Arbitration / Court Decisions

COURT OF APPEALS RE-AFFIRMS ORDER DENYING MOTION TO VACATE ARBITRATION AWARD, DISTINGUISHES STOLT-NIELSEN

April 30, 2012 by Carlton Fields

Dr. Ivan Sutter filed a putative class action complaint against Oxford Health Plans in state court, alleging that Oxford had improperly denied, underpaid, and delayed reimbursement of claims. The court granted Oxford’s motion to compel arbitration and ordered all procedural issues to be resolved by the arbitrator, including those pertaining to class certification. Prior to the Supreme Court’s decision in Stolt-Nielsen, the arbitrator ruled that the arbitration clause in Oxford’s primary care physician agreement authorized class arbitrations. The clause at issue provided that: “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration.” The district court denied Oxford’s motion to vacate and the Third Circuit affirmed.

Oxford sought reconsideration from the arbitrator after the Supreme Court held in Stolt-Nielsen that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” The arbitrator reaffirmed his decision, holding that the arbitration provision indicated that the parties had agreed to resolve disputes through class arbitrations because the clause’s first phrase was broad enough to encompass class actions, and the second phrase made clear that all disputes, including class actions, were to be arbitrated. The Third Circuit held that the arbitrator’s interpretation of the arbitration provision was not totally irrational, even after Stolt-Nielsen, and thus affirmed the district court’s denial of Oxford’s second motion to vacate. The Third Circuit held that Stolt-Nielsen was distinguishable because the parties in that case had stipulated that the arbitration provision was “silent” as to class arbitrations, i.e., that there was no agreement on whether disputes could be resolved by class arbitration. The court further stated that Stolt-Nielsen “did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants ‘class arbitration.’” Sutter v. Oxford Health Plans, LLC, No. 11-1773 (3d. Cir. Apr. 3, 2012).

This post written by Ben Seessel.

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Court Dismisses Suit by Insurer Against Former Reinsurance Broker

April 26, 2012 by Carlton Fields

Olympus Insurance Company entered into a contract with reinsurance broker Aon Benfeld, Inc. The contract required Aon to pay Olympus an “Annual Fee” (essentially defined as a rebate) under a so-called “evergreen” clause, based on the amount of commissions Aon received pursuant to reinsurance contracts it placed on Olympus’s behalf. The parties’ contract also contained a forfeiture clause, which stated that “No Annual Fee shall be payable subsequent to any decision by [Olympus] to terminate or replace Benfield.” Olympus terminated the parties’ contract by notice, and thereafter sought the Annual Fee. Aon refused to pay based on the loss forfeiture clause, and Olympus sued. Aon moved to dismiss for failure to state a claim. In an animated opinion, the Court found Olympus’s contract claim to be a “strained construction” of the parties’ agreement and dismissed it along with Olympus’s remaining quasi-contract claims “with prejudice and on the merits.” Olympus Insurance Co. v. Aon Benfeld, Inc., No. 11-CV-2607 (USDC D. Minn. March 30, 2012).

This post written by John Pitblado.

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DAMAGES AGAINST REINSURANCE AGENT AFFIRMED FOR FAILURE TO ADJUST COMMISSIONS BASED ON “INCURRED” RUN-OFF PAYMENTS

April 25, 2012 by Carlton Fields

On December 18, 2007, we reported on Gamma Group, Inc. v. Transatlantic Reinsurance Co., in which a reinsurer and its cedent prevailed in a case involving their agent’s failure to deduct run-off payments from its commissions. In that decision, the appellate court reversed a damages award in favor of the reinsurer and cedent because the award was incorrectly based on “reasonable” run-off payments, as opposed to actual “incurred” payments. After the trial court re-determined damages on remand, the agent appealed, arguing that the trial court (1) went “outside the mandate” by considering various types of evidence, including evidence of run-off payments made subsequent to the first trial, (2) improperly considered untimely evidence, and (3) erroneously calculated post-judgment interest from the date of the original judgment in 2005, rather than the date of the second judgment in 2010. The appellate court rejected these arguments, holding that the trial court properly considered all evidence of incurred run-off payments, acted in its discretion in considering untimely (but cumulative) evidence, and appropriately calculated post-judgment interest from the date of the original judgment, which was “still in full force and effect as to liability issues.” Gamma Group, Inc. v. Transatlantic Reinsurance Co., Case No. 05-10-00705 (Tex. Ct. App. March 28, 2012).

This post written by Michael Wolgin.

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NEW YORK HIGH COURT DISMISSES DONNELLY ACT CLAIMS AGAINST EQUITAS

April 24, 2012 by Carlton Fields

New York’s Court of Appeals reversed the Appellate Division of the Supreme Court and upheld the trial court’s dismissal of plaintiff’s claim against Equitas under the Donnelly Act, New York’s antitrust law. The plaintiff, a cedent under certain retrocessional agreements with various Lloyd’s syndicates covering non-life exposures, alleged that Equitas engaged in antitrust violations because it controlled the market for retrocessional and reinsurance claims adjustment for these types of so-called “long tail” claims, such as asbestos-related injury claims. Equitas was formed and approved by European governmental authorities, as a claims adjustment facility for the Lloyd’s syndicates, in order to manage exposures which threatened the financial stability of syndicates, and the market itself. The high court held that even if there were a “market” for the claims handling function performed by Equitas (which it found dubious), it held that any such market would not have a sufficient nexus with New York State to warrant extra-territorial application of its antitrust law. Global Reinsurance Corp. v. Equitas, Ltd., No. 2012-53 (N.Y. March 27, 2012).

This post written by John Pitblado.

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TRAVELERS AND R&Q RE SETTLE REINSURANCE ACTION RELATED TO ASBESTOS CLAIMS

April 19, 2012 by Carlton Fields

Travelers and R&Q Reinsurance recently settled and agreed to voluntarily dismiss their ongoing dispute in the US District Court for the District of Connecticut. The action arose out of a series of reinsurance contracts between Travelers and R&Q Reinsurance (successor in interest to INA Re). The reinsurance contracts were part of Traveler’s Blanket Excess of Loss program, incepted in 1962, and covered a period between April 1, 1976 through April 1, 1979. The contracts covered asbestos related claims which were indemnified by Travelers. In this action, Travelers filed a Complaint alleging breach of contract, contending that it had properly indemnified an asbestos producer but that INA Re wrongfully had refused to pay in violation of the reinsurance agreements between the parties. Travelers Casualty and Surety, Co. v. R&Q Reinsurance Co., Case No. 10-01946 (USDC D. Conn. Jan. 31, 2012).

This post written by John Black.

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