Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions / Jurisdiction Issues

Jurisdiction Issues

NEW YORK COURTS ADDRESS DISCOVERY AND VENUE DISPUTES IN CONTRACT RESCISSION CASE INVOLVING ALLEGED FINITE REINSURANCE TRANSACTION

by

In a recent discovery dispute between Udayan Ghose (the former Chairman of the Board of Directors of New Cap Reinsurance Corporation ) and CNA Reinsurance, a New York trial court compelled CNA to produce underwriting manuals and guidelines, claims handling manuals, and documents concerning whether it sold finite reinsurance. Plaintiffs argued that the underwriting manuals and other such documents were necessary to disprove defendants’ defense of rescission of the D&O liability policy at issue in the litigation. CNA argued that its underwriting materials were irrelevant since a third party (Encon Underwriting) was responsible for underwriting the policy. Because the defendants were arguing that they would not have issued the policy if they had known of certain misrepresentations made by New Cap, the court concluded that the requested documents were discoverable as being relevant to the issue of materiality. Ghose v. CNA Reinsurance Co. Ltd, No. 108121/04 (N.Y. Sup. Ct., Aug. 20, 2007).

Just a few weeks later, the New York Supreme Court Appellate Division issued an opinion on defendants’ appeal of an order denying a motion to dismiss on forum non conveniens grounds. In a unanimous decision, the Appellate court reversed and granted the motion to dismiss on the condition that the defendants consent to jurisdiction in either Australia, England, or Bermuda, and to waive any statute of limitations defense. The court noted in dicta that if the case had remained in New York state court, it would have sustained an interim award of defense costs, pending resolution of the insurers’ attempt unilaterally to rescind the underlying policy. Ghose v. CNA Reinsurance Co. Ltd, 2007 NY Slip Op 06572 (NY App. Div. Sept. 6, 2007).

This post written by Lynn Hawkins.

SUPREME COURT HEARS ORAL ARGUMENT ON WHETHER PARTIES MAY SUPPLEMENT ARBITRATION AGREEMENTS BEYOND FAA’S VACATUR STANDARDS

by

The Supreme Court recently heard oral arguments on whether an arbitration agreement may provide for more expansive judicial review of an arbitration award than the narrow standard of review provided for in the Federal Arbitration Act. This case arose out of a property lease dispute between Mattel, the well-known toy manufacturer, and its landlord, Hall Street Associates. The parties agreed to arbitrate the dispute pursuant to the FAA procedures, but also agreed that a district court could overrule the arbitrator’s decision if the arbitrator’s “conclusions of law [we]re erroneous.”

The Ninth Circuit barred this type of court review, reasoning that private parties cannot expand the Congressionally-determined role of courts in reviewing arbitration awards. In contrast, the First, Third, Fourth, Fifth, and Sixth Circuits appear to have interpreted the FAA’s vacatur standards as non-exclusive standards which parties may supplement by agreement. While the Seventh Circuit has not squarely addressed the issue, it stated in dicta that the parties “cannot contract for a judicial review” of a labor arbitration award “because federal jurisdiction cannot be created by contract.”

After hearing oral arguments on the issue, the Supreme Court asked for additional briefing on three issues: (1) whether authority exists outside the FAA under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award; (2) if such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority; and (3) whether the petitioner waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement.

Hall Street Associates, LLC v. Mattel, Inc., No. 06-989.

This post written by Lynn Hawkins.

DISPUTE RELATING TO REINSURANCE IN SALE OF INSURANCE COMPANY TRANSFERRED TO COURT HEARING RELATED MATTER

by

Conseco Insurance Company sold two insurance subsidiaries to JC Penney, and under the terms of the sale Conseco retained a certain portion of contingent indemnity liability on policies issued prior to the sale. A condition precedent to Conseco’s reimbursement obligation was the submission by Penney of claims on such policies to Transit Casualty Company under a reinsurance agreement. Disputes arose related to the sale and were heavily litigated in the United States District Court for the Central District of California and the Ninth Circuit. When certain claims were dismissed, with the suggestion that they be refilled by Conseco as a separate suit, Conseco refilled them in Indiana state court. After the claims were removed, Penney moved to dismiss, in part based upon the doctrine of forum non conveniens. The court treated the motion as a motion to transfer and transferred the case to the court in California, which is still hearing other claims relating to the sale. Conseco Insur. Co. v. J. C. Penney Life Ins. Co., Case No. 06-1229 (USDC S.D.Ind. Sept. 27, 2007).

This post written by Rollie Goss.

COURT HOLDS THAT FEDERAL ARBITRATION ACT IS NOT A SOURCE OF SUBJECT MATTER JURISDICTION

by

The United States Court of Appeals for the Fifth Circuit recently dismissed an appeal of an Order which addressed venue and transfer issues in a matter filed seeking to vacate an arbitration award under the Federal Arbitration Act (“FAA”). The Court held that since the FAA can not itself be a basis for federal question jurisdiction, and there were insufficient jurisdictional allegations to establish diversity jurisdiction, the federal courts lacked jurisdiction of the matter, and remanded the case with instructions that it be dismissed for lack of subject matter jurisdiction. Other courts have also held that the FAA does not itself confer subject matter jurisdiction upon a federal court. Oteeva, LP v. X-Concepts LLC, No. 06-11181 (5th Cir. Nov. 2, 2007).

This post written by Rollie Goss.

UK Court of Appeal Grants Injunction to Restrain Proceedings in a United States District Court

by

On July 20, 2007, this blog reported on a dispute relating to the mass defection of fourteen facultative reinsurance brokers from the U.K. based Marsh Services Limited to Integro, a competitor. A suite was filed in US District Court in New York, which the Court declined to dismiss on jurisdiction grounds. In a parallel suit in the UK, a judge declined to enjoin the prosecution of the US action, but the UK Court of Appeals has allowed an emergency appeal, entering an injunction to restrain the US proceedings. This opinion contains an interesting discussion of the relationships between the UK and US courts, as influenced by an EU regulation relating to employment contracts. Samengo-Turner v. J & H Marsh & McLennan (Services) Limited, [2007] EWCA Civ 723 (July 12, 2007).