Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Rob DiUbaldo

ARBITRATION CLAUSE IN BODY OF REINSURANCE AGREEMENT GOVERNS OVER PROVISION IN ENDORSEMENT

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In a dispute between First Mutual, a ceding company, and its reinsurer, Infrassure, over which of two competing arbitration clauses in a reinsurance contract governed, the Second Circuit affirmed a lower court decision in favor of the reinsurer and found the arbitration provision contained in the body of the operative agreement controlling over a second provision located in an endorsement.

First Mutual, the insurance arm of New York’s Metropolitan Transit Authority, sought to resolve its claims against Infrassure arising from damage caused by Superstorm Sandy in a London arbitration. The endorsement relied upon by First Mutual contained the second arbitration clause, which was titled “LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY).” Infrassure argued the endorsement was inapplicable because it was not a UK or Bermuda insurer. Another provision in the agreement, the so-called ‘Titles Clause,’ provided that titles in the agreement existed for convenience and were not deemed to limit or affect the provisions they titled. First Mutual argued that the endorsement’s title limiting the provision to UK and Bermuda Insurers could not limit the substance of that provision.

The Second Circuit ruled that the reinsurance agreement was unambiguous in this respect, and that the arbitration clause contained in its body controlled, because the second clause was contained in a section expressly limiting its effect to UK and Bermuda insurers. Furthermore, the court noted that First Mutual’s construction of the Titles Clause would render several critical clauses within the reinsurance agreement meaningless because the titles provided critical context regarding what the language therein governed.

Infrassure, Ltd. v. First Mut. Transp. Assurance Co., No. 16-306 (2nd Cir. Nov. 16, 2016).

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

See our disclaimer.

DIVORCE CASE SPANNING CONTINENTS SPAWNS DISCOVERY SANCTIONS FOR COMPANY’S FAILURE TO PRODUCE DOCUMENTS PHYSICALLY LOCATED ABROAD

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The Eleventh Circuit affirmed a district court’s order compelling discovery and awarding contempt sanctions after a man refused to answer discovery requests and defied orders requiring production of documents in a divorce proceeding. After filing for divorce in Russia, the plaintiff sought discovery in countless courts across Europe and the Caribbean searching for documents she believed would reveal her husband’s secret ownership of assets in a Bahamian corporation. Plaintiff ultimately sought relief in federal district court in Georgia seeking discovery against an associated Atlanta corporation. A magistrate judge ordered the company to respond to the requests for production, but after an initial round of non-compliance and accompanying sanctions, it only produced twenty-three pages of documents.

The courts dealt extensively with the interpretation of 28 U.S.C. § 1782, which authorizes district courts to order discovery for use in a proceeding in a foreign tribunal upon satisfaction of certain requirements. The Eleventh Circuit addressed the first issue, defendant’s extraterritoriality argument that § 1782 does not reach documents located in foreign countries, and rejected it as a matter of first impression. It read the statute in conjunction with the Federal Rules of Civil Procedure to allow discovery of materials outside the United States so long as they are in the possession or control of the responding party. The Eleventh Circuit affirmed the district court’s broad interpretation of the “control requirement” to include situations where a company has the legal right to obtain documents requested and where the affiliated corporate entities have actually shared responsive information and documents in their normal course of business dealings. Finding sufficient circumstantial evidence that the Atlanta company had “control” over its Bahamian counterpart, the court affirmed and paved the way for the disclosure of documents the plaintiff had been searching for all over the world.

Sergeeva v. Tripleton Int’l Ltd., No. 15-13008 (11th Cir. Aug. 23, 2016).

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

See our disclaimer.

SOUTHERN DISTRICT OF INDIANA DETERMINES PARTIES’ DISPUTE REGARDING NONPAYMENT OF BOND BY SURETIES WAS NOT WITHIN THE SCOPE OF ARBITRATION CLAUSE

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In order to be arbitrable, a dispute must fall within the scope of the parties’ operative arbitration agreement. Here, a non-signatory to the relevant agreement was seeking to “invoke an arbitration provision that was not expressly incorporated into a contract to which the non-signatory is a party”. Finding that authority for this proposition was absent from the movant’s papers, a federal court denied a party’s motion to compel.

