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Arbitration / Court Decisions

COURT AWARDS REINSURER REVENUE-SHARING UNDER BROKER AUTHORIZATION CONTRACT

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Reinsurer Homeowner’s Choice Property and Casualty Insurance Company entered into a one-year broker authorization contract with Aon Benenfield. The contract contained a revenue-sharing agreement (“RSA”) under which Aon was to pay Homeowners a portion of the commissions it earned from placing Homeowners’ reinsurance. Homeowners declined to renew the contract when the one-year term expired. Aon refused to pay Homeowners revenue-sharing, claiming that the RSA was contingent upon Homeowners renewing the contract. Homeowners sued, seeking payment under the RSA. An Illinois federal court granted summary judgment in Homeowners’ favor, awarding Homeowners what it was due under the RSA. After holding that the RSA should be construed against drafter AON under Illinois law, the court found that there was no clear intent by the parties to make revenue-sharing payments contingent upon Homeowner’s renewal. Homeowners Choice, Inc. v. AON Benfield, Inc., Case No. 10 C 7700 (USDC N.D. Ill. Mar. 29, 2013).

This post written by Ben Seessel.

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BRITISH HIGH COURT FINDS FOR CEDENTS IN DISPUTE OVER COVERAGE FOR A DEFECTIVE KUWAITI OIL TANK

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A newly-installed petroleum holding tank in Kuwait was discovered as defective in 2007, and initial repair/replacement estimate was approximately $28 million (US). At that time, the insurers notified the reinsurers, including Beazley, through their broker, Aon. AIG, the lead insurer, took the position that loss was excluded from coverage under a defective design exclusion. Ultimately, that coverage dispute appeared headed toward settlement, with AIG prepared to contribute some $4 million of a reduced $19 million total repair estimate. Beazley, AIG’s reinsurer, and other participating reinsurers, were not informed of these developments at the time. Upon learning about the negotiations later, the reinsurers notified the primary insurers of their objection that the settlement did not take into account the defective design exclusion, and that they did not consent to the settlement. They also pointed to the Claims Control Provision in the reinsurance contracts, which they alleged gave them full control over investigation and settlement. After hearing testimony, the Court held in favor of the primary insurers, finding that the reinsurers were sufficiently apprised of the settlement discussions, and the coverage dispute, as to have had meaningful control over the claim, and that the insurers did not breach that condition. Beazley Underwriting, Ltd. v. Al Ahleia Insurance Co., [2013] EWHC 677 (English High Court of Justice, Queen’s Bench, Comm. Div., Mar. 27, 2013).

This post written by John Pitblado.

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ARBITRATION AWARD REVIEW ROUNDUP

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Manifest Disregard/Exceeding Powers

Tivo, Inc. v. Goldwasser, Case No. 12-cv-07142 (USDC S.D.N.Y. Feb. 14, 2013) (denying motion to vacate award; granting motion to confirm award; panel did not exceed authority for allegedly basing award on theory not advanced by parties; panel’s patent licensing determinations not a “manifest disregard” of the law)

Giller v. Oracle USA, Inc., No. 12-895 (2d Cir. Feb 22, 2013) (affirming order granting motion to dismiss petition to vacate award in employment dispute; no grounds for vacatur for arbitrator’s interpretation of underlying contract; noting that “manifest disregard” still regarded as a “judicial gloss” on the FAA in the Second Circuit)

Peterson v. Macy’s, Case No. 10-cv-05119 (USDC E.D.N.Y. Feb. 25, 2013) (denying motion to vacate in pro se employment discrimination action; “since, inter alia, there is more than a ‘colorable justification’ for the arbitrator’s decision, the arbitration award was not rendered in manifest disregard of the law”)

Department of Professional & Financial Regulation v. Maine State Employees Association, Case No. 2013 ME 23 (Me. Feb. 28, 2013) (reversing and remanding for lower court to enter order denying motion to vacate award that reinstated employee; because the award “did not violate a public policy ‘affirmatively expressed or defined in the laws of Maine,’ the arbitrator did not exceed his powers, and the award is not subject to further judicial scrutiny on that basis”)

Choice of Law

Orbitcom, Inc. v. Qwest Communications Co., Case No. 12-cv-01639 (USDC D. Co. March 12, 2013) (granting motion to confirm award; denying motion to vacate; arbitrator did not exceed powers for 16-month delay of entry of final award; arbitrator correctly applied FAA for arbitration procedure, rather than New York law, notwithstanding New York substantive choice of law provision)

