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Arbitration Process Issues

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

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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.

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DUAL REINSURANCE LAWSUITS ALLOWED TO CONTINUE CONCURRENTLY IN DIFFERENT DISTRICTS

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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

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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

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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.

CIRCUIT COURTS ADDRESS RES JUDICATA CLAIMS IN ARBITRATION CONTEXT

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The Second and Eighth Circuit Courts of Appeal have both issued recent opinions regarding res judicata issues in the context of arbitrations. In Lobaito v. Chase Bank, No. 12-3492 (2d Cir. July 16, 2013), the Court affirmed a district court’s dismissal under Rule 12(b)(6) of a complaint alleging the same claims as had been arbitrated to conclusion in a FINRA arbitration, in favor of the defendant bank, and against a pro se former employee of the bank. The Court held that the district court properly found res judicata applied to the claims – which were identical to the claims in the FINRA arbitration and between the same parties – and, even if res judicata did not apply, construing the pro se plaintiff’s claim as a motion to vacate the FINRA award, the Court found the plaintiff’s motion to vacate was untimely and futile anyway.

The Eight Circuit Court of Appeals reviewed a district court’s grant of summary judgment in favor of an employer in a dispute with an employee, who was represented by his Union. Previous litigation between the parties as to the arbitrability of the employment dispute resulted in a district court decision in favor of the Union, which referred the parties to arbitration. However, before the arbitration commenced, the employer filed a new declaratory judgment action, arguing that the dispute was not arbitrable under the contract alleged by the Union in its arbitration claim, and sought an order precluding arbitration of the issue. The Court granted the employer’s motion for summary judgment on its declaratory claim, finding the dispute as framed outside the purview of the contract alleged. However, the Eight Circuit Court reversed, finding that the district court failed to properly apply res judicata to the employer’s claim, because it could have been raised in the prior proceeding, which was decided in favor of the Union. Carlisle Power Transmission Products, Inc. v. U.S. Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Int’l Union, Local No. 662, No. 12-2986 (8th Cir. Aug. 5, 2013).

This post written by John Pitblado.

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