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New reinsurance-related and arbitration developments from Carlton Fields

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COURT APPROVES REPLACEMENT ARBITRATOR IN REINSURANCE DISPUTE DESPITE TECHNICAL VIOLATION OF ARBITRATION AGREEMENT

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In a short handwritten ruling, a court recently denied Odyssey Reinsurance Company’s challenge to a replacement arbitrator appointed by its opponents, Certain Underwriters at Lloyds London Syndicate 53 and Reliastar Reinsurance Group. The parties had selected their arbitrators and were beginning the process of selecting an umpire, when Lloyd’s and Reliastar informed Odyssey that they had replaced their appointed arbitrator. Odyssey objected to the replacement arbitrator on the ground that the individual did not satisfy the requirements of the underlying arbitration agreements, which provided: “The arbitrators and umpire shall be officials of Insurance and or Reinsurance companies authorized to transact business in one or more states of the United States of America and writing the kind of business about which the difference has arisen.” Odyssey Re contended that, while the replacement arbitrator was an officer of a broker that had corporate affiliates that wrote the type of insurance business at issue in the arbitration, the arbitrator was not an officer of an actual insurance or reinsurance company. The court rejected Odyssey’s objection, ruling simply that the arbitrator “meets the qualifications” of the arbitration agreement. Odyssey Re v. Certain Underwriters at Lloyds London Syndicate 53 et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Barry Weissman.

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COURT VACATES ARBITRATION DECISION THAT ALLOWED CLASS MEMBERS TO OPT-OUT OF INJUNCTIVE RELIEF CLASS, FINDING ARBITRATOR EXCEEDED HER AUTHORITY AND MANIFESTLY DISREGARDED LAW

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Reviewing a previously conferred arbitration award, a district court in New York granted defendant Sterling Jewelers’ motion to vacate the decision to the extent that it would have allowed class members the opportunity to opt-out. In 2008, plaintiff Laryssa Jock and others sued defendant for sex discrimination. After significant motion practice and discovery that extended multiple years, an arbitrator certified a class for declaratory and injunctive relief claims. The arbitrator subsequently allowed class members the opportunity to opt-out.

On review, defendant first alleged that the arbitrator exceeded its authority to certify a class by binding over 40,000 absent class members, and not just those class members whom had affirmatively opted-in to the class or whom were represented by counsel in the arbitration. The court did not find this argument persuasive noting that all class members agreed to arbitration in prior employment agreements thereby granting an arbitrator the power over absent class members. The court did find, however, that the arbitrator exceeded her authority and manifestly disregarded the law by permitting class members to opt-out of injunctive and declaratory relief based on Rule 23(b)(2). The court found that under Rule 23, “the relief sought must perforce affect the entire class at once.” Instead, the arbitrator failed to consider the U.S. Supreme Court’s Wal-Mart v. Dukes decision, whereby “opt-out classes may not be certified for the purposes of seeking classwide injunctive relief.” For these reasons the court vacated the class determination award’s opt-out provision for injunctive and declaratory relief but upheld the rest of the award. Jock v. Sterling Jewelers, Inc., Case No: 08 Civ. 2875 (JSR) (USDC S.D.N.Y. Nov. 16, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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SECOND CIRCUIT SUMMARILY AFFIRMS DENIAL OF PETITION TO VACATE ARBITRATION AWARD BASED ON PARTIALITY CLAIM

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Late last month, the Second Circuit Court of Appeals summarily affirmed denial of a petition to vacate an arbitration award where a party was arguing that the arbitrator was biased. The case involved a dispute between an Israeli medical device company and a New York-based investment company and whether the medical device company owed a fee when it located an investor. The investment company argued that “the Arbitrator’s procedural rulings and fee award in [the medical device company]’s favor, along with her professional affiliations, evince[d] partiality.” The investment company attempted to point to the facts that (i) the arbitrator struck six of its ten document requests and refused to grant it an extension of time to engage an expert witness and (ii) the arbitrator came from the International Chamber of Commerce, where two attorneys of the medical device company were affiliated, neither of which the trial court accepted as bases for vacating the arbitration award. The Second Circuit entered an order summarily affirming. Landmark Ventures, Inc. v. InSightec, Ltd., No. 14-4599-cv (2d Cir. Oct. 30, 2015).

This post written by Zach Ludens.

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VERMONT REVISES CREDIT FOR REINSURANCE REGULATION

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The Vermont Department of Financial Regulation recently amended its regulation pertaining to credit for reinsurance. As we detailed on June 16, 2015, the amendment follows a proposal issued by the Department of Financial Regulation earlier this year. This follows a 2014 amendment to Vermont’s Credit for Reinsurance Act and brings the regulations in compliance with that act. Specifically, the amended regulation sets forth the procedural requirements through which a Vermont insurance company may take credit for insurance ceded to a reinsurer in line with the amended Credit for Reinsurance Act, as well as requires specific clauses in the reinsurance agreements in order for ceding insurers to receive credit for reinsurance.  4-3 Vt. Code R. § 32 (Oct. 28, 2015).

This post written by Zach Ludens.
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COURT FINDS THAT FOLLOW THE FORTUNES DOCTRINE DOES NOT APPLY TO CLAIMS AGAINST A REINSURANCE PROGRAM’S TPA, BUT DISMISSES SUIT AGAINST IT ON OTHER BASES

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A New York federal district court recently held that the follow the fortunes doctrine does not govern certain claims brought against a third-party administrator of a reinsurance program, but otherwise granted the administrator’s motion to dismiss on various grounds. AmTrust North America, Inc. and its affiliate, Technology Insurance Company, Inc., brought suit against certain individuals and companies in which those individuals were purportedly involved (the “Third-Party Plaintiffs”) seeking a declaratory judgment and monetary damages arising from a reinsurance venture. The gist of the insurers’ claims was that the Third-Party Plaintiffs fraudulently induced the insurers to act as “middle men” in a reinsurance program that was supposed to be structured so that the insurers avoided risk, when in fact they were exposed. The Third-Party Plaintiffs, in turn, sued Network Adjusters, Inc., the claims administrator for the program, alleging that its conduct inflated the insurers’ purported losses.

The factual background discussing the complex transactions involved in the lawsuit is described here. Network moved to dismiss the third-party complaint. The court denied the prong of Network’s motion that sought dismissal under the follow the fortunes doctrine, finding the doctrine inapplicable to the claims alleged against Network, which did not arise from a cedent/reinsurer relationship. Dismissal was nonetheless warranted because: (a) the Third-Party Plaintiffs’ breach of contract claim was not actionable, as they were not parties to or third-party beneficiaries of the contract under which the claims against Network arose; (b) Network owed no duty of care to the Third-Party Plaintiffs, defeating the cause of action for negligence; (c) the Third-Party Plaintiffs’ contribution claim sought only economic/contract damages, and was not cognizable under New York law; and (d) the causes of action for common law and contractual indemnification failed because Network owed no independent duties to the Third-Party Plaintiffs, nor did they plead facts alleging that Network’s contractual duty to indemnify was triggered. Amtrust North America, Inc. v. Safebuilt Insurance Services, Inc., No. 1:14-cv-09494 (USDC S.D.N.Y. Oct. 28, 2015).

This post written by Rob DiUbaldo.

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