Arbitration / Court Decisions

PHILIPPINE INSURER IS NOT ENTITLED TO STAY OF LONDON REINSURERS’ DECLARATORY COVERAGE ACTION REGARDING VESSEL SINKING

October 30, 2012 by Carlton Fields

A consortium of London reinsurers are seeking a declaration from an English court regarding their duty to indemnify Philippine insurer Oriental Insurance Company for losses resulting from the sinking of a cargo passenger ship during Typhoon Frank in 2008. The sinking, which caused widespread outrage in the Philippines due to the vessel’s failure to heed storm warnings resulted in over 500 deaths and significant property loss. The reinsurance contract contained a “Typhoon Warranty,” which voided the policy if an otherwise covered vessel left port during a typhoon or storm warning. Oriental’s underlying policy with the ship owner contained a virtually identical clause. Oriental, facing massive claims and litigation in the Philippines, sought a stay of the proceedings initiated by the British reinsurers, arguing that their action was premature given the reinsurance contract’s “follow the fortunes” clause and significant unresolved claims pending in the Philippine courts. The lower court dismissed Oriental’s application for a stay, holding that such relief should only be granted in “rare and compelling circumstances,” which were not present. The appellate court dismissed the appeal with “little enthusiasm,” finding the lower court’s decision correct but noting its apparent “unfairness.” In particular, as one justice noted, the reinsurers’ action might force Oriental to assert in the London courts that the “Typhoon Warranty” did not apply, a position diametrically opposed to the one it would wish to take in defending ongoing and imminent coverage suits in the Philippines. Amlin Corp. Member Ltd. v. Oriental Assurance Corp., [2012] EWCA Civ. 1341 (Royal Courts of Justice, Queen Bench Division, Commercial Court Oct. 17, 2012).

This post written by Ben Seessel.
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COURT AFFIRMS JUDGMENT FOR REINSURER IN COMMUTATION DISPUTE

October 29, 2012 by Carlton Fields

Plaintiff, a reinsurer, and defendant, a holding company of several primary insurers, were parties to reinsurance agreements covering certain liabilities of the defendant’s member companies. In 2004, the parties entered into a commutation agreement. The agreement required the plaintiff to make a payment of $15,248,338 to the defendant “in full satisfaction of the Reinsurer’s past, present and future net liability” under the reinsurance agreements. Thereafter, the defendant continued to pay premiums under one set of the reinsurance agreements, and the plaintiff continued to make claims payments to the defendant under those agreements, despite the commutation. The plaintiff discovered its error in 2008, stopped claims payments and refused further premium. However, the defendant took the position that the commutation did not cover the agreements under which it continued to pay premiums and under which plaintiff had continued to pay claims. The plaintiff filed suit seeking a declaration that the subject agreements were covered by the commutation, and seeking recoupment of the approximately $500,000 in claims payments it believed it made in error from 2004 to 2008. The trial court granted judgment to the plaintiff, including the monetary relief, and the defendant appealed, arguing that the commutation agreement was ambiguous. The Connecticut Appellate Court disagreed, affirming the verdict in favor of the plaintiff. Trenwick America Reinsurance Corp. v. W.R. Berkley Corp., No. AC 33388 (Conn. App. Ct. Oct. 23, 2012).

This post written by John Pitblado.

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COURT APPLIES CONCEPCION AND REJECTS UNCONSCIONABILITY ARGUMENT

October 25, 2012 by Carlton Fields

On remand from the Supreme Court and the Second Circuit in light of AT&T Mobility v. Concepcion, a district court granted defendant’s motion to compel arbitration over plaintiff’s arguments that: 1) defendant could not compel arbitration because it was not a party to the contract containing the arbitration clause; and 2) the arbitration clause is unconscionable. Applying California law, the court held that the plaintiff was estopped from avoiding arbitration against the defendant because the defendant was the agent of a signatory to the contract and the plaintiff’s claims were intertwined with the contract that included the arbitration clause. Regarding the unconscionability issue, the court reasoned that even though Concepcion overruled the Discover Bank rule, it did not entirely do away with the unconscionability defense to arbitration agreements. Applying a California rule governing the unconscionability of all contracts, not just arbitration agreements, the court analyzed whether the arbitration clause was procedurally and substantively unconscionable and found that it was not. Fensterstock v. Education Finance Partners, Case No. 08-03622 (USDC S.D.N.Y. Aug. 30, 2012).

This post written by Abigail Kortz.

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COURT REFUSES TO SEAL FROM PUBLIC RECORD ARBITRATION AWARD RELATED TO REINSURANCE OF AIRLINES INVOLVED IN 9/11 ATTACKS

October 24, 2012 by Carlton Fields

The court granted an unopposed petition to confirm an arbitration award that found that the 9/11 attacks on the World Trade center should be deemed one “event” for purposes of liability under aviation reinsurance contracts. In doing so, the court denied the reinsureds’ motion to seal the arbitration award from public records, which the reinsurer filed over the reinsureds’ objection that the award was confidential “arbitration information” under a confidentiality agreement between the parties. The court explained that “while enforcement of contracts is undeniably an important role for a court, it does not constitute a ‘higher value’ that would outweigh the presumption of public access to judicial documents.” The court did note, however, that the reinsureds “may have an action for breach of contract,” although the court would make “no finding whatsoever on that question.” Aioi Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. Aug. 21, 2012).

This post written by Michael Wolgin.

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CALIFORNIA COURT OF APPEAL APPLIES CONCEPCION AND COMPELS INDIVIDUAL ARBITRATION

October 23, 2012 by Carlton Fields

Plaintiff filed a class action complaint alleging wage and hour violations. He had signed an arbitration agreement which did not contain a class arbitration waiver. The trial court denied a motion to compel arbitration on the basis that the employer had waived arbitration by failing to properly and timely demand arbitration. The court of appeal reversed, ordering individual arbitration, holding that: 1) the defendant did not waive its right to arbitration even though it waited 14 months to move to compel arbitration; and 2) Section 7 of the National Labor Relations Act did not bar enforcement of the arbitration agreement at issue. The Supreme Court’s decision in AT&T Mobility v. Concepcion prompted the defendant’s delayed motion to compel. Concepcion held that the Federal Arbitration Act preempts California’s Discover Bank rule, which invalidates class arbitration waivers in consumer contracts of adhesion based on a finding of unconscionability. The court of appeal found that prior to Concepcion, the defendant reasonably perceived it would be futile to seek to compel arbitration in light of the Gentry test, which extended the Discover Bank rule to the employment context. The court reasoned that the risk of invalidation “diminished substantially” after Concepcion, but declined to explicitly “decide whether Gentry remains good law after Concepcion.” The employee contended that an order requiring individual arbitration would deprive him of the right to engage in collective legal action as protected by section 7 of the NLRA. This argument was accepted by National Labor Relation Board in D. R. Horton. The court of appeals followed other California court decisions which found Horton inapplicable in California courts. Reyes v. Liberman Broadcasting, Inc., No. B232511 (Cal. Ct. App. August 31, 2012).

This post written by Abigail Kortz.

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