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Arbitration / Court Decisions

COURT HOLDS TERMS OF ARBITRATION AGREEMENT REQUIRES PARTIES TO ARBITRATE DISPUTES ARISING UNDER SUBSEQUENT AGREEMENTS

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General Motors stripped franchisee Glen West of his stock and removed him as president and operator of one of its dealerships because West was allegedly self dealing and failing to keep proper records. West filed an action in state court seeking an injunction preventing General Motors from disposing of his dealership and an order reinstating him as president. General Motors removed the case to federal court and subsequently moved to compel arbitration, citing an arbitration agreement that the parties had executed when they entered into their first stockholders’ agreement in 2008. West argued that his claims were governed by a 2010 dealer sales and services agreement, and a 2010 stockholders agreement, both of which did not incorporate or reference the terms of the arbitration agreement. The court, however, compelled arbitration, finding that the parties had agreed to arbitrate any claim arising from any other agreement they entered into “whether executed before or after this Arbitration Agreement.” West v. Gen. Motors LLC, Case No. 3:11-00819 (USDC D.N.J. June 7, 2011) motion for reconsideration denied (Aug. 5, 2011).

This post written by Ben Seessel.

INSURER UNSUCCESSFULLY ATTEMPTS TO AVOID ARBITRATION BY WINNING RACE TO THE COURTHOUSE

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Republic Mortgage Insurance issued policies to lender Countrywide insuring against default by Countrywide’s borrowers. Each policy contained an arbitration clause providing that Countrywide “may elect to settle by arbitration a controversy, dispute, or other assertion of liability or rights which it initiates arising out of or relating to this policy.” A dispute arose after Republic denied claims, contending that coverage had been rescinded due to misrepresentations allegedly made by Countrywide in applying for the policies and by its borrowers in applying for loans. Republic filed suit in state court seeking a declaration that its rescissions were consistent with policy terms; Countrywide moved to compel arbitration. Republic opposed the motion, arguing that Republic had “initiated” the dispute, and that the arbitration provision only requires disputes that Countrywide “initiates” to be arbitrated. The trial court rejected this argument and granted Countrywide’s motion to compel. The appellate court affirmed, holding that Republic’s proposed interpretation would frustrate the purpose of the agreement. The court also noted how Republic’s interpretation is commercially unreasonable because it would promote procedural gamesmanship, i.e., attempting to avoid arbitration by filing a declaratory judgment action before Countrywide filed a demand for arbitration. Republic Mortgage Ins. Co. v. Countrywide Fin. Corp., No. 06292 (N.Y. App. Div. August 18, 2011).

This post written by Ben Seessel.

COURT DENIES PRE-PLEADING SECURITY AND DISMISSES SURETY CASE BASED ON STAY IN REHABILITATION PROCEEDING

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General Security National Insurance Company brought an action in New York federal court against Aequicap Insurance Company, in connection with Aequicap’s alleged failure to perform under a surety bond it issued to General Security.  After Aequicap filed an answer in the case, General Security filed a motion seeking to compel Aequicap to post security pursuant to New York’s pre-pleading security statute.  Aequicap objected on various bases, including the fact that, after the filing of General Security’s motion, a stay had been entered in Aequicap’s Florida rehabilitation proceeding.  The New York court denied General Security’s motion, citing the Florida court’s stay Order, and dismissed the case without prejudice to re-filing, pending the outcome of the Florida proceeding.   General Security Nat’l Ins. Co. v. Aequicap Ins. Co., No. 10-9685 (USDC S.D.N.Y. April 29, 2011).

This post written by John Pitblado.

PRINCETON INSURANCE AND COVERIUM RE SETTLE

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In what may be the final development in the ongoing saga between Princeton Insurance and Coverium Reinsurance, the parties agreed to settle their lawsuit in its entirety. The court dismissed the action without prejudice to reopen if the settlement between the parties is not consummated. The dispute had centered on liability limit of an employers’ liability reinsurance agreement. Please see our prior posts on April 7, 2008, August 6, 2008, and September 21, 2009 for more detail. Princeton Insurance Company v. Coverium Reinsurance (NA), Inc., No. 06-599 (USDC D.N.J. Sept. 14, 2011).

This post written by John Black.

COURT CONSIDERS PRIVILEGE ASSERTIONS IN DISPUTE INVOLVING ASBESTOS TRUST, EXCESS LIABILITY INSURER, AND REINSURANCE

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In a suit between a bankruptcy trust established to resolve a defunct corporation’s asbestos-related personal injury liabilities and the corporation’s excess liability insurer that had denied coverage to the trust in connection with the asbestos claims, a court resolved various attorney client privilege and work product protection issues. The insurer had sought various documents related to the handling of the underlying asbestos claims by the trust, among others. Many of these documents included communications between counsel and the corporation or between counsel and the bankruptcy creditors’ committee. No privilege existed over documents addressing the handling of the underlying asbestos claims because (1) a common interest exists between the trust and the insurer related to the asbestos claims, and (2) the trust had a duty to cooperate with the insurer based on the primary policy. In contrast, the court held the privilege did exist for a number of documents related to the reinsurance procured by the insurer. Whereas the insurer’s discovery requests were related to the handling of the asbestos claims, the trust’s requests were for the purpose of learning the insurer’s “admissions regarding the matter in dispute.” The court also found a common interest existed between the insurer and its reinsurer regarding the trust’s claims, such that any communications with counsel that may have been shared by the insurer with its reinsurer would not be considered a waiver of privilege. ARTRA 524(g) Asbestos Trust v. Transport Insurance Co., Case No. 09-458 (N.D. Ill. Sept. 28, 2011).

This post written by Michael Wolgin.