In a summary order, the Second Circuit Court of Appeals has affirmed a federal district court’s interpretation of certain reinsurance contracts in favor of AIOI Nissay Dowa Insurance Company. The central issue in dispute was the scope of AIOI Nissay’s obligations to a group of insurers under contracts that those insurers had purchased from a reinsurance pool, of which AIOI Nissay was a member. The contracts were triggered in the wake of the aviation losses associated with the September 11, 2001 terrorist attacks. The Second Circuit rejected all of the arguments raised by the group of insurers on appeal, recognizing that the primary objective in contract interpretation is to give effect to the intent of the parties. While short on facts, the summary order stated that the “more natural reading” of contractual terms controlled, which was the interpretation advanced by AIOI Nissay, and the court therefore affirmed judgment in favor of AIOI Nissay on its breach of contract claim. AIOI Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., No. 13-2689 (2d Cir. Apr. 22, 2014).
Contract Interpretation
COURT CONSTRUES AMBIGUOUS ARBITRATION CLAUSE BROADLY AND COMPELS ARBITRATION
The dispute involved a claim for benefits under a policy insuring a marine construction site damaged in 2008 by Hurricane Ike. The insured contended that the policy did not provide for arbitration, but instead provided only for appraisal to set an amount of loss. The court disagreed, finding that the policy contained a clause entitled “Arbitration” and contained “multiple references to arbitration,” although that clause was ambiguous because the policy was silent as to “what precisely triggers arbitration.” The court then analyzed extrinsic evidence, including the language of a “draft” of the arbitration clause, and compelled arbitration, finding “ample evidence in the record to demonstrate [the parties’] intent to arbitrate any and all disputes under the policy.” Aker Kvaerner/IHI v. National Union Fire Insurance Co. of Louisiana, et al., Case No. 2:10-cv-00278 (USDC W.D. La. Feb. 10, 2014).
This post written by Michael Wolgin.
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TREATY TIP – THE IMPORTANCE OF PROPERLY COORDINATING CONTRACT PROVISIONS
Sometimes a reinsurance program will not operate as intended due to the unintended consequences of conflicting reinsurance contract provisions. In this Treaty Tip, Roland Goss reviews one such instance found in a recently reported case.
This post written by Rollie Goss.
AMBIGUITIES IN REINSURANCE BROKER AGREEMENT PRECLUDE SUMMARY JUDGMENT
A federal district court in Arkansas recently examined provisions of a Broker Authorization Agreement between a reinsurance broker (Global Risk) and a ceding insurer (Aetna). In denying cross-motions for summary judgment on the broker’s breach of contract claim, the court concluded that the agreement contained arguably contradictory provisions regarding who was responsible for paying the broker. One provision expressly placed the responsibility for payment of the broker’s services with the reinsurer (not a party to the Broker Authorization Agreement), while a separate provision addressed Global Risk’s entitlement to be compensated in the event that the agreement was terminated or the reinsurance portfolio was transferred. The court concluded that the agreement was ambiguous because “[i]f [the ceding insurer] had no responsibility to compensate [the reinsurance broker], then these latter provisions would be meaningless. That they are included in the contract between [the reinsurance broker] and [the ceding insurer] suggests that [the ceding insurer] has an obligation to compensate [the reinsurance broker].” Global Risk Intermediary, LLC v. Aetna Global Benefits Ltd., Case No. 4:13-CV-0133 (USDC W.D. Ark. Mar. 12, 2014).
This post written by Catherine Acree.
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DISTRICT COURT DECLINES TO CONSOLIDATE DISPUTES ARISING OUT OF TWO REINSURANCE CONTRACTS
Plaintiff Georgia Casualty & Surety Company entered into two reinsurance contracts with Defendant Excalibur Reinsurance Corporation, formerly known as PMA Capital Insurance Company. Both reinsurance contracts contained arbitration clauses. The First Excess Reinsurance Contract contained a choice of law provision but no forum selection clause, and the Second Excess Reinsurance Contract contained a forum selection clause but no choice of law provision. In 2006, Douglas Asphalt Company sued Applied Technical Services, Inc., a Georgia Casualty insured. Applied was found liable. While that judgment was on appeal, a high-low agreement was entered, which guaranteed that Georgia Casualty would pay Applied no less than $3 million and no more than $12 million. Thereafter, the Eleventh Circuit vacated the judgment against Applied. Georgia Casualty claimed that it was owed $1,418,708 under the two reinsurance contracts. In response, Excalibur argued that Georgia Casualty promised to seek malpractice damages against defense counsel for Applied and that this lawsuit would be a prerequisite to determining Excalibur’s liability. Additionally, Excalibur claimed that it did not consent to the high-low agreement. Georgia Casualty demanded arbitration of Excalibur’s alleged breach of the reinsurance contracts. Excalibur demanded arbitration on a counterclaim for unpaid premiums. Excalibur refused to consolidate the arbitration of all claims under both reinsurance contracts and requested that the arbitrators stay the arbitration pending the resolution of the malpractice claims. Georgia Casualty claimed this was a delay tactic and sued Excalibur.
The court found that if the Federal Arbitration Act or a state arbitration act lacking a statutory consolidation provision applied, then a court may consolidate arbitration only if the contracts expressly permit. Alternatively, if a state arbitration act that allows courts to impose consolidation regardless of the contracts’ terms governs the contracts, then a court may order consolidation where the statutory requirements are satisfied. Because the Second Excess Reinsurance Contract lacked a choice of law provision, it was governed by the FAA. Thus, the court could not order consolidation. Because the court could not order consolidation, it also could not designate a forum for that consolidated arbitration. With respect to a potential stay, the court believed it had to tread carefully to not violate the principle that, in determining whether a dispute is arbitrable, a court should not rule on the merits of the underlying claims. The court could not order the arbitrators not to stay the arbitration pending any potential malpractice recovery. The court also could not delve into the contract to determine if the contract required Excalibur to post security (in response to Georgia Casualty’s claim that Excalibur was delaying the proceedings). Georgia Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 1:13-CV-00456-JEC (USDC N.D. Ga. Mar. 13, 2014).