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Arbitration / Court Decisions

NEW YORK APPELLATE COURT AFFIRMS DENIAL OF COMPETING SUMMARY JUDGMENT MOTIONS IN REINSURANCE DISPUTE

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In a short, unanimous opinion, the New York Appellate Division, First Department, affirmed a trial court’s ruling that genuine issues of fact precluded it from granting summary judgment to a reinsurer or the plaintiff-cedents in a long-running dispute between them. The case involves Everest Reinsurance Company’s obligation to reimburse various cedents for a settlement entered into under certain facultatively reinsured policies. Everest Re asserted various defenses, including whether the loss is covered by the certificate at issue and whether the settlement entered into was reasonable and made in good faith. The cedents argued that Everest Re is bound to honor the billings under the follow the settlements doctrine. The Appellate Division held that the record before it presented “numerous issues of fact” regarding the settlement entered into by the cedents, and, specifically, the issue of good faith, “none of which are susceptible to resolution on summary judgment.” National Union of Fire Insurance Co. of Pittsburgh v. Everest Reinsurance Co., Index No. 602485/06 (N.Y. App Div., 1st Dep’t, Nov. 5, 2015).

This post written by Rob DiUbaldo.

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ARBITRATION AWARD THAT ATTEMPTED TO INDIRECTLY ADJUDICATE NON-PARTY VACATED AS EXCEEDING ARBITRATOR’S AUTHORITY

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The dispute involved whether a defense contractor, its owners, and its captive insurance companies (collectively, “OSI”) were entitled to a return of their premiums from a non-party insurer (“PoolRe”) that serviced a risk pool in which OSI had decided not to participate. This unsuccessful risk pool arrangement had been arranged by a law firm and related companies (collectively, “Capstone Companies”) that were responsible for forming and administering the captives. Following a contested arbitration in Texas, which culminated in an award that was vacated, and a concurrent Delaware litigation that culminated in a dismissal in favor of a second arbitration in Delaware, a Delaware arbitrator awarded OSI reimbursement of the premiums it had paid to non-party PoolRe. However, since PoolRe was not a party to the agreement between OSI and Capstone Companies, the arbitrator exercised its equitable powers and ordered the Capstone Companies “to arrange for the payment” from PoolRe to OSI.

Capstone Companies moved to vacate the award, and the Delaware district court granted the motion, ruling that the arbitrator exceeded his authority by awarding relief against non-party PoolRe. While the award did not technically require any action on the part of PoolRe because all the obligations were imposed upon the Capstone Companies to arrange for payment, the court found that the award effectively imposed an obligation upon a non-party. The court was also persuaded by the fact that a separate arbitration proceeding was pending between OSI and PoolRe before the International Chamber of Commerce, and the Delaware award’s attempt to adjudicate PoolRe through Captstone could result in a conflicting award. Hendricks, et al. v. Feldman Law Firm LLP, et al., Case No. 1:14-cv-00826 (USDC D. Del. Sept. 25, 2015).

This post written by Barry Weissman.

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COURT GRANTS MOTION TO DISMISS IN ROW BETWEEN INSURED, INSURER, AND THIRD-PARTY CLAIM ADMINISTRATORS

