Arbitration Process Issues

COURT DECLINES TO COMPEL ARBITRATION UNDER “NARROW” ARBITRATION PROVISION

February 15, 2012 by Carlton Fields

Union Insurance Company and other insurers entered into an “Agency-Company Agreement,” with broker Hull & Company, providing Hull with binding authority. Hull bound risk from the Thirsty Parrot Bar and Grill, including umbrella coverage from Union. The Thirsty Parrot ultimately settled a covered assault claim against one its former employees, to which Union contributed $800,000. Union sought recompense from Hull, alleging that Hull breached underwriting guidelines which were incorporated by reference into the Agency-Company Agreement. Union sought to compel arbitration of its claim, but Hull resisted. The Court refused to compel arbitration under a provision allowing arbitration of disputes pertaining to “misunderstanding as to the interpretation or application of any provision of this Agreement.” The Court found that the dispute over underwriting guidelines was not related or collateral to interpretation of the Agency-Company Agreement, because it found that Union failed to establish that the underwriting guidelines were incorporated by reference into the Agreement, and thus the dispute did not come within the Agreement’s arbitration provision. Union Ins. Co. v. Hull &Company, Inc., Case No. 4-00337 (USDC S.D. Iowa Dec. 19, 2011).

This post written by John Pitblado.

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SUPREME COURT ENFORCES ARBITRATION OF CREDIT REPAIR ORGANIZATIONS ACT CLAIMS

February 13, 2012 by Carlton Fields

The United States Supreme Court reversed a Ninth Circuit Court of Appeals decision that affirmed a “right to sue” under the Credit Repair Organizations Act (CROA). A putative class of cardholders brought CROA violation claims against CompuCredit, which issues Visa cards to individuals with poor credit scores seeking to repair their credit. The cardholder agreement contained an arbitration provision. When the cardholders brought suit in California federal court, CompuCredit moved to compel arbitration. The trial court denied the motion to compel, citing language in CROA requiring companies to provide a disclosure to consumers that includes the sentence, “You have a right to sue a credit repair organization that violates the [Act].” The Ninth Circuit affirmed. In an 8-1 decision authored by Justice Scalia (Justices Sotomayor and Kagan in a separate concurrence, Justice Ginsburg dissenting), the Supreme Court reversed, holding that the cited language did not unambiguously provide a right that supersedes the strong public policy embodied in the FAA of enforcing arbitration agreements. CompuCredit Corp. v. Greenwood, No. 10-948, 565 U.S. —-, 132 S.Ct. 665 (Jan. 10, 2012).

This post written by John Pitblado.

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COURT CONSOLIDATES REINSURANCE CASES BEFORE EXISTING ARBITRATION PANEL

February 8, 2012 by Carlton Fields

A federal district court consolidated several reinsurance cases to be heard before an arbitration panel already formed to hear a dispute between the parties, as well as a corporation which the parties agreed to keep confidential. The court determined that, to avoid duplicative litigation and conserve litigation, all three actions could be consolidated and resolved through arbitration. Further, because all three actions arose from the same set of operative facts the arbitration panel already in existence could determine the correct reading of the arbitration agreements contained in each reinsurance agreement. The panel would first determine if each dispute should be heard by an independent panel. The court stayed the actions pending resolution by the existing arbitration panel. Arrowood Indemnity Co. v. Harper Insurance Co., No. 12-2 (USDC W.D.N.C. Jan. 19, 2012).

This post written by John Black.

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COURT CONFIRMS REINSURANCE ARBITRATION ORDERS OVER TIMELINESS AND FINALITY CONCERNS; REFUSES TO STRIKE CONFIDENTIAL FACTS IN PETITION

February 7, 2012 by Carlton Fields

A court has granted two unopposed petitions to confirm two arbitration orders under the New York Convention, in what was a dispute over documentation requirements of a forty-year old asbestos claims reinsurance agreement between Century Indemnity Company and certain London market reinsurers (LMRs). The first arbitration order required one of the LMRs to post letters of credit to secure Century’s then-outstanding claims. While the panel initially entered the order in 2006, the letters of credit were subsequently addressed in another order by the panel in 2008. The second order, entered in 2007 and made final in 2009, related to the panel’s findings on the merits of the reinsurance agreement’s documentation requirements. The court found that both orders were “necessarily incorporated” in the respective 2008 and 2009 orders, and were thus timely under the New York Convention’s three-year statute of limitations. In confirming the first order, the court explained that although it technically was not a final award (which is a requirement for jurisdiction under the Federal Arbitration Act), it was “sufficiently separate and final for federal court review and confirmation.”

Also noteworthy was the court’s denial of Century’s motion to strike, which argued that portions of the LMR’s petition contained gratuitous assertions that violated the parties’ confidentiality agreement and were intended to be a “press release for use in other matters.” The court found that the language at issue was related to the underlying controversy, that the panel’s orders were made public in the court record, and that “the mere fact that the parties ha[d] designated certain documents as confidential among themselves is insufficient to rebut the ‘strong presumption of public access to court records’ that exists in federal courts.” Century Indemnity Co. v. Certain Underwriters at Lloyd’s London, Case No. 1:11-cv-01040 (USDC S.D.N.Y. Jan. 10, 2012).

This post written by Michael Wolgin.

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TEXAS SUPREME COURT ISSUES TWIN DECISIONS ON ARBITRATOR APPOINTMENT DISPUTES

February 1, 2012 by Carlton Fields

The Texas Supreme Court issued two decisions on the same day pertaining to the issue of arbitrator selection where the parties disagree. In the first case, Americo Life Insurance Company sought vacatur of an arbitration award based on a decision by the American Arbitration Association (whose rules the parties agreed to follow) to remove Americo’s selected arbitrator from a tripartite panel because he was not “impartial and independent.” After completing the arbitration under protest, which it lost, Americo moved to vacate. The trial court granted Americo’s motion to vacate, but the intermediate appellate court reversed, finding that Americo’s claims had not been properly preserved. On Americo’s petition, the Supreme Court reversed the Appellate Court and remanded for further consideration by that court, finding that the issues had been adequately preserved, and strongly indicating that the award should be vacated, since Americo’s chosen arbitrator appeared on the face of the record to be “knowledgeable and independent” – the standard the Supreme Court identified as applicable, rather than the impartiality standard urged by the defendant. Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011).

In the other case, the Texas Supreme Court reversed a trial court’s decision appointing an arbitrator on motion of one of the parties, finding that the trial court acted prematurely, because the “impasse” on appointment was only two weeks old (the time when one of the parties filed a motion in court seeking appointment), and that short time frame meant that judicial intervention was not yet warranted (distinguishing it from other cases showing impasse of several months before resort to judicial intervention). In Re Service Corp. Int’l., No. 10-0155 (Tex. Dec. 16, 2011).

This post written by John Pitblado.

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