A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).
Contract Interpretation
COURT AFFIRMS INTERPRETATION OF AVIATION REINSURANCE CONTRACTS TRIGGERED IN THE WAKE OF 9/11
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).
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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