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FEDERAL COURT REMANDS INSURANCE DISPUTE TO STATE COURT BASED ON WAIVER

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A New York federal court remanded a reinsurance dispute to state court, based on the defendant’s waiver of its right to remove. Plaintiff R&Q Reinsurance Company (“R&Q”) brought an action against Allianz Insurance Company (“Allianz”) regarding a dispute as to R&Q’s indemnity obligations to Allianz under two reinsurance contracts. Allianz timely removed the action, as it met all the requirements for federal diversity jurisdiction. However, R&Q moved to remand, based on the fact that Allianz had already answered and counterclaimed in state court, and had therefore waived its right to remove. The court agreed, granting the remand, finding that Allianz’s counterclaims, which sought affirmative relief, constituted a voluntary submission to the state court’s jurisdiction. The court denied R&Q’s bid for attorney’s fees, however, finding that Allianz had a reasonable basis on which to remove, particularly given that the action otherwise met the requirements for diversity jurisdiction. R&Q Reinsurance Co. v. Allianz Ins. Co., Case No. 15-00166 (USDC S.D.N.Y. March 20, 2015)

This post written by Catherine Acree.

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COURT ADDRESSES HONORABLE ENGAGEMENT PROVISION IN ARBITRATION CLAUSE

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In First State Insurance Company v. National Cas. Co., 2015 WL 1263147, No. 14-1644 (1st Cir. March 20, 2015), the U.S. Court of Appeals for the 1st Circuit (the “Court of Appeals”) affirmed the lower court’s refusal to vacate an arbitration award involving contract interpretation and addressed the operation and effect of an “honorable engagement provision” in an arbitration clause.

In this case, the Appellant/Reinsurer sought to vacate a contract interpretation award involving eight reinsurance and retrocessional agreements because the arbitrators exceeded their scope of powers by re-writing the terms of the parties’ agreements. Specifically, the Appellant/Reinsurer asserted that the payment protocol set forth in the arbitration award was not based on the parties’ agreements and obligated Appellant/Reinsurer to pay billings that may not fall within the terms and conditions of the agreements. The Appellant/Reinsurer further asserted that the payment protocol would foreclose or impair its broad access rights under certain inspection and audit provisions of the agreements by conditioning those rights on the transmittal of an appropriate time-of-payment reservation of rights.

Regarding the payment protocol, the Court of Appeals determined that the payment protocol in the award tracked the plain language of the relevant portions of the parties’ reinsurance agreements. Concerning the challenge to the reservation of rights procedure, the Court of Appeals noted that the arbitration clauses for the reinsurance agreements contained an honorable engagement provision, which directed the arbitrators to consider each agreement as an “honorable engagement rather than merely a legal obligation” and further stated that the arbitrators “are relieved or all judicial formalities and may abstain from following the strict rules of law.” The Court of Appeals held that the honorable engagement provisions empowered arbitrators to grant forms of relief, including equitable remedies not explicitly mentioned in the underlying agreement. The Court of Appeal viewed the honorable engagement provisions as enhancing the prospects for a successful arbitration because they provided the arbitrators with the flexibility to custom-tailor remedies to fit particular circumstances.

This post written by Kelly A. Cruz-Brown.

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SECOND CIRCUIT AFFIRMS APPLICATION OF ILLINOIS NOTICE/PREJUDICE RULE IN REINSURANCE ROW

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Granite State Insurance Company (“Granite State”) brought an action against Clearwater Insurance Company (“Clearwater”) regarding a dispute over reinsurance claims Granite State made, and which Clearwater denied based on late notice. The claims pertained to underlying settlements of a large number of asbestos claims. The reinsurance certificates required prompt notice “of any event or development” which Granite State “reasonably believe[d] might result in a claim.” The district court found that Granite State’s notice to Clearwater under the reinsurance certificates at issue was untimely, and the Second Circuit affirmed.

