Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Arbitration Process Issues

Arbitration Process Issues

FEDERAL ARBITRATION ACT GOVERNS ARBITRATION BETWEEN INSURER AND AGENT, NOTWITHSTANDING INTRASTATE INSURANCE TRANSACTION

by

A court compelled arbitration governed by the Federal Arbitration Act, rather than by state law, in a dispute related to insurance coverage for transported equipment that was damaged by a train derailment. When the insurer denied coverage for the equipment damage, the railway transport companies filed breach of contract and negligence claims against their insurer and the insurer’s agent, respectively. A dispute then arose between the insurer and its agent, in which both parties demanded indemnification from the other pursuant to their underlying agency agreement.

After the insurer demanded arbitration under the agency agreement with respect to the indemnification dispute, the agent objected to the FAA’s application, contending that the arbitration should be governed by New York law. The agent reasoned that the relevant transaction was the procurement of the insurance, which was completed entirely within New York, amongst New York parties. The court rejected the agent’s argument, finding that the FAA did apply because interstate commerce was, in fact, implicated. The relevant transaction was the (interstate) agency agreement between the New York agent and the California insurer, not the (intrastate) procurement of insurance. Even if procurement of the insurance policy was relevant, “insurance is not an entirely intrastate industry” and the FAA would still apply. The court also denied the agent’s request to stay the arbitration until the transport companies’ breach of contract and negligence claims were resolved, holding that the indemnification claims were not intertwined with the coverage dispute, that the potential for inefficiency is not a valid basis for stay under the FAA. Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC, Case No. 1:11-cv-03238 (USDC S.D.N.Y. Aug. 20, 2013).

This post written by Michael Wolgin.

See our disclaimer.

STATE COURT MAY NOT IGNORE FEDERALLY MANDATED ARBITRATION CLAUSE ON EQUITABLE GROUNDS

by

After suffering loss from a drought, a farmer sued his insurance agent for negligent misrepresentation of the amount of crop insurance coverage available and the insurance company that issued his crop insurance policy. The insurance company moved to compel arbitration under the terms of the insurance policy, which is reinsured by the Federal Crop Insurance Corporation and subject to federal regulations requiring disagreements to be resolved by arbitration. The state superior court and court of appeals refused to compel arbitration on the grounds that arbitration would result in piecemeal litigation of the claims against the insurer and the insurance agent. On appeal, the state supreme court reversed, holding that the “Federal Arbitration Act prohibits a state court from ignoring a valid federally mandated arbitration clause on equitable grounds.” Weidert v. Hanson, No. 88293-2 (Wash. Sept. 12, 2013).

This post written by Abigail Kortz.

See our disclaimer.

DUAL REINSURANCE LAWSUITS ALLOWED TO CONTINUE CONCURRENTLY IN DIFFERENT DISTRICTS

by

As previously reported, Utica Mutual Insurance Company was successful in seeking transfer of its dispute against two reinsurers from the Southern District of New York to the Northern District of New York. The insurance company has again succeeded, defeating a motion to dismiss, and alternatively a motion to stay the proceeding in the Northern District of New York in favor of a suit initiated by one of the reinsurers against Utica in Wisconsin. Rejecting defendants’ contention that the “first-file rule” requires a stay of the New York lawsuit, the court determined that the New York suit can proceed along side the Wisconsin dispute because: a) the New York suit involves an additional defendant not present in the Wisconsin proceeding, b) the New York suit involves an additional claim under the Federal Arbitration Act, and c) Utica asserts it is not amenable to personal jurisdiction in Wisconsin. Utica Mutual Insurance Co. v. Employers Insurance Co. of Wausau, Case No. 6:12-CV-1293 (N.D.N.Y. Sept. 26, 2013).

This post written by Abigail Kortz.

See our disclaimer.

TEXAS APPEALS COURT DISMISSES INTERLOCUTORY APPEAL OF ORDER COMPELLING ARBITRATION OF INSURANCE DISPUTE

by

In a dispute between two insurance companies regarding an underwriting agreement, the arbitrator selection process broke down when the arbitrators could not agree on appointment of the umpire. Each party raised concerns about the qualifications of the other party’s umpire nominees and reached such an impasse that they resorted to the courts for declaratory relief. The trial court entered a temporary injunction ordering the plaintiff to desist from arbitrating or litigating until the umpire selection dispute could be resolved and entered an order compelling arbitration and plaintiff’s participation in the umpire selection process as provided by the arbitration clause in the underwriting agreement. Plaintiff challenged both orders in an interlocutory appeal. The appellate court lacked jurisdiction to review the order to compel arbitration in an interlocutory appeal because the Federal Arbitration Act prohibits such review, but did affirm the temporary injunction. Drobny v. American National Insurance Co., Case No. 01-12-01034-CV (Tex. App. Aug. 29, 2013).

This post written by Abigail Kortz.

See our disclaimer.

COURT DECLINES TO APPOINT UMPIRE OR ORDER SEPARATE ARBITRATIONS IN REINSURANCE DISPUTE

by

When a reinsurer refused to reimburse two AIG insurance companies for the insurers’ losses arising out of asbestos litigation, the AIG companies made a demand for a single arbitration under three reinsurance agreements between the parties. The reinsurer delayed the process of appointing an arbitration panel by asserting that differences between the contracts warranted three separate arbitrations. The insurers petitioned the court to appoint an umpire – two other arbitrators having already been appointed by the parties – under Section 5 of the Federal Arbitration and the reinsurer petitioned the court to order separate arbitrations under Section 4 of the Act. The court refused both parties’ demands, concluding that both issues would require the court to decide the core dispute: whether the insurers’ demand for a single arbitration was improper. The court ordered the parties to proceed with the agreed upon arbitrator selection process, so that the single arbitration panel could address the issue of whether the demand for a single arbitration was improper. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. C 13-2924 (USDC N.D. Cal. Aug. 19, 2013).

This post written by Abigail Kortz.

See our disclaimer.