Interim or Preliminary Relief

COURT ORDERS PRE-PLEADING SECURITY POSTED IN REINSURANCE DISPUTES

March 24, 2014 by Carlton Fields

Excalibur Reinsurance provided reinsurance to Travelers Indemnity. Disputes arose and Travelers filed two lawsuits against Excalibur in United States District Court in Connecticut. Travelers moved to require Excalibur to post pre-pleading security pursuant to Conn. Gen. Stat. section 38a-27(a). The statute requires that unauthorized insurers post security. Excalibur contended that the statute did not apply for three separate reasons: (1) it was authorized in Connecticut when the reinsurance agreements were entered into, although it later cancelled that authorization; (2) the reinsurance agreement was not issued and delivered in Connecticut; and (3) the reinsurance agreements contain a New York choice of law provision. The courts disagreed, and granted the motions for security. The statute provides a remedy with respect to insurers which are not authorized at the time that they make a filing in Connecticut courts, rather than when the insurance agreement was entered into. The courts found that while the statutes provided an exemption for non-Connecticut direct insurance, the statutory exemption did not apply to reinsurance. Finally, the courts found that the pre-pleading security statute was procedural, not substantive, under the Erie doctrine, resulting in the choice-of-law clause not applying. Excalibur therefore was required to post security in one case in the amount of $824,591 and in an amount yet to be determined in the other case. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 11-1209 and 12-1793 (USDC D. Conn. Mar.11 and 17, 2014).

This post written by Rollie Goss.

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UTICA AND CENTURY ORDERED TO MANDATORY MEDIATION IN REINSURANCE DISPUTE

February 26, 2014 by Carlton Fields

Utica Mutual Insurance Company brought an action in 2013 against Century Indemnity Company (itself and against certain of its named predecessors) for breach of contract and breach of the duty of utmost good faith, as well as a declaratory claim, regarding alleged amounts due to Utica from Century predecessor Insurance Company of North America under certain reinsurance agreements. The court invited the parties to submit their positions regarding mandatory mediation, but received no response. The Court therefore ordered the parties to participate in the mandatory mediation program, further requiring that they complete it by March 31, 2014. Utica Mutual Insurance Co. v. Century Indemnity Co., Case No. 6:14-CV-995 (USDC N.D.N.Y. Jan. 9, 2014).

This post written by John Pitblado.

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COURT DECLINES TO SEAL CONFIDENTIAL REINSURANCE PROVISIONS

February 13, 2014 by Carlton Fields

A New York federal court declined to seal portions of a reinsurance agreement at the request of intervening reinsurer Battenkill Insurance Co., LLC (“Battenkill”). Battenkill intervened in an interpleader action brought by Wells Fargo Bank regarding the respective of rights of the various defendants to certain trust proceeds. Battenkill sought to introduce its reinsurance agreement with one of the defendants, and moved to have the agreement sealed due to, what the Court deemed to be “boilerplate” concerns about confidential, proprietary information. The Court held that redacting the agreement as requested would eliminate key, relevant terms pertinent to Battenkill’s substantive grounds for intervention, and might also preclude objecting parties from relying on further redacted portions in any response thereto. It therefore held that Battenkill had not met the high threshold necessary to sealing. Wells Fargo Bank, N.A. v. Wales LLC, No. 13-Civ-6781 (USDC S.D.N.Y. Jan. 27, 2014)

This post written by John Pitblado.

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THE SCOPE OF DISCOVERY LIMITATIONS MAY AFFECT THE AVAILABILITY OF STAYS

February 4, 2014 by Carlton Fields

In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

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PROPOSED ALTERNATIVE UMPIRE SELECTION REJECTED BY COURT

December 17, 2013 by Carlton Fields

Addressing the method of appointing a tie-breaking umpire-arbitrator in a series of reinsurance coverage arbitrations commenced by insurer Arrowood Indemnity Company, the Southern District of New York recently ordered that the parties’ already chosen arbitrators follow the steps provided in the “excess of loss” reinsurance agreements in selecting the third arbitrator. Although the relevant reinsurance treaties specified a method for such selection, Arrowood sought an alternative approach, which included the nomination by each party of up to eight candidates and a voir dire-like objection and selection process. However, the Court, acting under authority granted by Section 5 of the Federal Arbitration Act, denied that alternative, ordering that the present arbitrators select an umpire in accordance with the treaties’ requirements. Then, the Court would regard that selection as “presumptively appropriate,” albeit rebuttable, for appointment by the Court as umpire for the remaining arbitrations of the series. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., No. 12-cv-08005-LLS (USDC S.D.N.Y. Oct. 25, 2013).

This post written by Kyle Whitehead.

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