Arbitration / Court Decisions

RHODE ISLAND SUPREME COURT REVERSES TRIAL COURT ORDER VACATING ARBITRATION AWARD

June 13, 2013 by Carlton Fields

In an uninsured/underinsured motorists coverage case, the plaintiff, an injured party in a collision with an underinsured driver, sued her insurer for underinsured motoriests benefits under her policy, which carried limits of $100,000. She was awarded $120,000 by the arbitrator, and the plaintiff then moved to comfirm in court. The insurer objected, based on the fact that there was no basis for any award beyond the policy’s limits. The trial court agreed with the insurer, and vacated that portion of the award in excess of $100,000, and otherwise confirmed the award as modified. However, on appeal, the Supreme Court of Rhode Island reversed, noting:

In modifying this award, the trial justice accepted defendant‘s contention that, . . . arbitrators may not award prejudgment interest above policy limits. . . . In effect, then, the trial justice modified the award based on his belief that the arbitrators had made an error of law. However, it is settled beyond a hint of contradiction that a mistake of law is not grounds for upsetting an arbitration award.

Wheeler v. Encompass Insurance Co., No. 2011-313 (R.I. May 24, 2013).

This post written by John Pitblado.

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FEDERAL DISTRICT COURT DENIES INSURER’S MOTION TO COMPEL ARBITRATION CITING NARROW ARBITRATION CLAUSE

June 12, 2013 by Carlton Fields

UPS sued Lexington Insurance Company seeking a declaratory judgment that Lexington was obligated to defend and indemnify UPS in an underlying personal injury action and for breach of contract for failing to defend. UPS had entered into a guard services agreement with Lexington’s insured Adelis. The agreement required Adelis to indemnify UPS for liabilities UPS might incur from any injury to an Adelis employee, unless the injury was cased solely by UPS’s negligence. Adelis’s Lexington policy contained an additional insured endorsement that would cover UPS for personal injury caused by Adelis’s employees or Adelis. The policy also contained an arbitration clause providing that “in the event of a disagreement as to the interpretation of this policy, it is mutually agreed that such dispute shall be submitted to binding arbitration.”

Lexington moved to compel arbitration, arguing that the dispositive issue of whether the injury was entirely the result of UPS’s negligence was a matter of policy interpretation that should be arbitrated. The court disagreed and denied Lexington’s motion, reasoning that the arbitration clause was narrow and the issue of UPS’s degree of negligence involved application of the facts to the policy language and not policy interpretation. Thus, the court held, the dispute was not within the purview of the narrow arbitration clause. United Parcel Service v. Lexington Insurance Co., Case No. 12 Civ. 7961 (USDC S.D.N.Y. May 7, 2013).

This post written by Ben Seessel.

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SECOND CIRCUIT VACATES ORDER DENYING PETITION TO CONFIRM INTERNATIONAL ARBITRATION AWARD

June 10, 2013 by Carlton Fields

VRG Linhas Aereas, a subsidiary of GOL Linhas Aereas, initiated an arbitration administered by the International Court of Arbitration for the International Chamber of Commerce (ICC) against MatlinPatterson, a New York private equity firm. The dispute concerned the calculation of the price for VRG in VRG’s purchase from two of MatlinPatterson’s affiliates. MattlinPatterson argued before the ICC arbitration panel that it was not a party to any arbitration agreement because it had not signed the purchase agreement—it had only signed an addendum. The arbitral tribunal disagreed, holding that MatlinPatterson was bound to arbirate and, furthermore, sided with VRG on the merits of the dispute.

VRG petitioned to confirm the award in federal district court. The district court denied the petition on the basis that, even if MatlinPatterson had agreed to arbitrate certain disputes, the arbitration agreement clearly did not extend to VRG’s purchase price. The Second Circuit vacated the district court’s order. It held the district court erred by failing to make the threshold determination whether the arbitrators or the court should decide the issue of arbitrability before interpreting the arbitration clause. The court held that, under Supreme Court precedent, if the parties clearly and unmistakably had agreed to arbitrate, then the decision as to arbitrability was properly for the arbitrators and the award should be confirmed. VRG Aeras S.A. v. Matlin Patterson Global Opportunities Partners II L.P., No. 12-593-cv (2d Cir. June 3, 2013).

This post written by Ben Seessel.

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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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