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New reinsurance-related and arbitration developments from Carlton Fields

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John Pitblado

SDNY CONFIRMS ARBITRATION AWARD FOLLOWING RESPONDENT’S DEFAULT

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On an unopposed petition to confirm an arbitration award, a New York federal court treated the petition and accompanying record as a motion for summary judgment. “Thus, like unopposed summary judgment motions, unopposed confirmation petitions must fail where the undisputed facts fail to show that the moving party is entitled to judgment as a matter of law.”

As the parties’ were in diversity and the amount in controversy was met for jurisdiction, the Court, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9, reviewed the parties’ broad arbitration clause and, finding no grounds for vacatur or modification of the award, granted petitioner’s request.

McGroarty v. U.S. Rare Earths, Inc., 1:16-cv-02687 (USDC S.D.N.Y. Sept. 23, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

OKLAHOMA DISTRICT COURT DENIES MOTION TO STAY ACTION DURING DEFENDANT’S INSURER’S CALIFORNIA CONSERVATION PROCEEDINGS

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This case involved a personal injury negligence action brought by plaintiffs Cameron David and Shelby Gladd against defendants Satnam Singh and his employer Landmark Logistics, Inc. (“Landmark”) in Oklahoma federal court. Landmark was insured by CastlePoint National Insurance Company(“CastlePoint”), which is currently the subject of a California conservatorship proceeding. Defendant Singh made a motion to stay, asking the Oklahoma federal court to exercise its inherent discretion to stay the case pending the resolution of the California conservatorship proceeding. Singh’s motion was based on Burford abstention, a federal abstention doctrine to prevent interference with state insurance receivership matters. Landmark did not move for a stay or join the motion.

The Oklahoma district court denied defendant Singh’s motion for a stay, finding that the appropriate circumstances warranting Burford abstention were not present in the case. Notably, the court noted that Burford abstention requires the remand or dismissal of the action, and not merely a stay. In its analysis, the Oklahoma district court found that there was no basis to determine whether defendants’ insurance claims against CastlePoint are likely to be satisfied in the California conservatorship or any ancillary proceeding. The court noted that defendant Singh did not assert or attempt to show any irreparable harm that he would suffer if plaintiffs’ negligence case was allowed to proceed, and that his reasons for staying the case related solely to who was responsible for paying the cost to defend the case and, if plaintiffs were to prevail, for satisfying an award of damages. The court also noted that because CastlePoint had already retained counsel to represent the defendants in the action, Singh had not shown any specific injury to his defense of the case. On the other hand, the court noted that a stay would cause substantial harm to plaintiffs, whose personal injury claims against defendants would be delayed while CastlePoint’s conservator receives and processes insured claims. Thus, the court held that it would be fundamentally unfair to prevent plaintiffs’ timely pursuit of their claims, for reasons having nothing to do with the merit of the claims. Thus, the court held that defendant Singh had failed to justify a stay of the case at this juncture.

Gladd v. Landmark Logistics, Inc., No. 16-894 (D) (USDC W.D. OK. Oct. 28, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD, FINDING THAT ARBITRATOR’S REFUSAL TO POSTPONE HEARING DOES NOT WARRANT VACATUR UNDER THE FEDERAL ARBITRATION ACT

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The background of this case is as follows. CM South East Texas Houston LLC and South East Texas KCH Co. LLC (collectively, “CM South”) asserted breach of contract claims against CareMinders Home Care Inc. (“CareMinders”) and demanded arbitration. After months of initial proceedings, a five day hearing was scheduled for December 2014. A scheduling conflict arose and both sides requested new hearing dates, and the hearing was rescheduled for February 2015. Yet another conflict arose, and both sides requested a new date, and this time the hearing was rescheduled for March 9-13, 2015. One of CareMinders’ key witnesses then had a family emergency. CareMinders asked the arbitrator to reschedule the hearing for some time between May and September, 2015, advising that CM South agreed to the rescheduling. After conferring with the parties and discussing available dates, the arbitrator rescheduled the hearing to March 18-21, 2015, reducing it from five to four days. The hearing took place and CareMinders’ witness attended the hearing. The arbitrator then issued an award in favor of plaintiff CM South, awarding it damages. CM South filed a motion to confirm the award in Georgia federal court, and CareMinders filed a motion to vacate the award, contending that the arbitrator engaged in misconduct by refusing to postpone the hearing when both parties agreed to the rescheduling. The district court denied the motion to vacate, finding that CareMinders failed to show that the arbitrator’s refusal to postpone the hearing amounted to misconduct or that it prejudiced CareMinders’ ability to defend the case. The court also confirmed the arbitration award, which CareMinders appealed.

