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Interim or Preliminary Relief

UNAUTHORIZED INSURER’S OBJECTION TO RULING ON PRE-PLEADING SECURITY OVERRULED

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On April 19, 2010, we reported on a magistrate judge ordering that the defendant, an unauthorized insurer, post pre-pleading security in the amount of $660,389. The defendant subsequently filed an objection to this ruling, arguing that the plaintiff could not recover more than the current amount contained in the segregated accounts at issue. Affirming the ruling of the magistrate judge, the district court observed that the pre-pleading security statute contemplated the posting of an amount sufficient to secure the judgment sought by the plaintiff and concluded that the ruling was not erroneous or contrary to law. Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat’l Indem. Co., Case No. 09-972 (USDC D. Conn. May 7, 2010).

This post written by Dan Crisp.

COURT DECLINES TO RECONSIDER ORDER DISMISSING SUIT TO ENFORCE ARBITRATION AWARD FOR LACK OF JURISDICTION

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A court has denied reconsideration of its earlier order holding that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. We reported on the earlier order in an August 20, 2009 post. The American Postal Workers’ Union brought a suit alleging that the United States Postal Service breached a collective bargaining agreement by failing to comply with an arbitration award finding liability. On July 14, 2009, the court dismissed the case for lack of jurisdiction. The Union moved for reconsideration, principally arguing that that it should be permitted to move forward to enforce the award because it had been granted final injunctive relief. The court found that the Union was simply regurgitating its earlier, unsuccessful argument. Therefore, the motion for reconsideration was denied. American Postal Workers’ Union v. United States Postal Service, Case No. 08-2200 (USDC D.D.C. Sept. 2, 2009).

This post written by Brian Perryman.

FEDERAL COURT REFUSES TO ENJOIN LATER STATE COURT CLAIMS RELATING TO PREVIOUSLY LITIGATED REINSURANCE TREATIES

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A federal court in Texas denied Aon Re’s motion for preliminary injunction against the defendant TIG Insurance Company. Aon Re moved to enjoin TIG from bringing claims arising out of two reinsurance treaties entered into in the late 1990’s that had been the subject of prior litigation, also in federal court in Texas, and which was resolved on summary judgment in Aon Re’s favor on statute of limitation grounds in 2005. However, TIG subsequently brought claims against Aon Re, based at least in part on issues pertaining to the two treaties, in federal court in Texas, which it withdrew, and then re-filed in state court in California.

Aon Re sought an injunction from the Texas federal court to enjoin TIG from prosecuting any further claims arising from the treaties, as it contended those issues had all been resolved. TIG cited the Anti-Injunction Act, which generally disfavors a federal court’s injunction preventing a state court from exercising its jurisdiction. Aon Re cited the “relitigation” exception to the Anti-Injunction Act, but the Court held that Aon Re failed to demonstrate, under the more strict standards required to obtain injunctive relief, that the prior judgment rendered based on statute of limitations grounds was a judgment “on the merits,” entitling it to the preclusive effect. The court essentially left it to the state court in California to decide for itself whether Aon Re was entitled to preclusion, based on the prior judgment in its favor. Aon RE, Inc. v. TIG Ins. Co., No. 3:09-cv-0300-B (USDC N.D. Tex. Sept. 28, 2009).

This post written by John Pitblado.

COURT ENFORCES PERSONAL GUARANTEE OF REINSURANCE CONTRACT AGAINST INSURED’S CHAIRMAN AND CEO

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Defendant, Centrix Financial, LLC (“Centrix”), sought default protection insurance (“DPI”) covering its “Portfolio Management Program” – a program it created to protect lenders of sub-prime auto loans which Centrix bundled – against the risk of deficiency loan balances and property damage connected with default repossessions. Having been informed by its prior DPI carrier of non-renewal, Centrix approached the plaintiffs, Everest National Insurance Company and Everest Reinsurance Company (“Everest”) to underwrite the risk. When Everest expressed reservation about reinsurance, Centrix’s Chairman and CEO, co-defendant Robert Sutton, offered, as part of a letter of intent memorialized between the parties in an integrated contract, to personally guarantee a reinsurance contract issued by Founders Insurance Company, Ltd. (“Founders”), a Bermuda-based company owned by Sutton.

Everest and Founders ultimately proceeded to arbitration as a result of losses, and the arbitration panel ordered Founders to post security in the amount of $70,000,000. Founders failed to comply with the order, and Everest thereafter looked to Sutton to satisfy his obligation to post the security. Sutton resisted, claiming the guarantee obligation was unenforceable as it was fraudulently induced and made under economic duress. Everest sued in federal court and moved for summary judgment. The court rejected Sutton’s defenses, finding that the economic duress he faced in the course of negotiating the various agreements with Everest was not of Everest’s making, and that Sutton’s fraudulent inducement claims, even if true, were barred under the parol evidence rule as the claims were contradicted by the terms of the integrated contract entered into by the parties. The court granted summary judgment in favor of Everest. Everest National Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J., Aug. 13, 2008).

This post written by John Pitblado.

UK COURT OF APPEAL REVERSES JUDGMENT ORDERING THE POSTING OF SECURITY IN ARBITRATION-RELATED ACTION

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The UK Court of Appeals has allowed an appeal and reversed an Order for security for costs in favor of a party seeking to set aside the enforcement of an arbitration award rendered at the International Commercial Arbitration Court in Moscow, Russia. The analysis may be of interest to those involved in international arbitrations involving the New York Convention. The lower court’s decision was reported on in this blog on June 14, 2007. Gater Assets Ltd. v. Nak Naftogaz Ukrainiy [2007] EWHC 725 (CA Oct. 17, 2007).

This post written by Rollie Goss.