuit rejected Pullman’s alternative argument that the panel’s ruling amounted to “manifest disregard of the law,” finding that even if this doctrine is still a viable ground to vacate an arbitration award (which the court declined to address), it would not apply because the panel’s decision did not ignore binding legal precedent. Whitehead v. The Pullman Group, LLC, Nos. 15-1627 & 15-1628 (3d Cir. Dec. 10, 2015).

This post written by Rob DiUbaldo.

See our disclaimer.