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EIGHTH CIRCUIT AFFIRMS DECISION AGAINST REINSURER UNDER “FOLLOW THE SETTLEMENTS” DOCTRINE

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The Eighth Circuit Court of Appeals affirmed judgment in favor of Massachusetts Mutual Life Insurance Company (“Mass Mutual”) in a case brought against it by its reinsurer, Employers Reinsurance Company (“ERC”). ERC and Mass Mutual were parties to an Excess Disability Income Reinsurance Agreement. ERC and Mass Mutual later entered into a Claim Review Agreement, allowing ERC to make non-binding settlement recommendations. After Mass Mutual revealed some of its own claims reporting errors to ERC, ERC concluded that Mass Mutual had breached the reinsurance treaty and sued Mass Mutual, asserting breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory claims. Mass Mutual countered, making similar claims against ERC. The parties cross-moved for summary judgment and the trial court granted Mass Mutual’s motion and denied ERC’s. ERC appealed, but the Eighth Circuit Court affirmed the trial court’s decision and findings that the reinsurance agreement contained a “follow the settlements” provision, and that this ultimately allowed Mass Mutual to settle claims as it saw fit, whether or not the CRA required it to consider ERC’s non-binding recommendations. (We posted on the District Court’s decisions four times: September 15, 2010 (pre-judgment interest), July 12, 2010 (1292(b) appeal certification request), November 20, 2008 (reconsideration and appeal certification) and September 2, 2008 (summary judgment). Employers Reinsurance Co v. Massachusetts Mutual Life Ins. Co., No. 10-3099 (8th Cir. Sept. 7, 2011).

This post written by John Pitblado.

AIG TRANSFERS REINSURANCE DISPUTE TO BANKRUPTCY COURT

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Following removal to federal district court of an action against AIG, defendants petitioned to refer the case to the district’s bankruptcy court. Plaintiffs’ claims arose out of a reinsurance arrangement between AIG and non-party The Robert Plan Corporation, who were engaged in the automobile insurance business. After a dispute regarding administration of the reinsurance treaties, plaintiffs – “family members and former shareholders” of TRP – allege TRP agreed to accept a certain sum as payment pursuant to AIG’s allegedly fabricated representations about its loss reserves. Following this dispute, TRP filed Chapter 11 bankruptcy. The District Court agreed to refer the case, holding that plaintiffs’ claims “could conceivably have an effect” on TRP’s bankruptcy estate and are therefore related to the case under Title 11. The Court noted that plaintiffs did not dispute AIG’s arguments. Wallach v. American International Group, Inc., No. 11-3025 (USDC E.D.N.Y. Sept. 12, 2011).

This post written by John Black.

ARBITRATION ROUND-UP

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Manifest Disregard:

Protherapy Associates, LLC v. AFS of Bastian, Inc., Case No. 6:10cv00017 (USDC W.D. Va. July 27, 2011) (granting motion to confirm award; denying motion to modify award; no manifest disregard of law; arbitration decision that found joint and several liability did not conflict with related judicial opinion that elected not to pierce corporate veil);

International Brotherhood of Teamsters Local Union 177 v. United Parcel Service, Inc., Case No. 2:11cv00180 (USDC D.N.J. Aug. 11, 2011) (denying motion to vacate award; arbitrator relied on evidence and did not exceed powers; no “manifest disregard” of underlying collective bargaining agreement where arbitrator’s interpretation was not “totally unsupported” by general contract principles);

Johnson v. Wells Fargo Home Mortgage, Inc., Case No. 3:05cv00321 (USDC D. Nev. Aug. 17, 2011) (granting in part motion to vacate award on remand from Ninth Circuit; damages award under the Fair Credit Reporting Act was “manifest disregard” to the extent it conflicted with court’s prior holding that certain foreclosure fees were paid for a business purpose and not a consumer purpose);

Priority One Services, Inc. v. W&T Travel Services, LLC, Case No. 1:10cv01873 (USDC D.D.C. Aug. 23, 2011) (granting in part motion to vacate award; panel’s award of prejudgment interest was an “evident material miscalculation” requiring modification; court need not resolve whether “manifest disregard” is valid basis for vacatur because no showing panel otherwise acted improperly in applying state law and calculating damages);

Amaprop Ltd. v. Indiabulls Financial Services Ltd., Case No. 1:11cv02001 (USDC S.D.N.Y. Sept. 9, 2011) (granting petition to confirm arbitration award; no “manifest disregard” where arbitrator’s analysis justified award and party failed to oppose petition);

Sussex v. Turnberry/MGM Grand Towers, LLC, Case No. 2:08cv00773 (USDC D. Nev. Sept. 15, 2011) (denying motion to vacate award and motion for reconsideration; no “manifest disregard” for arbitrator’s determination that plaintiffs could not proceed as a class; reconsideration denied where new case law did not change the law);

Jurisdiction:

Powerweb Energy, Inc. v. GE Lighting Systems, Inc., Case No. 2:10cv02652 (USDC E.D. Pa. Sept. 2, 2011) (granting motion for remand to state court of petition to vacate award; jurisdiction cannot be based on federal issues absent from complaint that would arise only upon vacatur of award or based on counts of counterclaim);

Northland Truss System, Inc. v. Henning Construction Co., Case No. 4:11cv00216 (USDC S.D. Iowa Sept. 7, 2011) (dismissing petition to vacate arbitrator’s order joining seller of construction materials to arbitration between barn owner and builder; no jurisdiction where allegation of manifest disregard of federal law was “patently meritless”; noting that Eight Circuit has not determined whether claim for manifest disregard of federal law confers jurisdiction; plaintiff failed to state claim because FAA does not authorize vacatur of arbitration orders).

