Jurisdiction Issues

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.

REINSURANCE BROKER MAY NOT PROCEED TO INTERLOCUTORY APPEAL AFTER DISAPPOINTMENT ON MOTION FOR SUMMARY JUDGMENT

April 24, 2008 by Carlton Fields

A reinsurance broker unsuccessfully sought an interlocutory appeal from a federal district court’s denial of its motion for summary judgment. The cause of action in the case was the Pennsylvania tort of negligent misrepresentation. It was alleged that the broker presented material misinformation to an Italian reinsurer that induced the reinsurer to reinsure various property and casualty risks in the United States. The broker argued on summary judgment that, under Pennsylvania law, this tort could not apply to it, since it was not a “professional information provider.” The court denied the summary judgment motion, and the broker subsequently moved to certify the question for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). The district court denied this motion, too. After noting that interlocutory appeals are generally disfavored, the district court found that there was no controlling question of law as to which there was a substantial ground for difference of opinion (a requisite of a § 1292(b) certification). Although the broker contended that Pennsylvania law does not impose liability for negligent misrepresentation on a reinsurance broker who negligently provides information to a potential reinsurer, the district court essentially determined that this was not a per se rule, especially given that part of the service of acting as a reinsurance broker is to provide information about the risk on which a reinsurer expects to be able to rely. The court found, therefore, that it was not clear that the broker’s proposed question was “controlling.” The district court also determined that an immediate appeal would not materially advance the ultimate termination of the litigation (another requisite of certification), observing that the case was already “on the eve of trial.” For these reasons, the motion for leave to appeal was denied. United National Insurance Co. v. Aon, Ltd., Case No. 04-539 (USDC E.D. Pa. Apr. 7, 2008).

This post written by Brian Perryman.

COURT DISMISSES CASE AGAINST INSURERS ALLEGING UNDERREPORTING OF WORKERS’ COMPENSATION PREMIUMS

April 22, 2008 by Carlton Fields

The Workers’ Compensation Reinsurance Association and the Minnesota Workers’ Compensation insurance Association sued nine insurers, alleging violation of the federal RICO statute and unjust enrichment due to the intentional underreporting of the amount of workers’ compensation insurance they had written in order to minimize assessments and reinsurance premiums. Disagreeing with a Magistrate Judge, a District Judge granted a motion to dismiss, dismissing the RICO claims with prejudice and the unjust enrichment claims for lack of jurisdiction. The court found that allegations focusing on the participation of the defendants in their own business, rather than the business of an enterprise, failed to allege a RICO violation. The unjust enrichment claim failed due to the failure properly to allege diversity jurisdiction. The RICO claims were dismissed with prejudice, and the unjust enrichment claims were dismissed without prejudice. Workers’ Compensation Reinsurance Association v. American International Group, Inc., Case No. 07-3371 (USDC D. Minn. Mar. 28, 2008).

This post written by Rollie Goss.