Contract Interpretation

STOLT-NIELSEN DOES NOT MANDATE MOTION FOR RECONSIDERATION IN ELEM INDIAN COLONY CASE

July 15, 2010 by Carlton Fields

On June 30th, we reported that the dispute between the Elem Indian Colony and Pacific Development Partners X the Northern District of California affirmed an arbitrator’s ruling that a contract for casino development was void. Following that decision, defendants Pacific Development asked for leave to file a motion for reconsideration arguing that Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010) dictates that the arbitrator’s decision should be reversed. The Stolt-Nielsen case dealt primarily with the issue of class arbitration where not all parties have agreed to participate in class arbitration.

The District Court denied Pacific Development’s request for leave to file a motion for reconsideration holding that the issue presented in Stolt-Nielsen need not be reached because the arbitrator’s decision also rested on an independent rationale: that the “memorandum of understanding” approved by the Tribe’s executive committee was void for lack of regulatory approval. Finally, the Court ruled that although the arbitrator awarded attorneys’ fee based upon a flawed theory, the award was not contrary to law because it was supported by another legal theory. Elem Indian County of Pomo Indians v. Pacific Development Partners X, LLC, Case No. 09-1044 (USDC N.D. Cal. June 29, 2010).

This post written by John Black.

“PER CLAIM” HELD AMBIGUOUS IN COMMERCIAL LIABILITY POLICY

June 22, 2010 by Carlton Fields

A California appellate court reversed a grant of summary judgment for defendant on a claim for equitable contribution for sums expended in defending a construction defect action. Defendant North American contended that its duty to defend never arose because the underlying insured never paid the $25,000 “per claim” self-insured retention for each of the eight covered homes at issue. The plaintiff, Clarendon America, countered that “per claim” required only one $25,000 payment for the entire action. In an unpublished opinion, the appellate court held that the phrase “per claim” was ambiguous, and that North American failed to show that the developer did not have an “objectively reasonable expectation” that the $25,000 payment would apply only once to the construction defect action as a whole, rather than to each of the eight covered homes. Clarendon Am. Ins. Co. v. North Am. Capacity Ins. Co., No. CIVRS701868 (Cal. App. Ct. June 15, 2010).

This post written by Michael Wolgin.

PREJUDGMENT INTEREST: COVERED UNDER REINSURANCE POLICY; POSTJUDGMENT INTEREST: NOT SUBJECT TO INDEMNIFICATION

April 8, 2010 by Carlton Fields

OHIC Insurance sued to recover payment of statutory interest and legal expenses incurred in a 1998 Wisconsin medical malpractice lawsuit pursuant to a clause in a reinsurance agreement with ERC indemnifying OHIC for certain “losses” and “claim expenses.” Both parties moved for summary judgment, leaving the Court to decide two primary issues: (1) whether the “prejudgment” interest imposed pursuant to a Wisconsin statute is covered by the reinsurance agreement; and (2) whether a portion of the “postjudgment” interest imposed by statute and the legal expenses incurred by OHIC in defending the malpractice suit are covered by the reinsurance agreement.

Resolving question 1, the Court concluded that OHIC’s payment of the prejudgment interest constituted a “loss” under the reinsurance agreement. Thus, ERC was obligated to reimburse OHIC as to this loss. Conversely, the Court determined that OHIC was not entitled to indemnification for a portion of the legal expenses and postjudgment interest incurred in defending the malpractice suit. In addition to these determinations, the Court also granted ERC’s request to exclude OHIC’s expert’s opinion and granted ERC’s motion to file sur-reply briefs. OHIC Ins. Co. v. Employers Reinsurance Corp., Case No. 08-cv-93 (S.D. Ohio Mar. 8, 2010).

This post written by John Black.

STATUTORY REQUIREMENT OF NOTICE TO INSURED OF NONRENEWAL IS NOT EXCUSED IF THE INSURED OBTAINS REPLACEMENT COVERAGE

March 23, 2010 by Carlton Fields

In an unpublished disposition, a California appellate court reversed a summary judgment order as to a reinsured’s claims for breach of contract and insurance bad faith where the policy period was extended by statute (California Insurance Code section 678.1) because the underlying insured was not provided with the requisite notice of nonrenewal, but affirmed the summary judgment order as to the reinsured’s negligence claim. The defendants reinsured plaintiff Norcal Mutual Insurance Company for any liability Norcal might incur under a managed health care professional liability policy for the initial policy period of August 1999 through August 2000. Although the claim by Norcal’s insured that created Norcal’s liability fell outside the period of the 1999/2000 policy, Norcal contended the policy period was extended until June 2001 because its insured was not provided with notice of nonrenewal of the 1999/2000 policy, as required by section 678.1.

On appeal, the court held that notice of nonrenewal was not excused by a statutory provision that notice is not required where the insured “has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.” Norcal’s insured agreed in writing to obtain replacement coverage, but section 678.1 “taken as a whole” compelled the conclusion that a “replacement” policy “is not synonymous with renewal of existing coverage.” The court found that “replacement” coverage referred to in one subsection of the statute means insurance obtained from a different insurer, while renewal of coverage referred to elsewhere in the same statute means coverage obtained from the same insurer for a subsequent policy period. The court, however, rejected Norcal’s negligence claim because section 678.1 “clearly” places the duty to provide notice of nonrenewal on the insurer, not a reinsurer. Norcal Mutual Insurance Co. v. Certain Underwriters at Lloyd’s of London, No. B213122 (Cal. Ct. App. Feb. 22, 2010).

This post written by Brian Perryman.

ENGLISH COURT OF APPEALS AFFIRMS RULING CONFERRING EXCLUSIVE JURISDICTION ON ENGLISH COURTS, SETS ASIDE RULING CONFINING FRAUD TO CLAIMS OF DECEIT

February 17, 2010 by Carlton Fields

This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.