New reinsurance-related and arbitration developments from Carlton Fields
The doctrine of uberrimae fidei, or utmost good faith, has been invoked in reinsurance disputes for many years. In a Special Focus feature, John Pitblado explores the origins of this doctrine and its current status in the reinsurance field.
This post written by John Pitblado.
Deep Sea Financing, LLC filed suit against British Marine as an alleged loss payee under a policy of marine hull insurance issued by British Marine to Dragados Mundiales del Caribe S.A. de C.V., covering a dredge and other equipment owned by Dragados. When the dredge ran aground on an environmentally sensitive reef near Puerto Cancun, Mexico, various claims were made under the policy, including a claim by Deep Sea. When Deep Sea’s written demand was not accepted by British Marine, it filed suit in Georgia state court seeking statutory bad faith penalties. British Marine removed the case to federal court and filed a separate interpleader action naming Dragados and Deep Sea. In Deep Sea’s action, Deep Sea moved for partial summary judgment on its statutory bad faith claim. The contract — which was originally negotiated as reinsurance to a Mexican primary policy that later became unnecessary, and so was converted to a primary policy under British Marine’s typical “London terms,” — nevertheless still included (whether inadvertently or not) a choice-of-law provision requiring application of Mexican law. British Marine argued this provision precluded the statutory claim under Georgia law, and the court agreed. Deep Sea moved for reconsideration, but the court stuck by its initial decision. Deep Sea Financing, LLC v. British Marine Luxembourg, S.A., CV 409-022 (USDC S.D. Ga. Sept. 1, 2010).
This post written by John Pitblado.
How important is it to specify the rate at which unpaid amounts will accrue interest under a reinsurance agreement? In a Treaty Tip, Tony Cicchetti provides two examples from recent court opinions that illustrate the importance of covering this topic in a reinsurance contract.
This post written by Tony Cicchetti.
In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).
This post written by Michael Wolgin.
A federal district judge has agreed with a magistrate judge’s recommendation to deny a motion to abstain where an earlier-filed reinsurance coverage lawsuit was pending in Connecticut state court. In May 2009, the defendant filed suit in state court, contending there was no coverage under two reinsurance agreements for losses the plaintiffs incurred regarding asbestos-related claims. Five months later, the plaintiffs filed suit in federal court, seeking monetary relief for the defendant’s alleged breaches of contract, and for a declaration of the parties’ rights and obligations. The federal suit concerned the same two reinsurance contracts at issue in the state suit, but also involved claims under eleven additional contracts between the parties.
The defendant asked the federal court to defer to the first-filed state suit, which itself had been stayed on the state court’s finding that the federal suit would be the better vehicle to resolve the disputes. The magistrate judge recommended against abstention. The parties submitted briefing on the defendant’s objections to the recommendation, including objections, opposition to the objections and a reply in support of the objections. In adopting the magistrate judge’s recommendations, the district judge noted that, while the same parties and two of the same contracts were involved in the state suit, the claims were more comprehensive in the federal court because of the additional contracts at issue, and because the damages claims were absent from the state suit. Seaton Insurance Co. v. Clearwater Insurance Co., No. 09-516 S (USDC D. Conn. Sept. 2, 2010).
This post written by Brian Perryman.