Contract Interpretation

UK COURT PERMITS EXPERT TO TESTIFY IN REINSURANCE MATTER AGAINST LLOYD’S SYNDICATE THAT PREVIOUSLY RETAINED HIM ON SIMILAR ISSUE

January 5, 2012 by Carlton Fields

An English court recently refused to enjoin an expert witness from giving testimony against a Lloyd’s syndicate, despite that expert’s previous employment by the syndicate in an arbitration over similar issues with a different party. The subject of the expert’s testimony in this case related to the extent of coverage for losses arising from the 9/11 terrorist attacks under a reinsurance “Interlocking Clause” provision. Although the expert’s previous testimony on behalf of the syndicate did not involve the Interlocking Clause, the interpretation of that clause did arise in private meetings wherein the expert expressed disagreement with the syndicate’s interpretation. Subsequently, the syndicate’s opponent in the instant case employed the expert to give testimony on the Interlocking Clause. After the arbitration tribunal denied the syndicate’s request to exclude the expert, the syndicate sought injunctive relief from the court. The court rejected the syndicate’s argument that the expert unfairly possessed confidential information, including the syndicate’s potential cross-examination strategy. The court explained that there was no evidence that the expert had misused confidential information thus far, and that the expert’s alleged inability to recall details of the syndicate’s meetings rendered it unlikely that the expert would do so in the future. To the extent the syndicate lost the element of surprise with respect to its cross-examination strategy, the court was “not persuaded that the loss of such a forensic advantage amounts to damage which justifies the grant of an injunction which would interfere with the tribunal’s management of the arbitration.” A Lloyd’s Syndicate v. X, [2011] EWHC 2487 (Q.B. Comm. Ct. Oct. 3, 2011).

This post written by Michael Wolgin.

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CLAIM BY CEDENT’S POLICYHOLDER AGAINST REINSURER DISMISSED

December 14, 2011 by Carlton Fields

A court has granted a motion for judgment on the pleadings, under the theory that an underlying policyholder lacks a cause of action against its insurer’s reinsurer. National Indemnity Company (“NICO”) was brought in as a third party to insurance coverage litigation between Canal Insurance Company, its insured, Montello, Inc., and various other insurers in a declaratory coverage action pertaining to underlying asbestos litigation arising from Montello’s operations. Montello’s claim against NICO was unique, as it was the only reinsurer brought in to the action, and allegedly had in effect a reinsurance agreement with one of the defendants that purportedly had retroactive effect. NICO moved for judgment on the pleadings, arguing that an underlying policyholder has no direct cause of action against its insurer’s reinsurer. The court granted NICO’s motion, finding that the reinsurance agreement did not contain a cut-through provision enabling a direct action, and that neither of the exceptions permitting direct action were applicable. Canal Insurance Co. v. Montello, Inc., No. 10-CV-411 (USDC N.D. Okla. Sept. 26, 2011).

This post written by John Pitblado.

ENGLISH COURT ORDERS SERVICE OF PROCESS AGAINST OUT-OF-JURISDICTION DEFENDANT IN INSURANCE DISPUTE

December 12, 2011 by Carlton Fields

The Queen’s Bench Division of the Commercial Court affirmed an order permitting Faraday Reinsurance Co. to serve process out of the jurisdiction against defendant Howden North America. Howden had argued that service should not be permitted and that the parties’ quarrel should be resolved in litigation pending in Pennsylvania federal court. The underlying dispute relates to coverage for asbestos liabilities under three excess layer policies. The case implicates potential differences between English and American law on loss triggers, i.e., whether exposure to a hazardous substance itself constitutes a loss, or whether loss occurs at the time of manifestation or at some other incremental stage between exposure and manifestation. This determination can be dispositive in cases involving asbestos coverage because mesothelioma, which is caused by asbestos exposure, typically does not manifest for decades. Earlier this year, we reported on a decision by the U.K. Court of Appeals holding that the insurer on the risk at the time of exposure, not manifestation, is responsible for the liability. Faraday Reinsurance Co. v. Howden North America, Inc. [2011] EWHC 2837 (Q.B. Comm. Ct. Nov. 1, 2011).

This post written by Ben Seessel.

APPEALS COURT REVERSES TRIAL COURT’S ORDER VACATING ARBITRATION AWARD AS INSUFFICIENTLY “REASONED”

November 28, 2011 by Carlton Fields

A federal circuit court of appeals reversed a lower court order vacating an arbitration award because the arbitrators had “exceeded their powers” by purportedly failing to provide a “reasoned award” as agreed upon by the parties. Cat Charter, LLC and its principals initiated an arbitration against Multihull Technologies, Inc. and its owner to resolve a dispute involving the construction of a yacht. The parties requested a “reasoned award” from the panel. According to the district court, the arbitrators failed to deliver an award that was sufficiently “reasoned,” exceeding their powers under Federal Arbitration Act section 10(4)(a). The court of appeals analyzed what it termed the “spectrum of increasingly reasoned awards” that runs from a “standard award,” which merely announces a decision, to “findings of fact and conclusions of law,” which requires “relatively exacting” detail. The appellate court found that a “reasoned award” was somewhere in the middle of the spectrum and that the panel’s award, though “it could have provided more,” gave a sufficiently detailed explanation to be considered “reasoned.” The appeals court reinstated the award, noting that if the parties had desired more detail, they could have requested that the arbitrators provide “findings of fact and conclusions of law.” Cat Charter 11th Cir 7.13.11, No. 10-11674 (11th Cir. July 13, 2011).

This post written by Ben Seessel.

PREMATURE TO RULE ON EFFECT OF UNUTILIZED REINSURANCE ON OTHER INSURANCE CLAUSE BEFORE LOSSES ESTABLISHED

November 23, 2011 by Carlton Fields

In ruling on cross motions for summary judgment, the U.S. District Court for the Western District of Michigan considered a request for a declaration regarding the application of an “Other Insurance” clause in a Directors and Officers liability insurance policy. The insurer (F&D) requested a declaration that any coverage available under the policy is limited to the amount in excess of the $1.25 million of unutilized reinsurance coverage available to the insured (Michigan Millers) from its reinsurer (Employers Reinsurance Corporation). The District Court denied the request for declaration, finding it premature. The court explained that because of the different nature of the F&D and ERC policies, the Other Insurance clause may have to operate as a reimbursement scheme rather than an outright excess insurance provision. So, prior to losses being established, it is premature to rule on the effect of the Other Insurance clause. Michigan Millers Mutual Insurance Co. v. Fidelity and Deposit Co. of Maryland, No. 09-596 (W.D. Mich. Aug. 15, 2011).

This post written by John Black.