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Arbitration / Court Decisions

COURT REACHES VARYING DECISIONS ON REQUESTS TO SEAL ARBITRATION RECORDS

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A federal district court refused a former employee’s request to seal records of an arbitration proceeding in which the arbitrator ordered that he was not entitled to severance pay. William Fine was terminated from his position at Alexandria Real Estate Equities for making disparaging statements about the company. Alexandria obtained an award holding that it did not owe Fine severance pay and moved to have the award confirmed. In the award, the arbitrator explained the reasons for Fine’s termination and quoted the statements that he had made about Alexandria. Fine did not oppose confirmation but moved to seal portions of the arbitration record, including the petition to confirm, a supporting declaration, and the award itself. The court rejected Fine’s request citing the First Amendment presumption in favor of access to judicial documents and proceedings. The court held that, in order to overcome this presumption, Fine had to show that the “requested sealing is narrowly tailored to preserve ‘higher values.’” Such values, according to case law cited by the court, include protecting: the attorney-client privilege, national security, the privacy of innocent third-parties, and the confidentiality of sensitive patient information. The court found that Fine’s purported reason—that if the records remain public, it will be more difficult for him to get hired by potential employers—did not rise to the level of a “higher value.” Alexandria Real Estate Equities, Inc. v. Fair, Case No. 11-3694 (USDC S.D.N.Y. Nov. 30, 2011).

A different judge in the same court granted Century Indemnity Company’s motion to seal portions of its petition to compel arbitration, memorandum of law, and affidavit in support. The court did not offer any reasoning for its decision and the motion to seal and memorandum themselves are sealed. It is not apparent, furthermore, whether the motion to seal was contested. Century Indem. Co. v. Everest Reinsurance Co., Case No. 11-8362 (USDC S.D.N.Y. Nov. 17, 2011).

This post written by Ben Seessel.

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CROSS MOTIONS TO COMPEL ARBITRATION AND APPOINT THIRD ARBITRATOR SPARK DISMISSAL OF TWO APPEALS

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Various BCBS healthcare plans and BCS Insurance Company became engaged in a coverage dispute pertaining to certain professional liability coverage issued by BCS to member plan administrators. As per applicable contracts containing arbitration provisions, the parties each named arbitrators. According to the contracts’ governing procedure, when those two arbitrators failed to reach agreement, some of the health plans brought an action in Illinois federal court seeking appointment of a neutral third arbitrator. In the course of that proceeding, BCS cross-moved for an order to compel individual arbitration, rather than class arbitration, which it styled as a motion to compel non-consolidated arbitration. The court ruled first on BCS’s cross-motion, finding that decision on that issue should be made by the arbitrator(s), not the court. BCS immediately appealed that decision. The court, finding BCS’s appeal an improper interlocutory appeal, thereafter appointed the neutral third arbitrator as requested by the plans and ordered the parties to continue the arbitration with the panel so constituted. BCS appealed that order as well, arguing that its previous interlocutory appeal deprived the district court of jurisdiction to enter its order. The Seventh Circuit held that the first appeal was an improper attempt to circumvent proper arbitration procedure under the FAA, and dismissed it as interlocutory. It then held that the dismissal of the first appeal mooted the basis for the second appeal, since the trial court had jurisdiction to enter its order appointing an arbitrator. Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., Nos. 11-2343 & 11-2757 (7th Cir. Dec. 16, 2011)

This post written by John Pitblado.

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COURT REJECTS JURY VERDICT TO GRANT JUDGMENT IN PUBLIC ENTITY REINSURANCE LAWSUIT

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A dispute arose between the Alabama Municipal Insurance Corporation and Alliant Insurance regarding the latter’s public entity reinsurance program. AMIC purchased $650 million in reinsurance, received a binder on the program, paid almost half a million dollars in premium, but did not receive a written policy until over a year later. According to AMIC, the two parties had agreed that AMIC must transmit timely loss notices to Alliant. Subsequently, during a round of golf between two senior executives from the parties, the two companies entered a “Gentlemen’s Agreement” that AMIC would not submit reinsurance claims for the 2000-01 treaty year. Five years later, AMIC submitted its 2000-01 claims which Alliant passed on to Lloyd’s, the reinsurance underwriter, which denied payment. At a trial of the dispute, a jury awarded AMIC just under $400,000 for breach of contract.

