Contract Interpretation

SILENCE ON EXPENSE LIABILITY IN CONTRACT FAVORS REINSURER

October 21, 2013 by Carlton Fields

In one of the sister cases previously reported on involving Utica Mutual Insurance Company and one of its reinsurers Munich Reinsurance, a federal district court granted Munich’s motion for summary judgment. Utica sought reimbursement under the reinsurance contract for expenses incurred in litigation with an insured. At issue was whether the reinsurance contract subjected those expenses to Munich’s limit of liability or whether Munich was obligated to pay for those expenses in addition to its $5 million limit of liability. Based on Second Circuit and New York Court of Appeals precedent regarding limit-of-liability provisions in reinsurance contracts, the court held that the limit-of-liability provision applicable to Munich was unambiguously cost-inclusive and that Munich was obligated to Utica for no more than the $5 million. Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., Case No. 6:12-CV-0196 (N.D.N.Y. Sept. 30, 2013).

This post written by Abigail Kortz.

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COURT HOLDS LIABILITY LIMITS IN REINSURANCE CERTIFICATES LIMITED AMOUNTS FOR COVERED EXPENSES AS WELL AS COVERED LOSSES

September 25, 2013 by Carlton Fields

In a litigation over the extent of liability covered by certain facultative excess general liability reinsurance certificates, a court recently granted a reinsurer’s motion for judgment on the pleadings, dismissing the case. The reinsured sought a declaration that the reinsurance certificates at issue did not contain limits on the reinsurer’s liability for the reinsured’s expenses, and that the reinsurer therefore breached its certificates by failing to pay the full amounts owed for covered expenses under the certificates. The reinsured argued that no limits on liability for expenses were expressly stated in the certificates, and that the certificates’ use of the phrase “in addition thereto” with respect to the reinsurer’s obligation to pay its proportion of expenses, insulated expenses from the certificates’ limits on covered losses. The court rejected the reinsured’s argument, holding there was “nothing in the language of the certificate[s] to suggest that the ‘reinsurance assumed’ amount did not encompass both the ‘reinsurance assumed’ for losses and the ‘reinsurance assumed’ for expenses,” and that this interpretation “is in accord with the majority of cases that have dealt with similar reinsurance certificates.” The court also rejected the reinsured’s alternative argument that the certificates were ambiguous. Continental Casualty Co. v. Midstates Reinsurance Co., Case No. 12 CH 42911 (Ill. Cir. Ct. Aug. 29, 2013).

This post written by Michael Wolgin.

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COURT DECLINES TO APPOINT UMPIRE OR ORDER SEPARATE ARBITRATIONS IN REINSURANCE DISPUTE

September 24, 2013 by Carlton Fields

When a reinsurer refused to reimburse two AIG insurance companies for the insurers’ losses arising out of asbestos litigation, the AIG companies made a demand for a single arbitration under three reinsurance agreements between the parties. The reinsurer delayed the process of appointing an arbitration panel by asserting that differences between the contracts warranted three separate arbitrations. The insurers petitioned the court to appoint an umpire – two other arbitrators having already been appointed by the parties – under Section 5 of the Federal Arbitration and the reinsurer petitioned the court to order separate arbitrations under Section 4 of the Act. The court refused both parties’ demands, concluding that both issues would require the court to decide the core dispute: whether the insurers’ demand for a single arbitration was improper. The court ordered the parties to proceed with the agreed upon arbitrator selection process, so that the single arbitration panel could address the issue of whether the demand for a single arbitration was improper. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. C 13-2924 (USDC N.D. Cal. Aug. 19, 2013).

This post written by Abigail Kortz.

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FOLLOWING VACATUR OF ARBITRATION AWARD IN REINSURANCE DISPUTE AS “COMPLETELY IRRATIONAL,” COURT CONFIRMS NEW AWARD

September 23, 2013 by Carlton Fields

On September 29, 2009 and November 22, 2010, respectively, we reported on a court’s vacatur of an arbitration award related to a “deficit carry forward” provision in a reinsurance agreement, and the Third Circuit’s subsequent affirmance of that order. The dispute surrounded the manner in which deficits in a reinsurer’s “experience account” under a reinsurance agreement for one year, applies to distribution of account funds under a separate reinsurance agreement for a subsequent year. The court previously vacated an arbitration award that awarded the reinsurer $6 million and failed to apply the “deficit carry forward” provision, which the court found to be unsupported by the contract and therefore “completely irrational” (notwithstanding a broad “Honorable Engagement Clause”). In a recent opinion and order, the court affirmed the award of a new arbitration panel, which interpreted the agreements and found that the “deficit carry forward” provision applied to permit the reinsurer to retain its portion of the account deficits prior to distribution to the reinsured of the funds of the account for the subsequent year. Because the panel “grounded its decision on the language” of the relevant reinsurance agreement, the court found that the panel’s decision properly “draws its essence” from the contract. Platinum Underwriters Bermuda, Ltd. v. Excalibur Reinsurance Corp., Case No. 2:12-mc-00070 (USDC E.D. Pa. July 15, 2013), and corresponding judgment entered July 18, 2013.

This post written by Michael Wolgin.

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ROUND-UP OF DECISIONS ON MOTIONS TO COMPEL ARBITRATION

September 12, 2013 by Carlton Fields

Grosvenor v. Qwest Corp., No. 12-1095 (10th Cir. Aug. 14, 2013) (dismissing Qwest’s appeal of district court’s order granting partial summary judgment because Qwest did not seek to compel arbitration in its motion for summary judgment and therefore did not properly invoke appellate jurisdiction under the FAA).

PoolRe Insurance Corp. v. Organizational Strategies, Inc., No. H-13-1857 (S.D. Tex. Jul. 29, 2013) (denying plaintiff’s motion to compel first arbitration because same motion was pending in the Delaware federal district court; staying ongoing arbitration proceedings in a second arbitration between the same parties, having determined that the claims are clearly not arbitrable because they were carved out of the arbitration clause by a separate agreement).

Marsh & McLennan Cos. v. GIO Insurance Ltd., No. 11 Civ. 8391 (S.D.N.Y. Aug. 6, 2013) (staying action pending arbitration, rather than dismissing action, because dismissal is an appealable order that could further delay quick resolution through arbitration; denying defendant insurance company’s motion to release the $1.5 million security it was required to deposit with the court as an “unauthorized foreign insurer,” favoring New York’s public policy that a foreign insurer’s funds should be available in New York to satisfy any potential judgment).

Hirsch v. Amper Financial Services, Inc., No. 070751 (N.J. Aug. 7, 2013) (reversing Appellate Division’s affirmance of Law Divison’s grant of defendants’ motion to compel arbitration because intertwinement of claims and parties alone is insufficient to warrant application of equitable estoppel to compel arbitration).

McInnes v. LPL Financial, LLC, No. SJC-11356 (Mass. Aug. 12, 2013) (vacating order denying defendants’ motion to stay proceedings and compel arbitration and holding that claims alleging unfair and deceptive trade practices in violation of Gen. Law ch. 93A, § 9 must be referred to arbitration where the contract involves interstate commerce and the arbitration agreement is enforceable under the FAA).

Brown v. MHN Government Services, Inc., No. 87953-2 (Wash. Aug. 15, 2013) (affirming order denying appellant MHN’s motion to compel arbitration, applying California law according to choice of law provision in arbitration and agreement and finding provisions regarding arbitrator selection, statute of limitations, and fee shifting to be unconscionable, thereby rendering the entire arbitration agreement unenforceable).

This post written by Abigail Kortz.

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