Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions

Arbitration / Court Decisions

FIFTH CIRCUIT AFFIRMS ARBITRATION AWARD IN FAVOR OF FATHER AGAINST SON

by

After being fired by his father, losing the arbitration related to his termination, and having his motion to vacate the award denied, Charles Wanken appealed the motion to vacate to the Fifth Circuit Court of Appeals. Concluding Mr. Wanken’s total defeat, the Fifth Circuit affirmed the trial court’s denial of the motion to vacate and affirmed Mr. Wanken’s father’s motion to confirm. The Fifth Circuit ruled that (a) the award had not been procured by the father’s fraud, (b) there was no evidence to support Wanken’s claim that the arbitration panel failed to consider material evidence, (c) the panel was not improperly biased, (d) the panel did not exceed its powers, and (e) the district court properly considered the motion to vacate and gave proper notice to Mr. Wanken. Wanken v. Wanken, No. 11-10219 (5th Cir. Sept. 29, 2011).

This post written by John Black.

STATE INSURANCE LAW THAT PRECLUDES ARBITRATION PREEMPTED IN FAVOR OF THE FAA UNDER THE LIABILITY RISK RETENTION ACT

by

A court recently compelled arbitration in a dispute between an insured and an insurer-risk retention group, concluding that the McCarren-Ferguson Act did not mandate the enforcement of a state anti-arbitration law over the FAA and broad arbitration agreements between the parties. The court held that while McCarran-Ferguson was met to the extent that (1) the federal law (the FAA) impaired the state insurance law, and that (2) the FAA does not clearly relate to the “business of insurance,” here the relationship between the parties was not a classic insurance relationship. The insurer was not a public offering insurance company, but rather a risk retention group, which necessitates the application of the federal Liability Risk Retention Act, a law that preempts state laws that impair the “formation or operation” of risk retention groups. The court concluded that such an impairment existed in this case because the state law prohibiting arbitration would significantly increase the costs of litigation, adversely affecting the risk retention group’s operations. Central Claims Service, Inc. v. Claim Professionals Liability Insurance Co., Case No. 10-04672 (USDC E.D. La. Sept. 2, 2011).

This post written by Michael Wolgin.

VACATUR OF AWARD BASED ON “MANIFEST DISREGARD” REVERSED IN SEVENTH CIRCUIT

by

The Seventh Circuit recently reversed a lower court’s decision to vacate a portion of an arbitration award in a patent dispute that the lower court found to be a “manifest disregard of the law.” The Seventh Circuit explained that “manifest disregard” is not an independent basis for vacatur, and can only support vacatur to the extent it reflects that arbitrators “exceeded their powers” under the applicable contract. Here, the underlying arbitration was authorized to determine the inventorship of certain patents, and the lower court failed to identify any manner in which the arbitrators exceeded that contractual authority. Noting that arbitrators are free to act without issuing written opinions, the Seventh Circuit held that the lower court committed a “logical error” by inferring “from silence” that the arbitrators relied on an extra-contractual ground. “Silence,” the Seventh Circuit explained, “is just silence.” Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., Case No. 11-2070 (7th Cir. Oct. 3, 2011).

This post written by Michael Wolgin.

BANKRUPTCY COURT PARTIALLY GRANTS OBJECTIONS ARISING OUT OF CAPTIVE REINSURANCE PROGRAM

by

Frontier Insurance, in rehabilitation, filed proofs of claim following the Chapter 11 bankruptcy of Black, Davis & Shue Agency. The claims related to captive reinsurance program with Frontier. In turn, Westport Insurance, which had issued a professional liability insurance policy to BDS, objected to Frontier’s claims, asserting affirmative defenses and counterclaims. Frontier moved to dismiss those objections, or in the alternative, for a stay pending a ruling on BDS’s own objections to Frontier’s claims. The court found that Westport had standing to object to Frontier’s claims and was not precluded from doing so merely because its interest were adverse to BDS’s. Furthermore, it was premature to dismiss Westport’s objections, and the court reserved the issue for trial. However, the court ruled that amendments to Frontier’s claims to include interest under New York law and to plead negligence were proper. Accordingly, the motion to dismiss Westport’s objections altogether was granted in part, and denied in part. In re Black, Davis & Shue Agency, Inc., No. 06-00051 (USDC Bankr. M.D. Pa. Sept. 29, 2011).

This post written by John Black.

COUNSEL DISQUALIFIED FOR OBTAINING AND CONCEALING POSSESSION OF INTERNAL ARBITRATION PANEL COMMUNICATIONS

by

On May 25, 2011, we reported on the denial of Northwestern National Insurance Co.’s petition to appoint a replacement arbitrator after opponent INSCO’s appointed arbitrator resigned in protest to perceived partiality by Northwestern’s appointee. The court has now disqualified INSCO’s counsel for improperly procuring from its former appointee, and then hiding, internal emails between members of the panel containing deliberations in the ongoing arbitration. INSCO’s counsel had requested the documents to substantiate its allegations that Northwestern’s appointed arbitrator was biased. The court found that it, rather than the panel, was the proper entity to determine attorney discipline and that INSCO’s counsel’s actions constituted “a serious violation of arbitral guidelines, as well as ethical rules.” Northwestern National Insurance Co. v. INSCO, Ltd., Case No. 1:11-cv-01124 (USDC S.D.N.Y. Oct. 3, 2011).

This post written by Michael Wolgin.