Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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

Arbitration / Court Decisions

APPELLATE COURT REJECTS CLAIM OF ARBITRATOR BIAS BASED ON UMPIRE’S SERVICE AS A PARTY ARBITRATOR IN OTHER MATTERS INVOLVING A RETROCESSIONAIRES’ ALLEGED AFFILIATE

by

The Second Circuit has rejected the attempt of a retrocedent, IRB Brasil Reseguros S.A. (“IRB”), to vacate certain arbitration awards against it in favor of its retrocessionaire, National Indemnity Company (“NICO”). IRB argued that vacatur was required because the neutral umpire on a three arbitrator panel accepted a position as party arbitrator on behalf of an alleged affiliate of NICO while the NICO/IRB arbitration was ongoing. Notwithstanding this, the court found that this did not amount to “evident partiality” or any other basis for vacatur of an arbitration award under the Federal Arbitration Act based upon arbitrator misconduct.

IRB and NICO were involved in a series of arbitrations over seven years regarding NICO’s obligations to indemnify IRB for losses it incurred under certain reinsurance contracts that covered losses suffered by large Brazilian company. The three-member arbitration panel was made up of two party-appointed arbitrators and one neutral umpire. In 2012, IRB demanded that the neutral umpire withdraw from the arbitration because he had served as a party-arbitrator for an alleged affiliate of NICO in another matter. The umpire refused to step down and later accepted another appointment as a party-arbitrator for that same purported NICO affiliate. The majority of the arbitration panel in the NICO/IRB matters ultimately issued three awards in NICO’s favor.

The court found that the umpire’s conduct did not demonstrate “evident partiality” under the FAA, which the court, quoting an earlier Second Circuit decision, said exists when “a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.” The umpire was not alleged to have a familial, business, or employment relationship with NICO or its alleged affiliate, or a financial interest in the outcome of the arbitrations, and had in fact voted against NICO’s purported affiliate when acting as party arbitrator. The court also rejected IRB’s argument that his conduct constituted “misbehavior” under the FAA because this argument was not raised before the district court. However, the court found that IRB’s arguments were not frivolous and thus rejected NICO’s request for attorneys’ fees and costs. National Indemnity Co. v. IRB Brasilia Reseguros S.A., No. 16-627-cv (2d Cir. Jan. 31, 3017)

This post written by Jason Brost.

See our disclaimer.

COURT UPHOLDS ATTORNEY-CLIENT PRIVILEGE IN REINSURANCE DISPUTE, REJECTING ASSERTION OF THE CRIME-FRAUD EXCEPTION AND QUESTIONS SURROUNDING THE SOURCE OF THE PRIVILEGED MATERIAL

by

The case involves a dispute over Utica Mutual Insurance Company’s claims for reinsurance proceeds from Munich Re. One of Munich Re’s defenses in the litigation asserts that Utica “strategically orchestrated a settlement structure” with its insured “for the sole purpose of either creating reinsurance coverage which did not exist or maximizing a reinsurance recovery to which, in good faith, Utica is not entitled.” To support its defense, Munich Re sought to compel production from Utica of certain redacted handwritten notes that were written on a draft mediation statement that Utica claims were authored by an attorney from the law firm that represented it during the underlying insurance coverage dispute between Utica and its insured. Munich Re based its motion to compel the document on (1) the “crime fraud exception” to the attorney-client privilege, and (2) Utica’s inability to specifically identify the author of the handwritten notes.

The magistrate judge denied Munich Re’s motion to compel, and the district court affirmed the decision. Regarding the crime-fraud exception, the court found no clear error in the magistrate’s finding that Munich Re failed to establish that the handwritten notes were made in furtherance of Utica’s alleged attempt to defraud its reinsurers. And regarding the unknown identity of the notes, the court upheld the magistrate’s conclusion that the notes were authored by an attorney, notwithstanding that one of Utica’s outside attorneys testified that the notes were not in his handwriting or in the handwriting of one of his partners. The court upheld the magistrate’s ruling that “the identity of the attorney was irrelevant because the contents of the notes clearly establish that this was a notation by a lawyer for Utica relating to the reinsurance implications of [the] settlement.” Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., Case No. 6:12-CV-196 (USDC N.D.N.Y. Apr. 25, 2016; Jan. 13, 2017) (Magistrate Ruling & Order on Appeal).

This post written by Gail Jankowski.

See our disclaimer.

