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Arbitration / Court Decisions

INSURER THAT FILED JOINT COMPLAINT WITH FORMER AFFILIATE AGAINST REINSURER CANNOT SEVER ITS CLAIMS

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Seaton Insurance Company and Stonewall Insurance Company jointly filed a lawsuit against Clearwater Insurance Company asserting breach of contract claims based on Clearwater’s alleged failure to comply with the terms of certain facultative reinsurance certificates issued to the insurers in the 1970s. Seaton moved to sever its claims from Stonewall’s or for a separate trial. Seaton argued that, at the time the lawsuit was filed, Seaton and Stonewall were commonly owned and managed but had since parted ways and, furthermore, that the insurers’ claims were being brought under different reinsurance certificates reinsuring entirely different underlying policies. The federal district court denied Seaton’s request, holding that severing the claims or permitting a separate trial would not simplify or streamline the proceedings. Seaton Insurance Co. v. Clearwater Insurance Co., Case No. 09-516 (USDC D.R.I. Feb. 2, 2012).

This post written by Ben Seessel.

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COURT AFFIRMS DISMISSAL OF CLAIM OF FAILURE TO SECURE “BEST TERMS” AGAINST REINSURANCE BROKER

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Reinsurance broker Guy Carpenter placed a “finite quota share reinsurance agreement” for Workmen’s Auto Insurance Company with PMA Capital Insurance Company. After dispute arose over the terms of the agreement, Workmen’s brought suit against Guy Carpenter, alleging, among other things, that Guy Carpenter failed to obtain the “best terms” it could have in the reinsurance market. The court granted summary judgment on the failure-to-secure-best-terms claim. After losing at trial on breach of fiduciary duty and price-fixing claims, Workmen’s appealed, arguing that summary judgment was inappropriate because the quota share agreement did not qualify as “reinsurance” at all. The appellate court affirmed, however, finding that Workmen’s improperly raised the issue on appeal, and improperly relied on trial evidence on appeal of a summary judgment ruling. It also affirmed defense verdicts for Guy Carpenter on the breach of fiduciary duty and price-fixing claims. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., Inc., No. B211660 (Cal. Ct. App. Mar. 1, 2012).

This post written by John Pitblado.

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REINSURANCE POLICY REQUIRES EXCESS CARRIER TO PURSUE SUBROGATION RIGHTS AGAINST PRIMARY CARRIER

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Excess carrier United Heritage Property and Casualty Company asserted claims for breach of duty to defend and breach of duty to indemnify in a subrogation action against primary carrier Farmers Alliance Mutual Insurance Company (“FAMI”). FAMI moved to exclude evidence of United Heritage’s alleged damages, i.e., the amount that United Heritage had paid the insured under its excess policy. FAMI argued that United Heritage had been reimbursed for the payments by its reinsurer and that obtaining a further recovery would constitute a “windfall” for United Heritage. FAMI further contended that the reinsurance policy did not require United Heritage to reimburse FAMI for any recovery it might obtain in the lawsuit. The court disagreed and denied FAMI’s motion, finding that United Heritage’s reinsurance policy required it to pursue subrogation claims and to credit the proceeds of any such claims to the reinsurer. United Heritage Property & Casualty Co. v. Farmers Alliance Mutual Insurance Co., Case No. 10-cv-00456 (USDC D. Idaho Feb. 27, 2012).

This post written by Ben Seessel.

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TWO RECENT DECISIONS HIGHLIGHT POTENTIAL IMPACT OF STATE LAW ON ENFORCEABILITY OF CLASS-WAIVER ARBITRATION AGREEMENTS UNDER CONCEPCION

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In Carey v. 24 Hour Fitness, USA, Inc., the Fifth Circuit affirmed the denial of a motion to compel arbitration and permitted a class action employee-overtime lawsuit to go forward despite the parties’ putative agreement to arbitrate such disputes on a non-class basis. While the court cited Concepcion for the “fundamental principle that arbitration is a matter of contract,” it did not enforce the underlying class arbitration waiver agreement, finding that under state law, the underlying arbitration agreement was “illusory” and unenforceable because the employer reserved the right to change the agreement at any time. A similar approach (albeit, with a different outcome) was taken in another class action suit, Gore v. Alltell Communications, LLC. There, the Seventh Circuit reversed an order denying a motion to compel individual arbitration based on its interpretation of an arbitration agreement under state law. The court found that the arbitration agreement, which was contained in only the second of two contracts between the parties, applied to the parties’ dispute because it unambiguously provided that “any dispute arising out of” the agreement would “be settled by arbitration” on a non-class basis. The court held that based on the plaintiff’s allegations, all of the plaintiff’s causes of action could be deemed to arise from the second agreement, thus falling within the scope of the arbitration clause. The court further held that even the question of whether the agreement was unconscionable should be decided in arbitration because plaintiff challenged the entire agreement, not just the arbitration clause. Carey v. 24 Hour Fitness, USA, Inc., Case No. 10-20845 (5th Cir. Jan. 25, 2012); Gore v. Alltel Communications, LLC, Case No. 11-2089 (7th Cir. January 19, 2012).

This post written by Michael Wolgin.

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FLORIDA APPELLATE COURT RULES EXTRINSIC EVIDENCE APPROPRIATE TO CONSTRUE AMBIGUOUS REINSURANCE CONTRACT PROVISION

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On an appeal arising out of a dispute regarding personal accident reinsurance for an aircraft, Florida’s 4th District Court of Appeals reversed and remanded the trial court’s grant of summary judgment finding that the court should have considered extrinsic evidence in interpreting the policy. The DCA concluded that although ambiguous policies are often construed against the insurer as drafter of the contract, the unique and highly specialized nature of the insurance justified the examination of extrinsic evidence. Accordingly, the case was sent back to the trial court to allow the parties to submit extrinsic evidence on what, if any, coverage is provided to unemployed passengers. Kiln PLC v. Advantage Gen. Ins. Co., Ltd., No. 4D10-2995 (Fl. Ct. App. Feb. 22, 2012).

This post written by John Black.

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