Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Rob DiUbaldo

Rob DiUbaldo

FOURTH CIRCUIT REFUSES TO VACATE FINRA ARBITRATION AWARD, DESPITE PARTY’S CLAIM THAT IT HAD NO OPPORTUNITY TO PARTICIPATE IN SELECTION OF ARBITRATORS AND CHALLENGES TO DAMAGES CALCULATION

by

UBS Financial Services’ motion to vacate a FINRA arbitration award was denied, despite its claims that the panel was improperly chosen and that the panels damages award was flawed in that it did not impose an offset.

UBS brought the arbitration against Padussis seeking repayment of a loan, and Padussis counterclaimed. FINRA mailed a list of potential arbitrators to the parties, which then had twenty days to rank and strike the arbitrators. Padussis did so, but UBS did not. After the deadline passed, UBS moved to extend its time to rank and strike, claiming it never received the list. FINRA denied this motion and selected a panel of three arbitrators based on Padussis’ preferences. The panel ultimately awarded over $1.6 million to UBS and over $900,000 to Padussis, but did not provide that these amounts would offset. Padussis then claimed that he could not pay the $1.6 million award “due to a statutory lien and the prospect of bankruptcy,” such that UBS would receive nothing yet need to pay Padussis more than $900,000.

UBS claimed the award should be vacated because the panel was not selected in accordance with the parties’ agreement. The Court disagreed, finding that FINRA had followed its own rules by mailing the list to the parties and selecting arbitrators based on the responses it received. Further, the Court held that whether to grant UBS an extension to respond to the list was a procedural question that was completely within FINRA’s discretion.

UBS also asked the Court to impose an offset, but the Court declined to do so, noting that the “arbitration award expressly denied ‘[a]ny and all relief not specifically addressed’ by the award, and the award did not mention an offset.” Imposing an offset would thus be a modification of the award and “would not effectuate the intent of the arbitrators,” whose intent could not be assumed. Such a presumption of an offset was made part of FINRA’s rules for awards issued after October 24, 2016, but this change came too late to assist UBS. UBS Financial Services, Inc. v. Padussis, No. 15-2145 (4th Cir. Nov. 22, 2016)

This post written by Jason Brost.

See our disclaimer.

NINTH CIRCUIT RULES FEDERAL ARBITRATION ACT IS SUBJECT TO EQUITABLE TOLLING, PERMITTING CHALLENGE TO AN ARBITRAL AWARD OUTSIDE THE TIME PERIOD SET FORTH IN THE FAA

by

The Ninth Circuit, as a matter of first impression, ruled that the Federal Arbitration Act (“FAA”) is subject to equitable tolling. Plaintiff Move, Inc. (“Move”) moved to vacate an arbitration panel’s adverse decision, claiming it was prejudiced by the chairperson’s fraudulent misrepresentation that he was a licensed attorney (when he was not), and that such criteria was required for the chairperson’s service on the panel. Move did not discover the chairperson’s misrepresentation until four years after the arbitral award, and thus outside the FAA’s three month timeline for an aggrieved party to petition to vacate an arbitration decision. The court analyzed the FAA’s text, purpose, and structure, concluding that they did not preclude the application of equitable tolling with respect to vacatur of the award or bar Move’s application based on timeliness.

The court then determined that the arbitrator’s misrepresentation constituted sufficient grounds to vacate the panel’s decision. Move had made clear throughout the arbitrator selection process how important it was that the chairperson of the arbitration panel be an experienced, licensed attorney. Even though it was impossible to determine whether the imposter’s presence influenced other panel member’s decisions, or the outcome itself, the prejudice came from his inclusion on the panel as chairperson, when his misrepresentation should have disqualified him from the list of eligible arbitrator candidates.

Move, Inc. v. CitiGroup Global Markets, Inc., No. 14-56650 (9th Cir. Nov. 4, 2016).

This post written by Thaddeus Ewald .

See our disclaimer.

RECIPIENT OF ARBITRATION AWARD IN REINSURANCE DISPUTE PERMITTED DISCOVERY OF FUNDS WITHHELD ACCOUNT

by

Plaintiffs secured an interim arbitration award in the amount of $7.8 million, plus interest, in what the court described as a complex insurance/reinsurance program. Seeking to collect on the award, plaintiffs served a subpoena on a third party which allegedly owed funds to the judgment debtor evidenced by a liability set up on its books in a funds withheld account. The recipient of the subpoena moved to quash the subpoena. The court held that the holder of the arbitration award was entitled to conduct discovery reasonably calculated to lead to the discovery of assets of the judgment debtor. The court found that it was undisputed that the funds listed on the books of the recipient of the subpoena were identified as a liability owed to the judgment debtor. The court enforced the subpoena, ordering the recipient of the subpoena to respond to the subpoena, and entered a “restraining notice” preventing the subpoena’s recipient from transferring the funds or taking them for its own use. The court did not find that the judgment debtor was entitled to the funds in the funds withheld account. That issue will be resolved later, if necessary. Amtrust North America, Inc. v. Preferred Contractors Insurance Co. Risk Retention Group, Case No. 15-7505 (USDC S.D.N.Y. Oct. 18, 2016)

This post written by Rollie Goss.
See our disclaimer.

