Arbitration / Court Decisions

REINSURER WINS $16.5 MILLION VERDICT ON TORTIOUS INTERFERENCE CLAIMS AGAINST AUTO INSURER AND AGENTS

February 4, 2013 by Carlton Fields

Lincoln General Insurance Company entered into certain quota share reinsurance agreements with U.S. Auto Insurance Services. It brought suit in 2007 for alleged unpaid premium. The parties entered into a settlement agreement, requiring the parties to enter new reinsurance agreements, provide partial security for the risks defendant sought to transfer, fund costs of investigations of underlying claims, and pay $1.5 million to Lincoln General. In 2010, Lincoln General again brought suit, against U.S. Auto and its agents/guarantors, alleging that the defendants breached the settlement agreement. The latter suit alleged, among other things, that the defendants tortiously interfered with, and aided and abetted the breach of, the reinsurance agreements and other related agreements, by submitting fraudulent claims and making misrepresentations. After a four-day bench trial in early January 2013, the Court found for Lincoln, and ordered the defendants, jointly and severally, to pay Lincoln $16.5 million on the tortious interference claim. The Court also found in Lincoln’s favor on the defendants’ counterclaims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 3:10-cv-2307 (N.D. Tex. Jan. 25, 2013).

This post written by John Pitblado.

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CLASS SETTLEMENT AND ATTORNEYS’ FEES APPROVED IN ACTION INVOLVING CAPTIVE REINSURANCE

January 31, 2013 by Carlton Fields

After more than four years of litigation, a class action suit brought against Washington Mutual comes to a close with an unopposed class settlement in the amount of $4 million, which includes $1.2 million for attorneys’ fees and litigation costs. The class action involved allegations that defendants received kickbacks from private mortgage insurers to whom they referred borrowers that exceeded the value of reinsurance services provided by defendants to those insurers. The Eastern District of Pennsylvania determined that class settlement was fair and reasonable because continued litigation would be complex, expensive, and lengthy since formal discovery would still need to be completed. The court also concluded that plaintiffs ran the risk of losing on summary judgment or at trial because resolving the issue of whether the reinsurance agreements adequately transferred risk to the defendants would depend on a battle of the experts. Finally, the court reasoned that there was a strong likelihood a class would not be certified outside of settlement because the defendants had potentially viable defenses that could not adequately be litigated on a class-wide basis. The court approved the class settlement and the award of attorney’s fees and costs in separate orders. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (E.D. Pa. Dec. 4, 2012).

This post written by Abigail Kortz.

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ARBITRATION PROCESS ROUNDUP

January 30, 2013 by Carlton Fields

Recent decisions on arbitration process issues:

Motion to Compel Arbitration Appeals

Saleemi v. Doctor’s Associates, Inc., No. 87062-4 (Wash. Jan. 17, 2013) (affirming trial court’s order compelling arbitration in Washington, notwithstanding forum selection clause providing for Connecticut arbitration; appellant failed to seek discretionary appeal, and instant appeal, which came after the arbitration award, required appellant to show prejudice; distinguishing Concepcion in cases not dealing with class arbitration waivers)

13 Parcels v. Laquer, No. 3D12-608 (Fla. Ct. App. Dec. 26, 2012) (reversing denial of motion to compel arbitration; appellants did not waive arbitration, notwithstanding limited motion practice in underlying action and in a prior litigation between the parties)

Marsden v. Blue Cross & Blue Shield of Montana, Inc., No. DA 12-0341 (Mont. Dec. 28, 2012) (affirming granting of motion to compel arbitration; where disputed employment agreement provided for arbitration of “any dispute” arising therefrom, issue for arbitration whether agreement was valid in the first instance)

Agency/Estoppel

James T. Scatuorchio Racing Stable, LLC v. Walmac Stud Management, LLC, Case No. 5:11-cv-00374 (USDC E.D. Ky. Jan. 2, 2013) (denying motion to dismiss where only one out of multiple agreements between parties contained arbitration clause, and only a portion of the claims would thus be submitted to arbitration; certain non-signatories to arbitration agreement who undertook burdens and received benefits under the agreement were bound to arbitrate under estoppel; one-sided arbitration clause not unconscionable where parties at time of contract were represented by counsel)

East Texas Medical Center Regional Healthcare System v. Slack, Case No. 2:12-cv-00307 (USDC E.D. Tex. Jan. 3, 2013) (denying motions to compel arbitration; corporate non-signatory not bound to arbitrate under agency theory merely based on corporate relationship; denying stay of litigation with non-signatory where claims subject to arbitration were not “inherently inseparable” from claims subject to litigation)

This post written by Michael Wolgin.

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NEW YORK SUPREME COURT CREATES A NEW METHOD FOR APPOINTING AN UMPIRE IN AN ARBITRATION

January 29, 2013 by Carlton Fields

In a dispute between two insurance companies and their reinsurer over appointment of an umpire or third party arbitrator in an arbitration proceeding required by their reinsurance treaties, the New York Supreme Court crafted a new approach for appointing the umpire or third arbitrator. The approach blends the “ranking” method and the “strike and draw” method to require each party’s chosen arbitrator to nominate 5 candidates, strike 3 candidates from the other party’s list, and rank the remaining candidates. The candidate with the highest cumulative rating becomes the umpire or third arbitrator, and in the event of a tie between the highest ranking candidates, a coin toss decides the winner. The court also allowed for the appointment of an umpire at the outset of the arbitral proceedings, concluding that the language in one of the treaties requiring the two chosen arbitrators to select an umpire “in the event of the arbitrators failing to agree” does not create a condition precedent to appointment of the umpire. American Home Assurance Co. v. Clearwater Insurance Co., No. 653079/2012 (N.Y. Sup. Ct. Jan. 15, 2013).

This post written by Abigail Kortz.

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STATE LAW REQUIRING “JURISDICTION OF ACTION” IN COURTS FOR INSURANCE DISPUTES RENDERED ARBITRATION CLAUSE VOID

January 28, 2013 by Carlton Fields

The Washington Supreme Court affirmed the denial of a motion to compel arbitration in an insurance dispute, based on a state statute that prohibits insurance contracts from “depriving the courts of [Washington] of the jurisdiction of action against the insurer.” The court analyzed the legislative history of the statute and state court precedent to find that the statute is more than a forum selection provision, but is a requirement for insurance disputes to be litigated in court. The court rejected the argument that a court’s ability to confirm an arbitration award constitutes “jurisdiction of action,” holding that a court’s power to confirm an award reflects only “limited” jurisdiction. The court further held that the state law regulated the “business of insurance” under the McCarran-Ferguson Act, so as to reverse preempt the FAA and preclude any application of Concepcion to this case. This result is similar to that in states which have a statute prohibiting arbitration provisions in certain insurance contracts. Washington Department of Transportation v. James River Insurance Co., Case No. 87644-4 (Wash. Jan. 17, 2013).

This post written by Michael Wolgin.

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