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A district court in Ohio granted defendants National Indemnity Company (“National”) and Resolute Management, Inc.’s (“Resolute”) motion to dismiss in an asbestos coverage dispute. Plaintiff, industrial manufacturer the William Powell Company (“Powell”), bought 60 million dollars in primary and excess product and liability coverage, eventually assumed by OneBeacon Insurance Company (OneBeacon), with additional coverage for claim defense. OneBeacon procured reinsurance protection through National. National subsequently delegated its claim responsibilities to various companies including Resolute. In 2001, Powell became embroiled in asbestos injury claims to which it sought defense. Powell alleged that National and Resolute “combined to form a racketeering enterprise for the purpose of depriving Powell of its insurance coverage and to profit at Powell’s expense” by rejecting claims and improperly intervening in the defense of those claims. National, OneBeacon, and Resolute sought dismissal of Powell’s various federal and state law claims. The court first rejected plaintiff’s federal RICO claim as it would impede Ohio insurance law to contravene McCarran-Ferguson. In particular, the court noted that an insured my not sue a third-party claims administrator for bad faith nor unfair claims handling. Additionally, a RICO claim “would upset and impair [Ohio’s] regulatory scheme and impede its ability to detect insurance fraud.” Considering next state specific claims, the court found that, without privity, Ohio does not recognize a bad faith claim for the handling of insurance claims. For these and other reasons the court granted defendants’ motion to dismiss. The William Powell Co. v. National Indemnity Co., Case No. 1:14-cv-807 (USDC S.D. Ohio Sept. 30, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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COURT APPROVES REPLACEMENT ARBITRATOR IN REINSURANCE DISPUTE DESPITE TECHNICAL VIOLATION OF ARBITRATION AGREEMENT

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In a short handwritten ruling, a court recently denied Odyssey Reinsurance Company’s challenge to a replacement arbitrator appointed by its opponents, Certain Underwriters at Lloyds London Syndicate 53 and Reliastar Reinsurance Group. The parties had selected their arbitrators and were beginning the process of selecting an umpire, when Lloyd’s and Reliastar informed Odyssey that they had replaced their appointed arbitrator. Odyssey objected to the replacement arbitrator on the ground that the individual did not satisfy the requirements of the underlying arbitration agreements, which provided: “The arbitrators and umpire shall be officials of Insurance and or Reinsurance companies authorized to transact business in one or more states of the United States of America and writing the kind of business about which the difference has arisen.” Odyssey Re contended that, while the replacement arbitrator was an officer of a broker that had corporate affiliates that wrote the type of insurance business at issue in the arbitration, the arbitrator was not an officer of an actual insurance or reinsurance company. The court rejected Odyssey’s objection, ruling simply that the arbitrator “meets the qualifications” of the arbitration agreement. Odyssey Re v. Certain Underwriters at Lloyds London Syndicate 53 et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Barry Weissman.

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COURT VACATES ARBITRATION DECISION THAT ALLOWED CLASS MEMBERS TO OPT-OUT OF INJUNCTIVE RELIEF CLASS, FINDING ARBITRATOR EXCEEDED HER AUTHORITY AND MANIFESTLY DISREGARDED LAW

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Reviewing a previously conferred arbitration award, a district court in New York granted defendant Sterling Jewelers’ motion to vacate the decision to the extent that it would have allowed class members the opportunity to opt-out. In 2008, plaintiff Laryssa Jock and others sued defendant for sex discrimination. After significant motion practice and discovery that extended multiple years, an arbitrator certified a class for declaratory and injunctive relief claims. The arbitrator subsequently allowed class members the opportunity to opt-out.

On review, defendant first alleged that the arbitrator exceeded its authority to certify a class by binding over 40,000 absent class members, and not just those class members whom had affirmatively opted-in to the class or whom were represented by counsel in the arbitration. The court did not find this argument persuasive noting that all class members agreed to arbitration in prior employment agreements thereby granting an arbitrator the power over absent class members. The court did find, however, that the arbitrator exceeded her authority and manifestly disregarded the law by permitting class members to opt-out of injunctive and declaratory relief based on Rule 23(b)(2). The court found that under Rule 23, “the relief sought must perforce affect the entire class at once.” Instead, the arbitrator failed to consider the U.S. Supreme Court’s Wal-Mart v. Dukes decision, whereby “opt-out classes may not be certified for the purposes of seeking classwide injunctive relief.” For these reasons the court vacated the class determination award’s opt-out provision for injunctive and declaratory relief but upheld the rest of the award. Jock v. Sterling Jewelers, Inc., Case No: 08 Civ. 2875 (JSR) (USDC S.D.N.Y. Nov. 16, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.