Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Michael Wolgin

UPDATE ON LIQUIDATION OF THE HOME INSURANCE COMPANY

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The New Hampshire liquidation court approved the commutation, settlement, and release agreement between The Home Insurance Company (liquidating) and OIC Run-Off Limited (formerly known as The Orion Insurance Company) (OIC) and The London Overseas Insurance Company Limited (formerly known as The London and Overseas Insurance Company Plc) (L&O). As the motion for approval of the agreement explained, “[t]he Agreement is unusual in that the Liquidator is seeking to collect from insurers that are themselves insolvent and in insolvency proceedings in London under English law.” For example, the agreement is governed by and construed in accordance with English law and is subject to the exclusive jurisdiction of the High Court of Justice of England and Wales. The commutation agreement was approved March 13, 2017 and provides for the commutation of all of Home’s ceded and assumed business to or from OIC and L&O, as well as the resolution of all of OIC’s and L&O’s contribution claims against Home. A redacted copy of the commutation agreement, with economic terms removed, was filed with Home’s motion for approval. In re Liquidation of The Home Insurance Co., Case No. 217-2003-EQ-00106 (N.H. Sup. Ct. Mar. 13, 2017) (Order Approving Commutation); Motion for Approval (Feb. 6, 2017).

This post written by Gail Jankowski.

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ENGLISH HIGH COURT OF JUSTICE ANALYZES STANDARDS GOVERNING FRAUDULENT INDUCEMENT CLAIMS IN REINSURANCE DISPUTES

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The Court of Appeal of England and Wales approved the judgment of the trial court in a reinsurance dispute between Axa and Arab Insurance Group (Arig) related to certain insured energy construction risks. The trial court had ruled in favor of Arig finding that, notwithstanding that an “unfair presentation of the risk” was made to Axa by Arig by failing to disclose past loss statistics, the latter failed to establish that its underwriter was induced to accept the ceded risks, i.e., Axa did not demonstrate that it “would have declined the risk if a fair presentation had been made” to it by Arig. The appellate court analyzed at length the evidence and testimony before the trial court related to the placement of the risks and the negotiation process. The court upheld the judgment, clarifying that the standard for evaluating non-disclosure includes both an objective component involving what a reasonable underwriter would conclude, and subjective components involving what the insured or broker would have said to the underwriter. The court made clear that whether the underwriter was induced turns on a subjective test; the fact that a reinsurer “could have been interested in something is irrelevant if in fact he would not have been.” Axa Versicherung Ag v. Arab Insurance Group, Case No. [2017] EWCA Civ 96 (Royal Courts of Justice Feb. 28, 2017).

This post written by Michael Wolgin.

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FIFTH CIRCUIT DISMISSES FOR LACK OF JURISDICTION APPEAL OF COURT’S ORDER SELECTING ARBITRATORS

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Bordelon Marine, LLC sued Bibby Subsea ROV, LLC for damages and for writ of attachment arising out of a disagreement over the chartering of an offshore vessel. Pending arbitration, litigation was stayed, but a dispute arose regarding the selection of arbitrators. Bordelon filed a “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” contending that Bibby violated the arbitration clauses by appointing a certain arbitrator. After the court granted Bibby’s motion confirming the selection of arbitrators, Bordelon appealed to the Fifth Circuit.

The Fifth Circuit focused on whether it had subject matter jurisdiction to hear the appeal. Bordelon first argued that the Fifth Circuit had appellate jurisdiction because the lower court’s order amounted to a final decision. The Fifth Circuit rejected this argument, reasoning that the court’s order did not expressly stay the case, and furthermore, the court had subsequently reopened the case. Bordelon’s second argument turned on whether or not its “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” amounted to an appealable petition directing arbitration to proceed under § 4 of the FAA, or alternatively a non-appealable motion under § 5 to intervene in the selection of an arbitrator. The Fifth Circuit concluded that the order was the latter, and therefore, the court found that it did not have subject matter jurisdiction over the appeal. Bordelon Marine, LLC v. Bibby Subsea ROV, LLC, Case No. 16-30847 (5th Cir. Apr. 14, 2017).

This post written by Gail Jankowski.

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SECOND CIRCUIT FINDS ARBITRATOR DID NOT COMMIT A MANIFEST DISREGARD OF THE LAW IN DISPUTE OVER CONSTRUCTION WORK AT THE WHITESTONE BRIDGE

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In a dispute between a construction company hired by New York State to replace a portion of the Whitestone Bridge and a steel company regarding the timeliness of certain deliveries related to the project, the Second Circuit Court of Appeals affirmed the confirmation of the roughly $6.5 million net arbitration award in favor of the construction company. The steel company contended that the arbitrator committed a “manifest disregard of the law” by disregarding an order issued by a New Hampshire court in a related action. The order contained statements suggesting that the steel company was not liable in the instant dispute. The Second Circuit, however, rejected the steel company’s argument, agreeing with the lower court that there was “ample support for the arbitrator’s ruling” that the cited language from the New Hampshire court’s order was only dicta.

The steel company also argued that the arbitrator manifestly disregarded the terms of a “Letter Agreement” between the parties, but the court found that there was insufficient evidence to conclude that arbitrator had no “colorable justification” for finding that the alleged agreement was never finalized and was not binding. The court also rejected an argument from the steel company that the arbitrator erroneously imposed liability on the company for a time period that was not covered by the parties’ agreements. The court held that the steel company failed to show beyond speculation why the arbitrator decided to award certain percentages of the claims at issue. The court also held that to the extent the steel company was arguing that the arbitrator manifestly disregarded the evidence, the Second Circuit “does not recognize” that reason as “a proper ground for vacating an arbitrator’s award.” Tully Construction Co., Inc. et al. v. Canam Steel Corp., Case No. 16-1324-cv (2d Cir. Mar. 23, 2017).

This post written by Michael Wolgin.

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COURT UPHOLDS ARBITRATION AWARD DESPITE CHALLENGE TO ARBITRATOR’S USE OF EXCLUDED EVIDENCE

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Jersey Shore University Medical Center discharged a staff nurse employee for her actions when a female patient was assaulted by another patient in the nurse’s assigned work area. A labor organization that represents employees at the medical center, submitted a grievance to arbitration on behalf of the discharged nurse, pursuant to the parties’ collective bargaining agreement. The arbitrator issued an opinion and award which rescinded the medical center’s decision to terminate the nurse and replaced it with a suspension without pay for time served. The arbitrator based his decision on a number of factual findings, including findings related to three pieces of evidence (a medical record, a record of post-incident staffing changes, and the nurse’s work history) that the arbitrator excluded or never heard at the hearing.

The medical center filed an action in court to vacate the award, arguing that (1) the arbitrator disregarded certain evidentiary rulings made at the arbitration hearing and (2) the award was a “manifest disregard of the law.” The medical center explained that the arbitrator’s exclusion of certain pieces of evidence at the hearing and subsequent reliance on that evidence in his ruling, unreasonably prejudiced the medical center’s right to a fair hearing and contradicted the arbitrator’s own legal rulings. The court, however, disagreed and denied the medical center’s petition to vacate the award. The court found that the medical center failed to demonstrate that any of the three evidentiary issues amounted to misconduct or prejudice. The court also found that “even if ‘manifest disregard or the law’ remains a viable argument in the Third Circuit in the wake of Hall Street Associates, [the medical center] has failed to meet the relevant standard.” Jersey Shore University Medical Center v. Local 5058, Health Professionals & Allied Employees, AFT/AFL-CIO, Case No. 16-cv-04840 (USDC D.N.J. Mar. 16, 2017).

This post written by Gail Jankowski.

See our disclaimer.