UK COURT CONSIDERS WHETHER LATER CONDUCT STEMMING FROM A LOSS EVENT SHOULD BE CONSIDERED A LOSS UNDER AN EXCESS OF LOSS REINSURANCE POLICY

by

This case considers an appeal against an arbitration award concerning whether health claims from persons involved in cleaning up the 9/11 World Trade Center site should be considered to be multiple claims or should be aggregated as losses or liabilities arising from the terrorist event. The underlying health claims were submitted by workers who became ill after they were not provided respirators or “properly trained” in the conduct of cleanup of debris from the World Trade Center site. The court described the claims as “a single event disassociated from the negligence which gave rise to the underlying liability claims.” The appeal described the issue on appeal as being: “Where the insured’s liability arises as a result of a continuing state of affairs (the failure to provide a safe system of work and equipment to multiple workers, working in disparate places over an extended period) is this to be treated as “a single event” of negligence or does the relevant event only arise when the harm giving rise to the insured’s liability occurs?”

The arbitrators concluded that the health claims could be aggregated under the applicable reinsurance contract and that the reinsurers would bound to indemnify with respect to paid health claims. The arbitrators’ analysis of the issue, and the court’s discussion, focused on the nature of the causal link between the terrorist attacks and the health claims of the cleanup personnel. The arbitrators employed a “but for” causation test rather than a “proximate cause” test, and looked to determine whether the terrorist event was a “significant cause” of the losses. Determining whether there was a “sufficiently significant causal connection” between the terrorist attack and the health injuries involved an exercise of judgment by the arbitrators. The court found that the arbitrators carefully considered the facts, the applicable law and the contracts in making their decision, and that they could have properly reached the decision they reached. Therefore, the appeal was not allowed.

Simmonds v. Gammell, [2016] EWHC 2515 (Commercial Court, Queen’s Bench Division Oct. 14, 2016).

This post written by Rollie Goss.
See our disclaimer.

REINSURANCE ARBITRATION AWARD STANDS IN FACE OF CHALLENGES TO RATIONALITY AND IMPARTIALITY OF DECISION

by

Yosemite Insurance Co. (“Yosemite”) lost its challenge to an arbitration award that found Nationwide Mutual Insurance Co. (“Nationwide”) was not required to cover a share of Yosemite’s settlement with the State of California regarding pollution losses from the 1950s. After the arbitral board decided in Nationwide’s favor, Yosemite challenged the impartiality and rationality of the award.

In deciding Yosemite’s challenge, the court emphasized that the bases to vacate an arbitration award under the Federal Arbitration Act (“FAA”) are narrow and impose a steep burden on the challenging party. The dispute was based on whether an exclusion for “contamination and pollution” applied to any claims made or only where the party’s “main operations” related to “contamination and pollution.” The court found that while it believed the operative language was ambiguous, the arbitrators’ decision was “anchored” in the text of the agreement. Because the decision did not stray from an interpretation and application of the agreement, or exhibit a manifest disregard for the law, the court lacked authority under the FAA to second-guess the arbitral panel’s award.

Yosemite also challenged the arbitral panel’s impartiality because one of the three members failed to disclose that he had previously represented a client in a case adverse to Yosemite—a representation Yosemite’s counsel himself did not recall. The court applied a four-factor test borrowed from the Fourth Circuit to determine whether the inadvertent failure to disclose the representation would cause a reasonable person to conclude the arbitrator was biased. The court found there was no non-speculative suggestion of a conflict of interest, no suggestion of antipathy against Yosemite, and that the ten-year old adverse representation failed to impugn the impartiality of the arbitrator.

Despite rejecting Yosemite’s challenges, the court declined to award attorneys’ fees and costs to Nationwide because the claims were not objectively unreasonable. The court did however, “encourage” Yosemite’s counsel to review the strict and demanding showings required when seeking to vacate an arbitral award.

Yosemite Ins. Co. v. Nationwide Mut. Ins. Co., Case No. 16-5290 (USDC S.D.N.Y. Nov. 10, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

See our disclaimer.