NINTH CIRCUIT AFFIRMS ORDERS DENYING ARBITRATION IN TWO CLASS ACTION LAWSUITS AGAINST SAMSUNG

by

The Ninth Circuit issued two similar opinions arising out of Samsung’s appeals of orders denying arbitration in two putative class actions filed against it. The claims against Samsung allege that the smartphone maker misrepresented the performance of the Galaxy S3 and S4 smartphones. Samsung attempted to compel arbitration based on an arbitration clause in the “Product Safety and Warranty Brochure” included in the packaging of the phones. Applying California law, the Ninth Circuit found that the arbitration clause in the warranty brochures was not binding on the plaintiffs with respect to the claims here. The court further held that Samsung failed to establish an exception to the rule that an offeree’s silence cannot satisfy affirmative consent. Further, the court held that the brochure was not an “in-the-box” contract. The Ninth Circuit also rejected Samsung’s argument that it could rely on the arbitration provisions in the plaintiffs’ respective customer agreements with their cell phone carriers; Samsung was neither a signatory to, nor a third-party beneficiary of those agreements. Norcia v. Samsung Telecommunications America, LLC, Case No. 14-16994 (9th Cir. Jan. 19, 2017); Dang v. Samsung Electronics Co., Ltd., Case No. 15-16768 (9th Cir. Jan. 19, 2017).

This post written by Michael Wolgin.

See our disclaimer.

THIRD CIRCUIT AFFIRMS REJECTION OF CLASS ARBITRATION WHERE EMPLOYMENT AGREEMENT WAS SILENT ON WHETHER ARBITRATION COULD PROCEED ON A CLASS BASIS

by

Plaintiffs, former staffing managers of defendants’ international staffing agency, alleged that defendants misclassified them as overtime-exempt employees in violation of the Fair Labor Standards Act. Following earlier rulings of the trial court permitting an arbitrator to determine the availability of class arbitration, the Third Circuit established precedent that it was the role of the court, not the arbitrator, to make this determination. The trial court then found that the relevant employment agreements did not specifically provide for class arbitration, and therefore no class arbitration could go forward. At issue on appeal were first, whether the availability of class arbitration was indeed for the court or the arbitrator to decide; and second, whether the trial court erred in determining that the parties’ agreements did not permit class arbitration.

Regarding the issue of availability of class arbitration, the Third Circuit reaffirmed its previous decision that the question of arbitrability of class claims is for the court, and not the arbitrator to decide. As to the issue of whether the employment agreements permitted class arbitration, the court held that silence regarding class arbitration generally indicates a prohibition against it. Moreover, the court stated that “[e]ven assuming arguendo that class arbitration may be permitted without express authorization in an arbitration clause, Plaintiffs ha[d] set forth nothing suggestive of any implicit intent to permit class arbitration here.” The court therefore affirmed the dismissal of the case due to the lack of authority to hold a class arbitration. Opalinski v. Robert Half Int’l Inc., Case No. 15-4001 (3d Cir. Jan. 30, 2017).

This post written by Gail Jankowski.
See our disclaimer.

NINTH CIRCUIT AFFIRMS CALIFORNIA DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD

by

In this matter, a California district court confirmed an arbitration award in favor of D.A.R.E. America, and denied a motion to vacate the arbitration award by D.A.R.E. New Jersey, Inc. D.A.R.E. New Jersey, Inc. appealed to the Ninth Circuit.

In the arbitration, D.A.R.E. New Jersey attempted to amend its arbitration demand to include a new claim under the New Jersey Franchise Practices Act on the eve of the arbitration hearing. The Ninth Circuit found that the arbitrator did not manifestly disregard the law by refusing to allow D.A.R.E. New Jersey to arbitrate its New Jersey Franchise Practices Act claim, noting that “[t]o vacate an arbitration award on this ground, [i]t must be clear from the record that the arbitrator[] recognized the applicable law and then ignored it.” The Ninth Circuit also noted that “[t]he scope of the arbitrator’s jurisdiction extends to issues not only explicitly raised by the parties, but all issues implicit within” the arbitration demand, and that an arbitrator’s interpretation of the scope of her powers is given great deference. The Court noted that the arbitrator found that the determination that D.A.R.E. New Jersey materially breached the charter agreement was necessary to resolve the breach of contract claim. Finally, the Ninth Circuit noted that arbitration awards may be vacated on public policy grounds where an explicit, well defined, and dominant public policy exists and that the policy specifically militates against the relief ordered by the arbitration. It then found that D.A.R.E. New Jersey had not identified an explicit public policy that militates against the relief ordered by the arbitration. Thus, the Ninth Circuit affirmed the district court’s confirmation of the arbitration award. D.A.R.E. New Jersey, Inc. v. D.A.R.E. America, No. 2:12-cv-09805 (9th Cir. Jan. 17, 2017).

This post written by Jeanne Kohler.

See our disclaimer.