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Arbitration / Court Decisions

Court Compels Arbitration of Contract Claims, but not Tort Claims Arising From Commutation

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Plaintiff Repwest Insurance Company, as cedent, entered into an excess workers compensation quota share agreement with various reinsurers, including Conestoga Casualty Insurance Company and the defendant, Preatorian Insurance Company. Praetorian later entered into a commutation agreement with Conestoga, whereby Conestoga took on Praetorian’s portion of the risk involving Repwest. Repwest was not informed of the commutation until after the fact. Repwest sued, arguing that the quota share agreement required assent from Repwest for such a commutation agreement. Praetorian moved to compel arbitration. Repwest argued in response that its claims did not “arise under” the quota share agreement, and therefore were not subject to arbitration under that contract. The court disagreed and granted Praetorian’s motion to compel arbitration, finding that the claims did arise from the quota share agreement, and that Praetorian did not waive its right to arbitration. The court, however, limited the claims that could be submitted to arbitration, finding that tort claims for misrepresentation and fraudulent inducement were outside the scope of the agreement. Repwest Insurance Co. v. Praetorian Insurance Co., Case No. CV 12-0369-PHX-JAT (USDC D. Ariz. Aug. 28, 2012).

This post written by John Pitblado.

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THIRD CIRCUIT HOLDS THAT REINSURER CAN DENY COVERAGE BASED ON LATE NOTICE EVEN ABSENT PREJUDICE

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A dispute arose when Pacific Employers Insurance Company demanded payment from Global Reinsurance Corporation of America under a facultative reinsurance contract. The contract reinsured part of Pacific’s exposure on an excess risk policy issued to a manufacturing company. It contained a provision requiring Pacific to “promptly provide the Reinsurer with a definitive statement of loss on any claim.” Pacific learned of the underlying insured’s exposure to significant asbestos litigation in 2001 but did not notify Global until 2008.

The district court, applying what it predicted Pennsylvania law to be, held that Global could not refuse coverage based on late notice absent evidence of prejudice, which Global had failed to proffer. The Third Circuit reversed, applying New York law, which holds that a reinsurance company can deny coverage based on late notice, even in the absence of prejudice. The Third Circuit noted, in dicta, that it could discern two reasons why a reinsurer would want to promptly receive a DSOL on a potentially serious claim: (1) to appropriately reserve, and (2) to exercise its contractual right to participate in the defense of the underlying claims. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Nos. 11-3234 & 11-3262 (3d Cir. September 7, 2012).

This post written by Ben Seessel.

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Court Grants Summary Judgment to Reinsurer on Claims Brought by Underwriting Agent

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Acumen Re Management Corporation brought suit against General Security National Insurance Company, claiming that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied that it breached those agreements. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. It was granted with respect to each of Acumen’s three claims that (1) Acumen was damaged by General’s failure to provide quarterly reports; (2) Acumen was damaged by General’s failure to consult Acumen prior to entering into the commutation agreements; and (3) Acumen was damaged by General’s improper calculation of commutation loss allocation and contingency commission allocation. As to the first issue, Acumen waived its contractual right to receive quarterly reports by failing to require them over a period of several years. As to the second claim, while General failed to consult Acumen on commutation settlements with reinsurers through whose business Acumen was receiving contingent commissions, the contract only required such consultation in situations inapplicable to the dispute. Finally, as to the third claim, the court also agreed that General properly computed the commutation loss allocation and contingency commission allocation. The court, however, denied General’s motion on Acumen’s additional claim that it was damaged by General’s improper use of erroneous data in calculating the contingent commission, finding genuine issues of material fact as to whether General’s calculation relied on erroneous data. Acumen Re Management Corp. v. General Security National Insurance Co., Case No. 09-CV-01796 (USDC S.D.N.Y. Sept. 7, 2012)

This post written by John Pitblado.

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ARBITRABILITY: A “GATEWAY ISSUE” FOR THE COURTS OR A QUESTION OF PROCEDURE FOR THE AAA?

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In an action by a pharmacy franchisor to stay franchisees’ collective arbitration claims filed with the American Arbitration Association and to compel individual arbitrations, the Eastern District of Missouri granted the franchisees’ motion to dismiss based on lack of subject matter jurisdiction, relying heavily on both contract interpretation and the Federal Arbitration Act, which states that agreements to arbitrate “shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.” Although the arbitration clauses provided that “arbitration shall be conducted on an individual, not a class-wide, basis,” they also expressly incorporated the AAA’s rules, and AAA Rule 7(a) grants arbitrators, not courts, the authority to determine their own jurisdiction.

