In a summary order, the Second Circuit Court of Appeals has affirmed a federal district court’s interpretation of certain reinsurance contracts in favor of AIOI Nissay Dowa Insurance Company. The central issue in dispute was the scope of AIOI Nissay’s obligations to a group of insurers under contracts that those insurers had purchased from a reinsurance pool, of which AIOI Nissay was a member. The contracts were triggered in the wake of the aviation losses associated with the September 11, 2001 terrorist attacks. The Second Circuit rejected all of the arguments raised by the group of insurers on appeal, recognizing that the primary objective in contract interpretation is to give effect to the intent of the parties. While short on facts, the summary order stated that the “more natural reading” of contractual terms controlled, which was the interpretation advanced by AIOI Nissay, and the court therefore affirmed judgment in favor of AIOI Nissay on its breach of contract claim. AIOI Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., No. 13-2689 (2d Cir. Apr. 22, 2014).
Arbitration / Court Decisions
COURT CONSTRUES AMBIGUOUS ARBITRATION CLAUSE BROADLY AND COMPELS ARBITRATION
The dispute involved a claim for benefits under a policy insuring a marine construction site damaged in 2008 by Hurricane Ike. The insured contended that the policy did not provide for arbitration, but instead provided only for appraisal to set an amount of loss. The court disagreed, finding that the policy contained a clause entitled “Arbitration” and contained “multiple references to arbitration,” although that clause was ambiguous because the policy was silent as to “what precisely triggers arbitration.” The court then analyzed extrinsic evidence, including the language of a “draft” of the arbitration clause, and compelled arbitration, finding “ample evidence in the record to demonstrate [the parties’] intent to arbitrate any and all disputes under the policy.” Aker Kvaerner/IHI v. National Union Fire Insurance Co. of Louisiana, et al., Case No. 2:10-cv-00278 (USDC W.D. La. Feb. 10, 2014).
This post written by Michael Wolgin.
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INSURER MUST FOLLOW THE SETTLEMENTS, NOTWITHSTANDING CLAUSE PURPORTING TO LIMIT SETTLEMENT TO SETTLING INSURERS ONLY
Interest holders in a vessel insured a 50% interest with certain Lloyd’s Syndicates, and a 30% interest with Aigaion Insurance Company. The terms of the Aigaion policy contained a clause reading, “Agreed to follow London’s Catlin and Brit Syndicate in claims excluding ex-gratia payments” (the “Follow Clause”). When the Syndicates later settled a claim after the vessel was damaged, a dispute between the insureds and Aigaion arose over whether Aigaion was required to follow the settlement. Aigaion contended that it need not follow the settlement due to the following provision in the settlement agreement between the Syndicates and the insureds (the “Settlement Clause”): “The settlement and release pursuant to the terms of this Agreement is made by each Underwriter for their respective participations in the Policy only…and do not bind any other insurer providing hull and machinery cover in respect of the [vessel].” The insureds disagreed that this provision was enforceable by Aigaion, and argued that Aigaion was obligated to follow the Syndicates’ settlement under the Follow Clause.
The court interpreted the plain meaning of the Aigaion policy and ruled that the Follow Clause did indeed require Aigaion to follow any settlement made by the Syndicates. The court rejected Aigaion’s argument that the clause’s purpose was only to make the Syndicates Aigaion’s agent to negotiate settlement of disputed claims. The court also found that, although it interpreted the Settlement Clause as an attempt to exclude other parties from the settlement between the insureds and the Syndicates, Aigaion was not an intended third-party beneficiary of that agreement, Aigaion was bound under the Follow Clause, and Aigaion therefore could not rely on the Settlement Clause to avoid liability to the insureds. San Evans Maritime Inc., et al. v. Aigaion Insurance Co. SA, [2014] EWHC 163 (U.K. High Court of Justice, Comm. Div. Feb. 4, 2014).
This post written by Michael Wolgin.
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CLASS ARBITRATION ROUND-UP
There have been a number of recent court opinions enforcing class arbitration waivers, compelling individual arbitration and denying class arbitration, with the lone exception being a California Court of Appeal opinion which, in conflict with an opinion from the Ninth Circuit Court of Appeals, distinguished Concepcion and found a waiver of class arbitration to be unenforceable.
Alakozai v. Chase Investment Services Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (Affirming denial of motion to compel arbitration of class action claims, finding class arbitration exclusion in FINRA rules was not incorporated explicitly into parties’ agreement, potentially allowing for arbitration of class action claims in another arbitral forum).
Hickey v. Brinker Nat’l Payroll Company, LP, 1:13-cv-00951 (USDC D. Colo. Feb. 18 2014) (granting motion to compel individual arbitration of employees’ claims against employer, rejecting claims that agreement with class arbitration waiver was unenforceable under NLRA or was otherwise unenforceable as unconscionable or against public policy).
Michael Appelbaum v. AutoNation Inc., SACV 13-01927 (USDC C.D. Cal. April 8, 2014) (granting motion to compel individual arbitration of employee’s claims against employer, finding class arbitration waiver not unenforceable under NLRA or otherwise unconsionable, substantively or procedurally)
Johnson v. Consumerinfo.com, Inc., No. 11-56520 (9th Cir. March 20, 2014) (dismissing appeal of trial court’s grant of motion to compel individual arbitration of consumer protection claims, finding FAA bars appeals of court orders staying judicial proceedings and compelling arbitration).
Imburgia v. DirectTV, Inc., No. B239361 (Cal. App. Ct. April 7, 2014) (affirming denial of motion to compel individual arbitration, finding choice of law provision which did not explicitly mention FAA, but did mention state law, allowed for interpretation of enforceability issues under state law, despite that result would otherwise be preempted by FAA. The case distinguishes Concepcion, and is in conflict with Ninth Circuit decision in Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013), discussed in prior ReinsuranceFocus.com post.
This post written by John Pitblado.
PRECLUSIVE EFFECT OF PRIOR ARBITRATION IS AN ARBITRABLE ISSUE
The U.S. District Court for the District of Massachusetts recently applied the First Circuit’s analysis in Employers Insurance Co. of Wausau v. OneBeacon American Insurance Co., Case No. 13-1913 (1st Cir. Feb. 26, 2014), when it held that the preclusive effect of a prior arbitration is itself an arbitrable issue. Faced with one previously concluded and one pending arbitration between insurers and their reinsurer regarding the interpretation of an “Access to Records” clause as it pertained to allegedly privileged documents, the district court was not asked to vacate, modify, or correct the previously concluded arbitration order. Instead, both parties consented to the court confirming that order and sought to argue about the proper forum for the interpretation, application, and performance of the arbitration order. Ultimately, the court emphasized the First Circuit’s “general rule” that the preclusive effect of a prior arbitration is an arbitrable issue, particularly where, as in this case, the plain terms of the parties’ arbitration clause broadly encompasses “any dispute arising out of” the agreement. Liberty Mutual Insurance Co. v. Allstate Insurance Co., Case No. 13-cv-10387 (USDC D. Mass. Mar. 31, 2014).
This post written by Kyle Whitehead.
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