Abu Dhabi Investment Authority v. Citigroup, Inc., Case No. 12-cv-00283 (USDC S.D.N.Y. March 4, 2013) (denying petition to vacate award; no manifest disregard for New York choice of law; proceedings were not fundamentally unfair, notwithstanding tribunal’s denial of certain discovery)

Subject Matter Jurisdiction

Duffy v. Legal Aid Society, Case No. 12-cv-02152 (USDC S.D.N.Y. Feb. 12, 2013) (dismissing petitioner’s pro se action to vacate arbitration decision in employment dispute; employee lacked standing to challenge arbitration between union and employer; petitioner failed to argue that union did not provide fair representation; argument that arbitration decision was “confusing and contradictory” not grounds for vacatur)

Smith v. Cheesecake Factory Restaurants, Inc., Case No. 06-cv-00829 (USDC M.D. Tenn. Feb. 8, 2013) (denying motion to vacate award; arbitrator’s award authorizing collective arbitration under Fair Labor Standards Act was an interim decision and vacatur was thus not ripe for judicial review)

Conclusory Challenge

Wanken v. Wanken, No. 12-10562 (5th Cir. Feb. 11, 2013) (affirming order denying motion for relief from judgment and confirming arbitration award; appellant failed to show that court ignored evidence allegedly showing that appellees gave perjured testimony and fraudulently procured the arbitration award)

Bailey Brake Farms, Inc. v. Trout, Case No. 2011-CA-00610 (Miss. Feb. 28, 2013) (reversing vacatur of arbitration award that set the value of shares under a stock buy-sell agreement; court’s order lacked any analysis or findings supporting grounds for vacatur, such as exceeding authority, “undue means,” or “unresolved issues”)

This post written by Michael Wolgin.

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UNAUTHORIZED FOREIGN OR ALIEN INSURERS NOT REQUIRED TO POST SECURITY PRIOR TO FILING A MOTION

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Section 5/123(5) of the Illinois Insurance Code requires unauthorized foreign and alien company’s to post security prior to filing a pleading in any action or arbitration proceeding. An explicit exception is made for the filing of a motion to quash process or set aside service. The Northern District of Illinois recently interpreted this section of the Insurance Code in coverage litigation between an insured and its insurer and determined that the “language does not suggest that the excepted motions are exclusive.” Based on that reasoning, the court denied plaintiff’s motion for an order requiring the defendant to post security prior to filing a motion. Baxter International, Inc. v. AXA Versicherung, Case No. 1:11-cv-09131 (USDC N.D. Ill. Jan. 11, 2013).

This post written by Abigail Kortz.

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THIRD CIRCUIT AFFIRMS DISTRICT COURT’S HOLDING THAT ARBITRATOR DID NOT ACT WITH EVIDENT PARTIALITY

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The Third Circuit affirmed a district court decision denying a motion to vacate an arbitration award issued in favor of Pittsburgh Glass Works and PGW Auto Glass and against James Freeman. Freeman had asserted age discrimination claims in federal district court against the respondents after being fired from his job. The parties agreed upon a retired state court judge to arbitrate their dispute. The arbitrator had recently lost an election to the Pennsylvania Supreme Court. Freeman moved to have the award vacated on the basis that the arbitrator was biased because she had failed to disclose that she had received $4,500 in campaign contributions from PPG Industries, a minority owner of Pittsburgh Glass and PGW, during her unsuccessful Pennsylvania Supreme Court bid. Further, Freeman argued that the arbitrator had failed to disclose that she co-taught a law school course with a senior employment attorney at PPG Industries.

The district court denied the petition and the Third Circuit affirmed, holding that failing to disclose the existence of judicial campaign contributions did not establish “evident partiality” by the arbitrator, particularly in this instance where PPG Industries’ contributions were relatively small and, moreover, Freeman’s law firm had contributed five times the amount that PPG Industries had to the judge’s campaign. An undisclosed professional relationship with a minority owner was not “powerfully suggestive of bias.” The court made clear that “an arbitrator is evidently partial only if a reasonable person would necessarily conclude that the arbitrator was partial to one side,” and was careful to distinguish that standard from the more exacting appearance of bias standard for federal judges. Freeman v. Pittsburgh Glass Works, LLC, No. 12-2026 (3d Cir. Mar. 6, 2013).

This post written by Ben Seessel.

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