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Contract Interpretation

COURT GRANTS DEFAULT JUDGMENT CONFIRMING ARBITRATION AWARD, WITH A LESSON ON JURISDICTION

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Choice Hotels filed an application to confirm an arbitration award of over $247,000 for the alleged breach of a franchise agreement by two defendants, which failed to timely commence construction of a hotel. The defendants had not participated in or submitted any written materials for arbitration. However, the court denied Choice Hotels’ first motion for a default judgment because it failed to adequately establish subject matter jurisdiction and jurisdiction under the FAA. The Court explained that the FAA is not an independent source of jurisdiction, and further held that Choice Hotels’ failed to plead the requirements of diversity jurisdiction. Additionally, because there was no record in the application or the arbitration award itself that the arbitration occurred in Maryland, which was required by the arbitration agreement, the court could not determine that jurisdiction existed under the FAA. Choice Hotels filed a second motion for default judgment, which successfully alleged diversity jurisdiction and established that the case was within the scope of the FAA. The Court then granted the motion for default judgment and confirmed the award. Choice Hotels Int’l, Inc. v. HSL Inv., Inc., Case No. TDC-15-2386 (USDC D. Md. Oct. 20, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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D.C. COURT DISMISSES DISPUTE OVER REINSURANCE OF FEDERAL CROP INSURANCE PROGRAM

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On September 20, a federal district court in the District of Columbia dismissed a lawsuit brought by reinsurers of the federal crop insurance program. The plaintiffs-reinsurers alleged that the Federal Crop Insurance Corporation (“FCIC”) improperly modified the actuarial methodology that set the premiums owed for several crops, including corn and soybeans, resulting in plaintiffs purportedly paying more than what was allegedly conveyed to them at the time of contracting. Indeed, the plaintiffs had entered into five-year standard agreements which they claimed included representations that the methodology used to determine the premiums charged would not change, but it later did. The plaintiffs first challenged the methodology with the Deputy Director of Insurance Services, and later to the Civil Board of Contract Appeals (the “Board”), both of which granted summary relief to the FCIC.

Thereafter, the plaintiffs filed suit in federal court alleging counts of breach of contract, promissory estoppel, unjust enrichment, violation of a statute limiting renegotiation of standard contracts to once every five years, violation of a statute in that the FCIC did not consider the reinsurer’s financial condition, reformation and rescission, and for a declaratory judgment. The FCIC filed a motion for judgment on the pleadings under FRCP 12(c), which the court granted. In so doing, the court found that many claims were barred by res judicata as they had been decided by the Board and were not appealed under the Administrative Procedures Act. The court also found that the promissory estoppel and unjust enrichment counts were not actionable because the parties’ agreement was governed by existing contracts. As to the new counts not raised before the Board, the court found that the claims should be dismissed for failure to exhaust administrative remedies. Thus, the court dismissed the suit brought by the reinsurers.

Ace American Ins. Co. v. Federal Crop Ins. Corp., Case No. 1:14-cv-01992-RCL (D.D.C. Sept. 20, 2016).

This post written by Zach Ludens.

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NEW YORK TRIAL COURT FINDS CEDENT IS NOT COVERED FOR LOSS ADJUSTMENT AND LEGAL EXPENSES IN EXCESS OF THE AMOUNTS STATED IN ITS REINSURANCE CERTIFICATE

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Relying on past New York precedent, a New York state trial court determined the language of certain reinsurance certificates at issue were unambiguous, declining to accept plaintiff’s extraneous evidence “that the custom and practice in the insurance trade is contrary” to such precedent.

The Court relied on the following three cases: Utica Mut. Ins. Co. v. Clearwater Ins. Co., 2014 WL 6610915 (N.D.N.Y. Nov. 20, 2014) (currently on appeal); Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004); and Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990), wherein the courts “concluded that the [reinsurance] certificates as to the limit of liability are unambiguous, and therefore, extrinsic evidence should not be considered.” Notably, other courts have reached different results on this issue.

Although the certificate language here – “reinsurance accepted” – was different than the “limit” language considered by the New York Court of Appeals in Excess, the Court in Excess relied, in part, on the decision by the Second Circuit in Bellefonte – which involved reinsurance certificates with the same or similar language to the certificates at issue here. Citing to Excess in support of its decision, the Court noted:

Of course, both parties were well aware of the type of product that was being reinsured. It would be far from unreasonable to expect that at the time of procuring reinsurance, [the reinusred] could anticipate the possibility of incurring loss adjustment expenses in settling a claim… Certainly, nothing prevented [the reinsured] from insuring that risk either by expressly stating that the defense costs were excluded from the indemnification limit or otherwise negotiating an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurer’s liability on the insured property. Failing this, the reinsurers were entitled to rely on the policy limit as setting their maximum risk exposure. (Excess, at 584-585).

The Court granted the moving defendants partial summary judgment on their affirmative defense pertaining to a cap on liability for both loss and expenses in the face amount of the reinsurance certificates. Utica Mut. Ins. Co. v. Abeille Gen. Ins. Co., n/k/a 21st Century Nat’l. Ins. Co., et al., Index. No. CA2013-002320 (Sup. Ct. N.Y. County Aug. 15, 2016).

This post written by Nora A. Valenza-Frost.

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FEDERAL COURT DISMISSES CLAIMS AGAINST THIRD-PARTY ADMINISTRATOR

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The Indiana Department of Environmental Management and the Environmental Protection Agency brought certain enforcement actions against Hartford Iron & Metal, Inc. to remediate alleged environmental damage at a scrapyard run by Hartford Iron. It sought coverage from Valley Forge Insurance Company, and the parties eventually entered into two settlement agreements obligating Valley Forge to pay for the remediation of the site and the defense of the regulatory actions. Valley Forge hired Resolute Management Inc. to act as a third-party claims administrator, and Resolute became heavily involved in managing the remediation of the site. Disputes arose from the remediation project and litigation followed. Hartford Iron brought a third-party complaint against Resolute asserting various claims, which it moved to dismiss. The court granted Resolute’s motion, finding that it could not be liable to Hartford Iron for breach of contract because there was no privity or contractual arrangement between those parties, irrespective of whether Resolute was the alleged reinsurer of Valley Forge policies. The Court likewise dismissed the various tort claims brought by Hartford Iron against Resolute, holding that these claims were premised solely upon unsupported legal conclusions. Valley Forge Insurance Co. v. Hartford Iron & Metal, Inc., No. 1:14-cv-00006 (USDC N.D. Ind. June 15, 2016).

This post written by Rob DiUbaldo.

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