On Alliant’s motion for judgment as a matter of law, the federal district court found that the evidence so weighed in Alliant’s favor that no reasonable jury could find that AMIC had successfully proven a legally enforceable contract existed. AMIC could not demonstrate whether Alliant was acting as managing general agent for AMIC or for the reinsurance underwriters. Moreover, the claims had not properly been submitted in any case. The court further concluded that the equities barred recovery. Alabama Municipal Insurance Corp. v. Alliant Insurance Services, Inc., Case No. 09-928 (USDC M.D. Ala Jan. 10, 2012).

This post written by John Black.

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INSURERS AWARDED $9 BILLION IN DEFAULT JUDGMENT AGAINST AL QAEDA FOR “BUSINESS OR PROPERTY” DAMAGE UNDER ANTI-TERRORISM ACT

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Various insurance carriers covering losses from the 9/11 terrorist attacks were collectively awarded treble damages amounting to over $9 billion against the terrorist organization al Qaeda. The carriers had obtained default judgments against al Qaeda and moved under the “business or property” provisions of the Anti-Terrorism Act to assess damages. Adopting the magistrate judge’s report and recommendation, the district judge broadly construed the available damages under the ATA based on similar language in the Clayton Act and civil RICO statute. Based on the insurers’ allegations and affidavits, the court awarded treble damages for claims paid on business interruption, property damage, and other losses resulting directly from the 9/11 attacks. The court denied recovery, subject to reconsideration after submission of additional evidence and briefing, for claim adjustment costs and legal expenses associated with paying claims. The court noted that binding precedent likely limited the insurers’ recoveries to the extent of their subrogation to their insureds’ claims. In re Terrorist Attacks on September 11, 2001, Case No. 03 MDL 1570 (USDC S.D.N.Y. Dec. 16, 2011).

This post written by Michael Wolgin.

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ENGLISH COURT HOLDS INSURANCE “TOWER” OF MULTIPLE LAYERS OF EXCESS OF LOSS INSURANCE INCURRED SIMULTANEOUS LIABILITY

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An English court held that a professional indemnity insurance “tower” of multiple excess of loss policies incurred liability simultaneously, rather than sequentially as each policy’s limits were exhausted. The tower consisted of a primary professional indemnity policy upon which were three layers of excess of loss insurance written by the insured’s captive insurer, Teal Insurance. Above the excess of loss policies was a “top and drop” policy written by Teal and reinsured by W.R. Berkley Insurance providing additional coverage once the excess of loss policies were successively exhausted. All policies provided worldwide coverage except the top and drop policy, which excluded North American claims. When the insured incurred multiple American and non-American claims, Teal argued it was entitled to ignore the order in which claims were incurred, and elected to exhaust the tower’s coverage with only the American claims, so as to pass the non-American claims to the reinsured top and drop policy. Teal contended that each policy in the tower incurred liability only after the lower layer policy accepted and exhausted liability. The court disagreed with Teal, holding that liability for the tower occurred simultaneously based on the top and drop policy’s provision that the policy would “continue in force as Underlying policy” (i.e., the top and drop policy would “become” the first layer policy) once the tower was exhausted. Any other conclusion would mean Teal “could determine when they (Teal) admitted liability further up the layer and could themselves organise the lower levels to pay American claims, leaving reinsurers to face non-American claims where those claims should otherwise have exhausted the tower.” Teal Assurance Co. v. W.R. Berkley Insurance (Europe) Ltd., [2011] EWCA Civ 1570 (Eng. Ct. App. Dec. 15, 2011).

This post written by Michael Wolgin.

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