Jurisdiction Issues

JUDICIAL PANEL ON MULTIDISTRICT LITIGATION TRANSFERS CASE FILED BY TENNESSEE INSURANCE COMMISSIONER INVOLVING RECIPROCAL OF AMERICA TO PENDING MDL ACTION

July 15, 2008 by Carlton Fields

The Tennessee Insurance Commissioner, as liquidator for three risk retention groups, sued General Reinsurance Corp, Milliman, Price Waterhouse Coopers, Wachovia Bank and others in Tennessee state court, alleging a broad based conspiracy and fraud in a reinsurance program involving Reciprocal of America. After the case was removed to federal district court, the Judicial Panel on Multidistrict Litigation granted a motion to transfer the case to the Reciprocal of America Sales Practices Litigation MDL proceeding pending in the Western District of Tennessee. The Panel found that the actions involve questions of fact arising out of relationships and transactions substantially similar to those involved in the MDL action, and that transfer and consolidation therefore was appropriate under 28 U.S.C. section 1407. In re: Reciprocal of America Sales Practices Litigation, MDL No. 1551 (JPML June 5, 2008).

This post written by Rollie Goss.

NEW JERSEY SUPREME COURT AFFIRMS VAILIDITY OF CONTRACTUAL BAR TO JUDICIAL REVIEW OF ARBITRATION AWARDS, WITH ONE EXCEPTION

June 24, 2008 by Carlton Fields

In an opinion that runs just over one page long, the New Jersey Supreme Court has affirmed the decision of the Appellate Division that upheld a provision of an arbitration agreement entered into by two “sophisticated business parties” which foreclosed appellate court review of the decision of an arbitrator, but finding the provision invalid to the extent that it foreclosed the right to initial judicial review, which would have deprived a court of the ability to vacate the award if it violated public policy. The contractual provision stated that the arbitrator’s decision would be “final, binding and conclusive” and “not subject to an appeal to any authority in any forum.” “Additionally, the parties forswore any legal action other than one to confirm or enforce (but not to vacate) the arbitration award.” After an award was entered, a trial court judge confirmed the award, and an appeal was filed. A motion to dismiss the appeal was filed, on the basis that the parties had expressly waived any right to appeal. The Appellate Division panel denied the motion to dismiss, and entered an opinion examining the award and upholding its validity, finding the absence of any grounds under the New Jersey Arbitration Act for vacating an award on the basis of public policy. In a single sentence, the Court mentioned that the “rare circumstances” that might justify an appellate court in vacating an arbitration award on public policy grounds might include bias or misconduct of the trial judge or unconscionability in the formation of the contract, and that none of these bases were present. The Court affirmed “substantially for the reasons expressed in” Appellate Division’s opinion. Van Duren v. Rzasa-Ormes, No. A-52-07 (N.J. June 19, 2008).

This post written by Rollie Goss.

UK COURT OF APPEALS AFFIRMS INJUNCTION AGAINST ACTION IN US COURTS

June 24, 2008 by Carlton Fields

In an August 28, 2007 post, we reported on the decision of the UK Commercial Court granting a permanent injunction against an insurer seeking to challenge a UK arbitration award, which was governed by New York law, in US courts. The UK Court of Appeals has denied an appeal, affirming that decision, in a situation in which: (1) the contract was a Bermuda insurance form; (2) the contract provided that it was governed by New York substantive law; and (3) the contract provided that any arbitration would occur in London, subject to UK arbitration law. The decision turned on the interpretation of the insurance contract, with the Court of Appeals agreeing with the analysis and conclusion of the Commercial Court judge. The Court of Appeal found that disputes as to the confirmation or vacation of an award had to be brought in the UK courts, and that a permanent injunction barring the insurer from challenging the award in US courts was appropriate. C and D [2007] EWCA Civ. 1282 (Dec. 5, 2007).

This post written by Rollie Goss.

COURT DISMISSES PETITION FOR NAMING OF ARBITRATOR FOR LACK OF JURISDICTION

May 30, 2008 by Carlton Fields

A US District Court has dismissed a Petition seeking the appointment of a neutral arbitrator, finding that it did not have jurisdiction over the dispute. The only source of jurisdiction cited by the parties was the arbitration agreement. This ruling is in accord with rulings of other courts, which have held that the Federal Arbitration Act is not itself a source of federal court jurisdiction. Typically, parties rest jurisdiction for arbitration disputes in federal courts upon diversity jurisdiction. Northern California Relief. v. Insurance Company of the West, Case No. 08-942 (USDC N.D. Cal. Mar. 10, 2008).

This post written by Rollie Goss.

REINSURERS GRANTED TRANSFER OF VENUE IN CASUALTY COVERAGE DISPUTE

May 15, 2008 by Carlton Fields

The plaintiff, Huntsman, took out a casualty insurance policy with the defendant, International Risk Insurance Company (“IRIC”), a captive insurer that had been formed for the sole purpose of insuring Huntsman’s companies through the reinsurance market. IRIC then entered into separate reinsurance agreements with a group of reinsurers. After a fire at its ethylene plant, Huntsman submitted claims to the reinsurers and received payments totaling $305 million. However, a dispute arose concerning Huntsman’s right to receive additional payments under the casualty policy and the reinsurance certificates, and the reinsurers filed a lawsuit in the United States District Court for the Southern District of Texas seeking an order compelling arbitration or, in the alternative, declaring that Huntsman was not entitled to coverage for certain claimed items. After the reinsurer’s lawsuit was filed, Huntsman filed its own lawsuit in the state district court for Jefferson County, Texas, seeking a judicial declaration that IRIC was obligated to pay the amounts demanded by Huntsman. In turn, IRIC tendered the defense of Huntsman’s state court lawsuit to the reinsurers. When this tender was rejected, IRIC filed a third-party petition against the reinsurers in the state suit. The reinsurers then removed the state suit to the United States District Court for the Eastern District of Texas, and moved to transfer the removed suit for consolidation with its own ongoing suit in the Southern District of Texas.

The motion to transfer venue was granted. The court cited the “first-to-file” rule, which states that when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap. The court found that both lawsuits involved the same parties, same loss and same underlying insurance policy. The central dispute in both cases was whether Huntsman was due additional sums under the policy and reinsurance certificates. Each case also involved an interpretation of the dispute resolution provision contained in the certificates. The court rejected Huntsman’s argument that the first-to-file rule should not apply because the reinsurer’s suit was filed in anticipation of Huntsman’s suit. The court observed that the first-to-file rule not only determines which forum may decide the merits of the case, but also which forum should decide whether a later suit should be dismissed, stayed or transferred and consolidated. Huntsman Corp. v. International Risk Insurance Co., Case No. 08-CV-029 (USDC E.D. Tex. Apr. 22, 2008).

This post written by Brian Perryman.