Arbitration / Court Decisions

JUDGE SURVIVES RECUSAL EFFORTS IN CASE AGAINST HANK GREENBERG ALLEGING FRAUDULENT REINSURANCE TRANSACTIONS

February 12, 2014 by Carlton Fields

A New York appellate court affirmed the denial of Maurice “Hank” Greenberg’s and former AIG CFO Howard Smith’s motion to recuse the trial judge in a case charging the two with fraudulent reinsurance transactions designed to conceal AIG’s negative financial results. The court found that the trial judge’s “comments at oral argument on the recusal motion and purported improprieties at various proceedings,” did not “demonstrate that the court improperly exercised its discretion in denying defendant’s motion for recusal.” The court explained that, while the judge “at times may have been irritated with defense counsel and the prolonged litigation, it cannot be said that his comments, alone or in the aggregate, caused his impartiality to be reasonably questioned.” The court further found to be persuasive the fact that “defendants did not move for recusal until recently, after the court had ruled against them on summary judgment motions, after years of litigation before it.” People v. Greenberg, Case No. 2014 NY Slip Op 00621 (N.Y. Ct. App. Feb. 4, 2014).

This post written by Michael Wolgin.

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COURT ANALYZES MEANING OF “TREATY REINSURANCE” IN DENYING DISMISSAL OF REINSURER’S AFFIRMATIVE DEFENSES

February 10, 2014 by Carlton Fields

Insurers sued their reinsurer for breach of certain facultative reinsurance certificates when the reinsurer ceased paying claims made for underlying losses under excess liability coverage for asbestos-related personal injuries. The reinsurer defended its decision to stop paying claims by contending that the insurers violated the reinsurance certificates when they transferred losses to another company; warranties in the reinsurance certificates provided that the insurers would “retain for [their] own account, subject to treaty reinsurance only, if any, the amount specified on the face of” the certificates. The insurers moved to dismiss this defense, arguing that they did not breach the certificates because their transfer of liability constituted a purchase of “treaty reinsurance,” and thus met the stated exception in the warranties. The court rejected the insurers’ argument, holding that “treaty reinsurance is obtained in advance of actual coverage,” and here, it was undisputed that the transfer took place “some 30 years” after the insurer wrote the policies and after the losses occurred. The court also rejected a number of other arguments made by the insurers with respect to other defenses, with two exceptions: (1) that the insurers were correct that the defense of failure to settle promptly was without merit in light of the reinsurer’s duty to follow the settlements of the insurers, and (2) that the reinsurer’s uberrima fides defense was duplicative of the reinsurer’s breach of contract defense, and was therefore due to be dismissed. The court also denied a motion for summary judgment filed by one insurer, which attempted to argue that the reinsurer was liable as a matter of law under the doctrines of waiver and account stated. Granite State Insurance Co. v. Transatlantic Reinsurance Co., Case No. 652506/2012 (N.Y. Sup. Ct. Dec. 23, 2013).

This post written by Michael Wolgin.

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BACK TO INTERPRETATION BASICS: CONDITIONS PRECEDENT, PRESUMPTIONS, AND CHOICE OF LAW

February 6, 2014 by Carlton Fields

The Eastern District of New York recently adopted the recommendation of a magistrate judge to grant a defendant-insurer’s motion to stay adjudication and compel arbitration, whilst also providing a refresher course in arbitration clause interpretation principles. First, the court dissected the arbitration clause’s condition precedent, holding that a provision requiring arbitration following the request of either party is a mandatory arbitration clause. The requirement that a dispute be submitted to arbitration within thirty days of such request “merely sets a time limit for commencement of an arbitration proceeding.” Moreover, whether a condition precedent has been satisfied is a procedural question presumptively for an arbitrator to decide, not a substantive question, such as whether the clause applies to a particular type of controversy, for a judge. Second, the court held that whether the motion to compel complied with applicable arbitration rules was inapplicable because those rules “do not come into play until an order is entered compelling arbitration or the parties agree to do so.” Third, noting the presumption of arbitrability, the court distinguished Second Circuit case law addressing an instance where a subsequent agreement to adjudicate created ambiguity in the parties’ intentions, and held that, here, “there is no subsequent agreement that abrogates th[e] agreement to arbitrate.” Lastly, the court analyzed a New York choice-of-law provision to determine the arbitrability of a punitive damages claim, holding that the provision should be read to encompass substantive principles that New York would apply, not special rules in New York that may limit the authority of arbitrators with respect to claims such as punitive damages. MQDC, Inc. v. Steadfast Ins. Co., Case No. 12-CV-1424 (ERK) (MDG) (E.D.N.Y. Dec. 6, 2013).

This post written by Kyle Whitehead.

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MOTION TO COMPEL ARBITRATION GRANTED BASED ON ORIGINAL DRAFT OF ARBITRATION CLAUSE RATHER THAN ON FINAL VERSION INCLUDED IN WRITTEN CONTRACT

February 5, 2014 by Carlton Fields

In deciding a motion to compel arbitration in a dispute over insurance coverage to be provided after Hurricane Ike, a district court in Louisiana found that the parties intended for a draft version of an arbitration clause, rather than the final version of the clause contained in a written contract, to be in effect. Interpreting the draft version, the court found that the narrowly drafted clause that called for arbitration of disputes “as to the amount to be paid under this Policy” encompassed the dispute at issue. A non-signatory insurance adjustor was also allowed to compel arbitration because plaintiff’s claims against that particular defendant referenced or presumed the existence of the agreement and centered on the adjustor’s alleged misconduct in its role as an adjustor for the defendant insurers who were parties to the agreement containing the arbitration clause. Aker Kvaerner IHI v. National Union Fire Insurance Co. of Louisiana, Case No. 10-CV-00278 (W.D. La. Dec. 2, 2013).

This post written by Abigail Kortz.

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THE SCOPE OF DISCOVERY LIMITATIONS MAY AFFECT THE AVAILABILITY OF STAYS

February 4, 2014 by Carlton Fields

In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

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