Without reaching the question of whether collective arbitrability is a gateway issue for the court or a question of procedure to be determined by an arbitrator, the court held that the parties had “clearly and unmistakably agreed to submit all questions of arbitrability to an arbitrator” pursuant to AAA Rule 7(a). In so holding, the court directed its attention to a handful of exceptions to the applicability of the AAA’s rules found in the franchise agreements, emphasizing that no such exception regarding the resolution of arbitrability had been included. Therefore, the court found the AAA’s arbitrability provision controlling. Medicine Shoppe Int’l, Inc. v. Edlucy, Inc., Case No. 12-161 (USDC E.D. Mo. May 14, 2012).

This post written by Rollie Goss.

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ARBITRATION ROUNDUP

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Accrual of Actions to Dispute Award:

International Relief and Development, Inc. v. Ladu, Case No. 12-1302 (4th Cir. June 14, 2012) (affirming order confirming award; motion to vacate filed beyond FAA’s three-month filing deadline; upholding finding that appellant had actual notice of award where no evidence suggested “definitively or firmly” that findings were mistaken);

International Brotherhood of Electrocal Workers, Local 50, AFL-CIO v. Metro Electric Engineering Technologies, Inc., Case No. 11-14333 (USDC E.D. Mich. July 25, 2012) (granting summary judgment confirming award due to expiration of statutes of limitations regarding award issued in connection with a collective bargaining agreement under the Labor Management Relations Act; letters from panel advising of defendant’s liability accrued defendant’s rights to dispute confirmation of award).

Jurisdiction:

Paralikas v. Ford Motor Credit Co., LLC, Case No. 10-3308 (USDC E.D.N.Y. June 14, 2012) (dismissing action to vacate award; FAA does not provide an independent basis for federal subject matter jurisdiction).

Class-Wide Arbitration:

Rame, LLC v. Popovich, Case No. 12-1684 (USDC S.D.N.Y. June 9, 2012) (denying petition to vacate award permitting class-wide arbitration; “manifest disregard” still viable in Second Circuit, but not present in this case; arbitrator did not exceed authority where dispute resolution agreement provided that “all claims” could be decided by arbitration).

Scope of Arbitration:

Schneider v. Thailand, Case No. 11-1458 (2d Cir. Aug. 8, 2012) (affirming order confirming award under New York Convention, notwithstanding lower court’s failure to determine “clear and unmistakable” evidence that scope of arbitration agreement would be decided by arbitrators before performing deferential review of award; because UNCITRAL Rules were incorporated in arbitration agreement, appellate court could infer intent for arbitrators to decide scope of agreement; noting “manifest disregard” inapplicable to foreign awards);

Langlais v. Pennmont Benefit Services, Inc., Case No. 11-5275 (USDC E.D. Pa. July 11, 2012) (granting motion to confirm $3.8 million award as to signatories of arbitration agreement, but only in their capacities reflected in agreement; denying motion as to non-signatories because motion to confirm “is not the proper time or procedural vehicle to make such determinations”).

Manifest Disregard/Evident Partiality:

Fund Raising, Inc. v. Alaskans For Clean Water, Inc., Case No. 09-4106 (USDC June 26, 2012) (denying fundraiser’s motion to vacate $8 million award in favor of former client environmental advocates; “manifest disregard” standard applied where arbitrator’s application of law challenged; no manifest disregard nor “complete irrationality” in, among other findings, arbitrator’s interpretation of confidentiality clause, finding of fiduciary duty, finding judicial estoppel, and awarding punitive damages for actions related to perjury);

Digitelcom, LTD v. Tele2 Sverige AB, Case No. 12-3082 (USDC S.D.N.Y. July 25, 2012) (granting motion to confirm award issued by International Centre for Dispute Resolution and granting attorney’s fees award for disingenuous motion; among other things, arbitrator did not commit “manifest disregard” nor exhibit “evident partiality”);

Trademark Remodeling, Inc. v. Rhines, Case No. 11-1733 (USDC D. Md. Aug. 6, 2012) (granting motion to enforce award; finding no evident partiality or corruption, fraud, or undue means despite defendants’ disclosure of confidential information, providing gift card to adverse witness, and manner in which hearing was conducted; no exceeding powers or “manifest disregard” for arbitrator’s use of evidence and findings beyond contract);

P.H. Glatfelter Co. v. United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial and Service Workers International Union, Case No. 11-741 (USDC S.D. Ohio Aug. 21, 2012) (granting summary judgment vacating award issued in connection with a collective bargaining agreement under the Labor Management Relations Act; evident partiality existed where arbitrator failed to disclose that he had 6 first cousins employed at paper mill at issue in arbitration).

This post written by Michael Wolgin.

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