Arbitration / Court Decisions

INSURER’S MOTION TO DISMISS DENIED DUE TO EQUITABLE TOLLING

June 6, 2013 by Carlton Fields

United Guaranty sought reconsideration of its motion to dismiss, which the Court denied in part due to Plaintiffs’ successful equitable tolling argument. United Guaranty again argued that equitable tolling was inappropriate as Plaintiffs “did not sufficiently allege that United Guaranty committed an act of fraudulent concealment that prevented him from discovering his claim during the limitation period.” Broome, one of the original plaintiffs, obtained a mortgage from First Horizon. First Horizon then selected United Guaranty to act as Broome’s insurer. United Guaranty in turn then selected FT Reinsurance, a subsidiary of First Horizon, to provide reinsurance. Broome alleges this relationship represented a “captive reinsurance scheme,” with referral payments used to circumvent the kickback prohibitions of the Real Estate Settlement Procedures Act (“RESPA.”)

Once again, the Court found that Broome’s allegations were sufficient under the doctrine of equitable tolling, and therefore, the one-year statute of limitations did not bar his claim. The Court noted that the extent of cooperation between the bank, insurer, and reinsurance companies, while currently unknown, are better left to discovery. The Court also denied United Guaranty’s motion to certify the February 27, 2013 Order for immediate appeal as the previous court order did not represent a controlling question of law. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. April 4, 2013).

This post written by Rollie Goss.

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SUMMARY JUDGMENT GRANTED FOR REINSURER DUE TO LACK OF PRIVITY WITH DIRECT INSURED

June 5, 2013 by Carlton Fields

Plaintiff Backups Plus Computer Services, LLC (Backups) owned hard drives which failed. Plaintiff GF&C Holding Company (GF&C) was a client of Backups and stored its data on Backup’s servers. After the failure of the hard drives, Backups and GF&C both submitted claims to Harford Casualty Insurance Company (Hartford), which had issued policies to both companies. Hartford submitted a claim to its reinsurer, Hartford Steam Boiler Inspection & Insurance Company (HSB). HSB then engaged an independent analyst, LWG, to examine the hard drives and determine the cause of the failure. LWG determined that the damage was the result of normal wear and tear, not a covered risk under the policy. HSB advised Hartford that it would not pay a claim under the reinsurance agreement, and Hartford denied the claims submitted by Backups and GF&C.

Plaintiffs sued both Hartford and HSB. The district court granted the reinsurer’s motion for summary judgment on all claims. The court noted that plaintiffs’ counsel acknowledged at oral argument that there was no privity between the plaintiffs and the reinsurer. Consequently, there was no contract that could be breached and no implied covenant of good faith and fair dealing or bad faith. GF&C Holding Co. v. Hartford Casualty Insurance Co., Case No. 11-236 (USDC D. Idaho March 15, 2013).

This post written by Rollie Goss.

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IF AT FIRST YOU DON’T SUCCEED: INSURER ESTOPPED FROM COMPELLING ARBITRATION WITH MAGELLAN REINSURANCE

June 4, 2013 by Carlton Fields

Withdrawing its earlier opinion on rehearing, the Texas Court of Appeals held that New Hampshire Insurance Company (“New Hampshire”) is judicially estopped from compelling arbitration, therefore affirming the trial courts order denying New Hampshire’s motion to compel. The dispute centers on New Hampshire and Magellan Reinsurance Company’s (“Magellan”) Reinsurance Agreement (“agreement.”) Under this agreement, Magellan agreed to assume 100% of New Hampshire’s obligations for automobile insurance policies in return for the premiums paid under those policies. New Hampshire alleges that Magellan owes 1.4 million dollars to replenish an existing trust account, now emptied. New Hampshire filed suit in Turks and Caicos Island (“TCI”) to “wind up” Magellan’s business and also filed suit in Texas and New York.

The TCI Court found that New Hampshire was not a creditor of Magellan and therefore could not wind up Magellan’s business. Later that year, New Hampshire moved to compel arbitration, for which Magellan had initially argued for at the onset of the TCI litigation. The Court found that New Hampshire’s motion to compel arbitration had numerous inconsistencies with their previous arguments made to courts in TCI and New York. The Court held (consistent with its withdrawn opinion) that New Hampshire was estopped from seeking to arbitrate Magellan’s claims. New Hampshire Insurance Co. v. Magellan Reinsurance Co., No. 02-12-00196-CV (Tex, Ct. App. May 2, 2013).

This post written by Rollie Goss.

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COURT OF APPEAL AFFIRMS VACATION OF ARBITRATION AWARD ON GROUNDS OF ARBITRATOR’S EVIDENT PARTIALITY

June 3, 2013 by Carlton Fields

Thomas Kinkade Company’s suit against Nancy and David White was submitted to an arbitration proceeding in which, as the Sixth Circuit noted, “the coincidences all break one way.” During the five-year arbitration, the arbitrator, Mark Kowalsky, defied his role as neutral intermediary in various ways. For example, Kowalsky provided the Whites multiple opportunities to bolster the proofs of their claims. Kowalsky allowed the Whites to submit as evidence 8,800 documents they had deliberately withheld from Kinkade for four years. On a straightforward breach-of-contract claim that went virtually uncontested throughout arbitration, he denied Kinkade any relief. When Kinkade raised objections to Kowalsky’s decisions as an arbitrator, Kowalsky gave no response. Kowalsky additionally awarded the Whites attorney’s fees of nearly $500,000 after the arbitration panel unequivocally denied those fees in the Interim Award. Finally, during arbitration, the Whites and their appointed arbitrator both retained Kowalsky’s law firm in unrelated matters, and Kowalsky made no effort to avoid receiving compensation for such matters. Kinkaid sought to disqualify Kowalsky to no avail. Both the AAA and Kowalsky denied disqualification requests. The arbitration panel entered a Final Award in favor of the Whites in an amount in excess of $1.4 million. The district court granted Kinkade’s motion to vacate due to the arbitrator’s partiality, and the Sixth Circuit affirmed. Thomas Kinkade Company v. White, No. 10-1634 (6th Cir. April 2, 2013).

This post written by Rollie Goss.

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COURT DISMISSES ALL CLAIMS IN PRIVATE MORTGAGE REINSURANCE “KICKBACK” SCHEME RESPA SUIT

May 30, 2013 by Carlton Fields

As we reported yesterday , a number of suits in recent years have been filed challenging lender and insurer practices regarding private mortgage insurance. This practice has come under attack in suits alleging that privage mortgage insurers and lenders (and/or their captive reinsurers) have unlawfully entered into reinsurance arrangements between the primary insurers that issue the insurance, and captive reinsurers of the lender, that amount to “kickbacks” to the lenders violating the Real Estate Settlement Procedures Act (“RESPA”), among other causes of action.

A California federal court has granted motions to dismiss filed by each of the defendants, including the lender, primary insurers, and reinsurer. The court found that the plaintiff acquiesced in the dismissal of the bank defendants. The court also found the plaintiff had no standing to sue one of the primary insurers, which had not insured the named plaintiff’s mortgage, but had allegedly insured some putative class members’ mortgages. Finally, the court dismissed all the claims under RESPA’s statute of limitations, finding that the “discovery rule” did not apply, and the plaintiffs were not otherwise entitled to equitable tolling. Samp v. J.P. Morgan Chase Bank, N.A., Case No. 11-civ-1950 (USDC C.D. Cal. May 7, 2013).

This post written by John Pitblado.

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