The co-surety non-signatories were defendants in the action by way of their nonpayment of a payment bond, the amount of which was undisputed. The service agreement which addressed the work to be performed, for which the co-sureties issued a payment bond, contained an arbitration provision to which they were not parties. Ultimately, the Court determined the “arbitration provision cannot be read to encompass a dispute of this nature” and that there was no evidence at the time the service agreement was executed that the parties “intended for the arbitration provision to cover an unnamed surety’s failure to perform under a yet-to-be-secured payment bond” for an undisputed sum. Thus, the co-sureties’ motion to dismiss or in the alternative stay litigation and compel arbitration was denied.

Aztech Engineering Group, Inc. et al. v. Liberty Mut. Ins. Co., et al., 1:16-cv-01657 (USDC S.D. Ind. Oct. 1, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

SUIT AGAINST REINSURER IN CALIFORNIA DISMISSED FOR LACK OF PERSONAL JURISDICTION

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A federal district court in California recently dismissed a lawsuit brought by a cedent against its reinsurer for lack of a personal jurisdiction, where the reinsurer’s only contacts with the state derived from the fact that the operative reinsurance certificates were entered into with a California company and that it attempted resolve the claims at issue by engaging in certain activities in the state.

The lawsuit centered on certain reinsurance certificates between the American Insurance Company (“TAIC”) and R&Q Re, a Pennsylvania corporation, regarding coverage for underlying asbestos claims implicating certain excess policies reinsured by the certificates. When R&Q declined to pay amounts billed under the certificates based upon insufficient notice, TAIC commenced suit, and R&Q moved to dismiss for lack of jurisdiction.

In dismissing the action, the court found that it lacked both general and specific personal jurisdiction over the dispute. With regard to the former, the court held that it lacked general jurisdiction because R&Q Re is a Pennsylvania corporation, even though it is licensed to do business in California and maintains a registered agent in the state for purposes of service of process. As for the latter, the court found that the fact that the reinsurance certificates were entered into with TAIC, a California company, was insufficient to warrant specific personal jurisdiction. Similarly, R&Q’s contacts with TAIC purely related to its resolution of the subject claims were insufficient, even including a visit to California to conduct an audit where the visit occurred because TAIC refused to send files out-of-state. American Ins. Co. v. R&Q Reinsurance Co., Case No. 16-03044 (USDC N.D. Cal. Oct. 12, 2016).

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

See our disclaimer.

SDNY RESOLVES IMPASSE AND SELECTS UMPIRE FOR ARBITRATION UNDER THE FAA

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Relying on its authority pursuant to the Federal Arbitration Act (“FAA”) and the language of the operative contract, the U.S. District Court for the Southern District of New York selected an umpire for an arbitration from a list of ten candidates provided by the parties.

9 U.S.C. § 5 directs a district court to “designate and appoint an arbitrator… or umpire, as the case may require” upon “the application of either party to the controversy” following “a lapse in the naming of an arbitrator… or umpire”. The parties’ agreement further provided that “if the two arbitrators fail to agree on a third arbitrator within 30 days of their appointment, either party may make application” to any “court of competent jurisdiction in the City, County, and State of New York.

Petitioner timely selected its arbitrator and, months later, respondent selected theirs. Following the exchange of lists of potential umpires, respondent “largely failed to engage in the process of selecting the umpire”, prompting the filing of the action. In selecting the umpire, the Court was guided by the requirements of the umpire candidates per the parties’ arbitration agreement. Finding a number to be disqualified and others to be technically qualified but far less experienced, the Court made its umpire selection and directed the case be closed.

National Union Fire Ins. Co. of Pittsburgh, PA v. Source One Staffing, LLC, 1:16-cv-06461 (USDC S.D.N.Y. October 13, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.