The Eleventh Circuit affirmed the Georgia district court’s order confirming the arbitration award. In doing so, the Court held that an arbitrator’s refusal to postpone a hearing after it had been already rescheduled twice does not warrant vacatur of the award under the Federal Arbitration Act. The Court also noted that CareMinders’ witness attended and provided testimony at the hearing. As such, the Court further ruled that the parties were not prejudiced or deprived of a fair hearing and vacatur was not warranted.

CM South East Texas Houston v. CareMinders Home Care Inc., No. 16-11054 (11th Cir. Oct. 7, 2016).

This post written by Jeanne Kohler.
See our disclaimer.

SEVENTH CIRCUIT UPHOLDS DENIAL OF MOTION TO COMPEL ARBITRATION

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Applying Wisconsin law, the Seventh Circuit Court of Appeals determined the parties did not have an agreement to arbitrate because, even though their excess/reinsurance agreement contained “follow form” language, and the underlying contract to which the policy followed form contained an arbitration provision, it nevertheless “merely codifie[d] a procedure whereby the parties can potentially agree to arbitrate.” The procedure required: (1) a demand by the insured; (2) a dispute between the insurers about liability; (3) payment by each insurer of half the disputed amount; and (4) acceptance of payment by the insured.

Although the insured and the insurers on the underlying policy met these steps prompting arbitration, none occurred with respect to the excess/reinsurance policy. The excess/reinsurance insurer never received a request for payment from the insured or made a payment to the insured. As such, the Court determined the parties did not agree to arbitrate a dispute with the excess/reinsurance insurer.

State of Wisconsin Local Government Property Ins. Fund v. Lexington Ins. Co., No. 15-1973 (7th Cir. Oct. 21, 2016).

This post written by Nora A. Valenza-Frost.

See our disclaimer.

TENNESSEE DISTRICT COURT ORDERS DISCOVERY OF REINSURANCE AGREEMENTS, BUT DENIES DISCOVERY OF REINSURANCE-RELATED COMMUNICATIONS, OTHER SIMILAR CLAIMS FILES, CLAIMS-HANDLING AND UNDERWRITING MANUALS AND ESTABLISHMENT OF RESERVES

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Plaintiffs sought coverage from the insurer Defendants for a $212.5 million dollar settlement of a claim of violation of the False Claims Act relating to errors and omissions in underwriting and origination of HUD mortgage loans. Defendants disclaimed coverage in part, stating the claim is “interrelated” to an earlier “claim” and thus barred under a later policy, and that Plaintiffs failed to timely notify Defendants of the claim. Plaintiffs sought discovery, and Defendants objected The Court largely agreed with Defendants, denying Plaintiffs’ requests for:

  • Other Similar Claims Files: although the parties should not be allowed to withhold extrinsic evidence during discovery while they wait for the Court to make a determination of ambiguity in the insurance contract, each claim is fact specific – involving different policy language and facts – and would not aid the Court in interpreting the policy language or Plaintiffs’ bad faith claims. Additionally, affidavits from each insurer reflected production would be unduly burdensome and disproportionate.
  • Claims-Handling & Underwriting Manuals of Excess Insurers: the interpretation of the excess policies depends upon interpretation of the primary policy, thus, any definition of “claim” or “interrelated” in the claims-handling manuals of the excess insurers are irrelevant. Further, what the excess insurers’ underwriting departments knew regarding the earlier “claim” is neither notice under the policies, nor relevant to interpretation of the terms “claim” and “interrelated claims.”
  • Reinsurance Communications: although the law on the discoverability of reinsurance communications is unclear, such communications are irrelevant to determining the intent of the parties to the primary insurance contract, or to Plaintiffs’ claim of bad faith.
  • Reserves: although courts are divided on the discoverability of reserves, the Court’s prior precedent held such information was a business decision and thus irrelevant to Plaintiffs’ claims.

The only discovery Defendants were compelled to produce were reinsurance agreements pursuant to Fed.R.Civ.P. 26 (a)(1)(A)(iv).

First Horizon Nat’l. Corp., et al. v. Houston Casualty Co., et al., 2:15-cv-02235 (USDC W.D. Tenn. Oct. 5, 2016).

This post written by Nora A. Valenza-Frost.
See our disclaimer.