Arbitration Process Issues

We previously posted on April 14, 2008, about a reinsurer’s successful bid to remove a lawsuit to federal court based on the plaintiff insurer’s improper joinder of the reinsurer’s agent as a defendant. Now, in a related companion case, the United States District Court for the Middle District of Florida has granted the same reinsurer’s motion to compel arbitration of the claims between the parties. The insurer sought a declaratory judgment that it was entitled to more than $10 million from the reinsurer under four reinsurance placement slips. While the parties’ original reinsurance agreement contained an arbitration provision, the slips did not. The court, therefore, characterized the dispute as whether the claims arising out of the placement slips were covered by the agreement’s arbitration provision. It held that they were. These contracts all governed the same ongoing relationship between the same parties concerning the same subject matter (viz., obligations arising out of vehicle service contracts) and for overlapping time periods. The slips merely “upgraded” the level of reinsurance coverage provided in the agreement. That the placement slips and reinsurance agreement did not expressly refer to each other was not dispositive since the “broad terms” of the arbitration provision were not limited to claims brought directly under the agreement. Northbrook Indemnity Company v. First Automotive Service Corporation, Case No. 07-683 (USDC M.D. Fla. Aug. 1, 2008).

This post written by Brian Perryman.

Gerling Global Reinsurance alleged that it was “lured” to provide reinsurance through material misrepresentations and omissions and instituted arbitration against Fremont Indemnity Company. After reaching a settlement with Fremont Indemnity, Gerling sued Fremont General Corporation, Fremont Compensation Insurance Group and Louis Rampino, alleging that they had participated in a scheme to increase the premium revenue of Fremont Indemnity, seeking to recover the balance of its losses not recovered in the settlement with Fremont Indemnity. Gerling contended that the running of the statute of limitations was tolled because the defendants were alter egos of Fremont Indemnity. Both the district court and the Ninth Circuit Court of Appeals disagreed, finding that the causes of action against all of the parties accrued at the same time, and that there was no tolling of the running of the statutes of limitation on the claims against Fremont General Corporation, Fremont Compensation Insurance Group and Louis Rampino during the arbitration with Fremont Indemnity. Gerling Global Reinsurance Corporation of America v. Fremont General Corp., No. 07-55198 (USCA 9th Cir. June 24, 2008).

This post written by Rollie Goss.

Prior to 1995, Fencourt Reinsurance Company was a wholly owned subsidiary of ITT Corp., and provided reinsurance to Century Indemnity Company, which insured ITT. Fencourt alleged that ITT promised to hold it harmless for any net losses resulting from the reinsurance arrangement, but did not produce any written agreement to that effect. In 1995, ITT reorganized, splitting into three unaffiliated public companies. This split was accomplished through a Distribution Agreement (“DA”), which Fencourt did not sign, and which contained a broad arbitration provision. Century suffered asbestos-related losses, and demanded $85.5 million from Fencourt under their reinsurance agreement. Fencourt sought indemnification from what it alleged was the successor to the indemnification promisor. Century and Fencourt commenced arbitration of their dispute, and Fencourt and the former ITT-related entities commenced a separate arbitration. Fencourt sued ITT to enforce the indemnification promise.

ITT contended that the arbitration provision in the DA covered the dispute, even though Fencourt was not a signatory to that agreement. The district court agreed with ITT and stayed the case pending the result of the already commenced Fencourt-ITT arbitration. There were three bases for the ruling: (1) the DA plainly covered the dispute, and as a wholly owned subsidiary of a party to the DA, Fencourt was bound to arbitrate; (2) Fencourt was equitably estopped from asserting that its lack of signature precluded arbitration since despite its status as a non-party to the DA, it nevertheless took advantage of certain of its provisions; and (3) Fencourt was an intended third-party beneficiary of the DA. This opinion contains a good discussion of these various theories. Fencourt Reinsurance Company, Ltd. V. ITT Industries, Inc., Case No. 06-4786 (USDC E.D. Pa. June 20, 2008).

This post written by Rollie Goss.