Interim or Preliminary Relief

COURT REFUSES TO ENJOIN ATTORNEYS WHO ALLEGEDLY BREACHED CONFIDENTIALITY AGREEMENT IN REINSURANCE ARBITRATION

February 11, 2013 by Carlton Fields

On May 1, 2012, we reported on the Second Circuit’s affirmance of a denial of Utica Mutual Insurance Company’s motion to disqualify R & Q Reinsurance Company’s attorneys in a dispute arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. Utica alleged that R&Q breached the confidentiality agreement put in place in the reinsurance arbitration by improperly disclosing confidential information in a separate lawsuit against a third party. On December 14, 2012, the court adopted a magistrate’s recommendation (entered on November 6, 2012), to deny Utica’s motion for preliminary injunction enjoining R&Q from disclosing the alleged confidential information. The court found that Utica failed to demonstrate with any specificity that the alleged breach of confidentiality would cause it irreparable harm, although the court did note that Utica showed a likelihood of success on the merits of its claim that the confidentiality agreements had been breached. Utica Mutual Insurance Co. v. INA Reinsurance Co., Case No. 6:12-cv-00194 (USDC N.D.N.Y. Dec. 14, 2012).

This post written by Michael Wolgin.

See our disclaimer.

TWO RECENT DECISIONS ADDRESS WHETHER PREJUDGMENT RELIEF IS AVAILABLE IN ARBITRATION PROCEEDINGS

January 16, 2013 by Carlton Fields

The first decision involved reconsideration of an interim arbitration award of prejudgment security that the court initially refused to confirm as a manifest disregard of the law. The court had determined that the arbitrators erroneously awarded a prejudgment bond of $10 million or an injunction from transferring such an amount, in the alternative. The court had relied on a provision in the underlying contract that provided that the agreement would be enforced in accordance with New York law, which prohibits such provisional remedies. On reconsideration, however, the court focused on another provision of the agreement, which adopted the AAA International Dispute Resolution Procedures. Under those rules, such provisional remedies were permitted. The court held, “It lay with the parties to confer on the arbitrator whatever powers they wished. Having adopted rules that allowed the arbitrator to award interim security, [defendants] are bound by their bargain. Nothing about enforcing an order rendered in accordance with the procedures to which the parties agreed offends either New York law or New York public policy.” The court relied on a Second Circuit opinion, Banco de Seguros del Estado v. Mutual Marine Offices, Inc., as support for this holding, and as support for the underlying premise that interim security issues are reviewable prior to a final arbitration award. CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, Case No. 1:12-cv-08087 (USDC S.D.N.Y. Dec. 10, 2012).

The second decision involved a court’s refusal to prohibit a foreign sovereign-owned bank from litigating in a reinsurance dispute, notwithstanding the bank’s failure to post security as required by state law. The court held that the bank could not be compelled to post such security under the Foreign Sovereign Immunities Act, which prohibits “attachment” of the property of a foreign state or its instrumentalities. The court found that other courts that have considered this issue have determined that the practical effect of prejudgment security is akin to an attachment of property, and thus the FSIA’s immunity applied. The court also found that the bank did not waive this immunity, distinguishing the Second Circuit’s opinion in Banco De Seguros Del Estado v. Mutual Marine Offices, Inc. Whereas the Second Circuit opinion found waiver of FSIA immunity under an arbitration agreement that permitted the arbitrators to “abstain” from following “the strict rules of law,” this case involved no such agreement. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, Case No. 1:12-cv-06357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by Michael Wolgin.

See our disclaimer.

PHILIPPINE INSURER IS NOT ENTITLED TO STAY OF LONDON REINSURERS’ DECLARATORY COVERAGE ACTION REGARDING VESSEL SINKING

October 30, 2012 by Carlton Fields

A consortium of London reinsurers are seeking a declaration from an English court regarding their duty to indemnify Philippine insurer Oriental Insurance Company for losses resulting from the sinking of a cargo passenger ship during Typhoon Frank in 2008. The sinking, which caused widespread outrage in the Philippines due to the vessel’s failure to heed storm warnings resulted in over 500 deaths and significant property loss. The reinsurance contract contained a “Typhoon Warranty,” which voided the policy if an otherwise covered vessel left port during a typhoon or storm warning. Oriental’s underlying policy with the ship owner contained a virtually identical clause. Oriental, facing massive claims and litigation in the Philippines, sought a stay of the proceedings initiated by the British reinsurers, arguing that their action was premature given the reinsurance contract’s “follow the fortunes” clause and significant unresolved claims pending in the Philippine courts. The lower court dismissed Oriental’s application for a stay, holding that such relief should only be granted in “rare and compelling circumstances,” which were not present. The appellate court dismissed the appeal with “little enthusiasm,” finding the lower court’s decision correct but noting its apparent “unfairness.” In particular, as one justice noted, the reinsurers’ action might force Oriental to assert in the London courts that the “Typhoon Warranty” did not apply, a position diametrically opposed to the one it would wish to take in defending ongoing and imminent coverage suits in the Philippines. Amlin Corp. Member Ltd. v. Oriental Assurance Corp., [2012] EWCA Civ. 1341 (Royal Courts of Justice, Queen Bench Division, Commercial Court Oct. 17, 2012).

This post written by Ben Seessel.
See our disclaimer.

MOTION TO DISMISS CLAIM FOR BREACH OF CONFIDENTIALITY AGREEMENT IN REINSURANCE ARBITRATION DENIED

June 18, 2012 by Carlton Fields

INA Reinsurance recently moved to dismiss or to stay an action initiated by Utica Mutual Insurance arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. Utica alleged that INA breached the confidentiality agreement put in place in the reinsurance arbitration by improperly disclosing confidential information in a separate lawsuit against a third party. The federal district court denied INA’s motion to dismiss or to stay, finding that the Supreme Court’s Colorado River abstention doctrine inapplicable because the defendants in the two lawsuits were unrelated and the claims were significantly different. Further, the district court concluded that Utica was not required to pursue its claims for breach of the confidentiality agreements in the pending arbitration because there exists clear language in the confidentiality agreements authorizing Utica to pursue claims for breach in a judicial forum. Utica Mutual Insurance Co. v. INA Reinsurance Co., No. 12-cv-00194 (USDC N.D.N.Y. Apr. 24, 2012).

This post written by John Black.

See our disclaimer.

CAPTIVE REINSURANCE LITIGATION STAYED PENDING SUPREME COURT DECISION

June 7, 2012 by Carlton Fields

A putative class action against HSBC and its affiliates asserting violations of the Real Estate Settlement Procedures Act of 1974 was stayed in part pending the outcome of First American Financial Corp. v. Edwards, a case expected to be resolved this term by the U.S. Supreme Court. The named plaintiff seeks to represent, among others, consumers whose residential mortgage loans were included within HSBC’s captive mortgage reinsurance arrangements. Among other things, plaintiff seeks classwide resolution of whether the captive reinsurance arrangements constituted unlawful kickbacks from the private mortgage insurer defendants. The district court issued a partial stay of the action pending the decision in First American, where the Supreme Court is expected to rule whether a private purchaser of real estate settlement services has standing under Article III of the Constitution to assert a RESPA claim absent a showing that the alleged violation affected the price, quality, or other characteristics of the settlement services provided. McCarn v. HSBC USA, Inc., Case No. 12-375 (USDC E.D. Cal. Apr. 12, 2012).

This post written by John Black.

See our disclaimer.