In particular, the Second Circuit resolved a question raised on appeal pertaining to which state law applied. The parties agreed that, if there was a conflict of laws, Illinois law would apply under a “significant contacts” analysis, versus the law of the state where the action was pending – New York. But Granite State argued that Illinois law did not clearly conflict with New York law, and that therefore the New York federal court should have applied New York’s late notice rule, which requires an affirmative showing of prejudice on the part of the party asserting late notice as a bar to recovery.

The Second Circuit affirmed, finding that Illinois law was sufficiently clear on the issue, and does not require a showing of prejudice. Therefore, the laws were truly in conflict, and conflict of law analysis required application of Illinois law. Clearwater was thus not required to demonstrate that it was prejudiced by Granite State’s late notice in order to refuse to pay Granite State’s claims for reinsurance coverage.  Granite State Ins. Co v. Clearwater Ins. Co., No. 14-1494 (2d Cir. April 2, 2015).

This post written by Catherine Acree.

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COURT DIRECTS CEDENTS TO INDICATE WHETHER THEY WILL CONTINUE TO ARGUE AGAINST THE FINALITY OF AN ARBIRATION AWARD TO PRECLUDE ITS CONFIRMATION

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In a pending dispute in the Southern District of New York arising from a quota share contract of reinsurance between Employers Insurance of Wausau, as reinsurer, and Nutmeg Insurance and Twin City Fire, as cedents, Nutmeg and Twin City argue that issues relating to the parties’ obligations with respect to specific claims arising out of the parties’ reinsurance treaties, and a process to resolve issues relating to those claims, are not yet final and the court therefore lacks jurisdiction to confirm those portions of an arbitration award. The petition to confirm the award, found here, sought to confirm, in part, the arbitration panel’s directive that Nutmeg and Twin City produce certain information and documentation to Wausau supporting the claimed loss at issue. Specifically, the panel directed Nutmeg and Twin City to produce evidence of proof of payment of the loss at issue, copies of the underlying policies at issue, and a narrative and reasonable documentation demonstrating that the loss was within the treaty’s terms.

At issue was the quantum and type of information that must accompany billing in order to trigger Wausau’s payment obligations and whether Wausau may withhold payment pending its request for additional, sometimes privileged, information and documentation. Wausau informed the court that Nutmeg and Twin City’s objections were moot because all parties had performed their obligations and the entire award was now final. The court directed Nutmeg and Twin City to file a letter with the court within five days from the date of its order indicating whether they will persist with their objections to the court’s confirmation of the entire arbitration award. Employers Insurance of Wausau v. Nutmeg Insurance Co., No. 14-CV-9284 (USDC S.D.N.Y. Feb. 25, 2015).

This post written by Renee Schimkat.

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COURT AFFIRMS REINSURANCE ARBITRATION AWARD IN FAVOR OF FIRST STATE INURANCE COMPANY AND NEW ENGLAND REINSURANCE CORPORATION

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Phased arbitration proceedings involving First State Insurance Company and New England Reinsuance Corporation against Nationwide Mutual Insurance Company addressed claims arising under numerous reinsurance agreements between First State and Nationwide. The arbitration panel entered three orders, one as to each phase, in favor of First State and, as part of its decision, crafted certain remedial measures under the reinsurance agreements between the parties. The arbitration panel’s rulings engendered additional litigation on both procedural and substantive grounds before the federal court. Procedurally, the federal court ruled that First State’s motion to confirm the award as to the first phase was premature when filed because the arbitration panel had not yet ruled on the remaining phases. On reconsideration of its prior order dismissing the motion to confirm as premature, the court ruled that the motion should have been deferred and not dismissed as premature. The court consolidated the motion with First State’s other motions seeking to confirm the awards on the subsequent phases of the arbitration proceedings. Substantively, the court rejected Nationwide’s argument that the panel exceeded its authority in crafting the remedial measures in light of the high level of deference given to arbitral awards by reviewing courts. First State Insurance Co. v. Nationwide Mutual Insurance Co., Case No. 13-cv-11322-IT (USDC D. Mass. Mar. 25, 2015).

This post written by Leonor Lagomasino.

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