Procedure:

Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 3:11cv00201 (USDC D. Conn. Aug. 9, 2011) (granting motion to dismiss petition to vacate interim award; prior to final award, party’s claim of undue delay was for panel, not for court);

Atlantic City Electric Co. v. Estate of Jerry Riccardo, Case No. 2:09cv03573 (USDC E.D. Pa. Aug. 11, 2011) (granting summary judgment in action to set aside award due to misrepresentations related to health of accident victim; fraud claims were time-barred; under Pennsylvania law, “regardless of whether the arbitration at issue is a statutory or common law arbitration, the thirty (30) day time limit within which to challenge the award applies”);

International Brotherhood of Teamsters, Local No. 264 & 375 v. Nason’s Delivery, Inc., Case No. 1:11cv00186 (USDC W.D.N.Y. Aug. 31, 2011) (denying unions’ motion for preliminary injunction and temporary restraining order to enforce relief awarded in arbitration against employer liquidating its assets; unions failed to show irreparable harm of employer’s liquidation and likelihood of success of petition to confirm award under N.Y. General Associations Law).

Evident Partiality:

Plastic Recovery Technologies, Co. v. Samson, Case No. 1:11cv02643 (USDC N.D. Ill. July 28, 2011) (denying motion to vacate award; no evident partiality despite arbitrator’s knowledge of party’s refusal to pay fees).

FINRA:

McCafferty v. A.G. Edwards & Sons, Inc., Case No. 2:11cv00517 (USDC D.N.J. Aug. 11, 2011) (granting motion to dismiss and cross-motion to confirm award; alleged violation of N.J. whistleblower statute was not a “statutory employment discrimination claim” under FINRA; arbitration panel did not lack jurisdiction or exceed powers by including a “non-public” arbitrator on the panel).

Due Process:

First American Title Insurance Co. v. Ordin, Case No. B226671 (Cal. Ct. App. Sept. 14, 2011) (affirming confirmation of awards; plaintiff failed to show it was “substantially prejudiced” by arbitrator’s alleged refusal to hear relevant evidence and to permit supplemental briefing).

This post written by Michael Wolgin.

COURT REBUKES POLICYHOLDER SEEKING DISCOVERY OF REINSURANCE AND SIMILAR CLAIM INFORMATION IN COVERAGE DISPUTE

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Louisiana Generating LLC faced an action by the U.S. government seeking injunctive relief and civil penalties for its alleged violations of the Clean Air Act. It sought a defense and coverage under a Custom Premises Pollution Liability Insurance Policy issued to it by Illinois Union. Illinois Union denied coverage. Louisiana Generating brought a declaratory judgment action in federal court to establish coverage. The court entered a scheduling order allowing the parties discovery on the dispositive legal issue of Illinois Union’s duty to defend. Louisiana Generating sought information pertaining to Illinois Union’s reinsurance, pursuant to the “any insurance agreement” language of F.R.C.P. 26(a)(1)(iv), as well as information pertaining to prior coverage provided to other policyholders with Clean Air Act liabilities, among other things. Illinois Union objected, contending that the information was irrelevant to the purely legal issue of the duty to defend, to be determined as a matter of law solely by reference to the terms of the policy and the allegations of the underlying complaint. The court agreed with Illinois Union, denied the motion, and ordered Louisiana Generating to pay $2,000 to Illinois Union for its efforts in defending against the motion, which the court found to be “not substantially justified.” Louisiana Generating, LLC v. Illinois Union Ins. Co., No. 10-516 (USDC M.D. La. Aug. 8, 2011).

This post written by John Pitblado.

INSURED’S CONTRACT WITH MUTUAL ASSOCIATION NOT SUFFICIENTLY AKIN TO A REINSURANCE AGREEMENT TO ESCAPE A LATE NOTICE DEFENSE

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Weeks Marine, a member of non-profit mutual insurance association, American Club, brought suit seeking a declaration that it had complied with the terms of its insurance contract and seeking damages. One of Weeks’s former employees had suffered a concussion at work and sued Weeks. Weeks defended the claim on its own; American Club only learned of it after a jury rendered a $3.7 million plaintiff’s verdict. The certificate evidencing the relationship between Weeks and American Club provided that Weeks was responsible for investigation, settlement, and defense of claims, but required Weeks to give prompt notice of claims to American Club.

American Club defended against Weeks’s coverage suit, arguing that governing New York law provided that Weeks’s late notice, even absent a showing of prejudice, vitiated the contract. This late notice rule, however, did not apply to reinsurance agreements. Weeks argued that its relationship with American Club was like a reinsurance contract because Weeks had the duty to investigate and resolve claims and, further, Weeks had self-insured the first million dollars of risk. The court rejected this argument, reasoning that the contract was not sufficiently like a reinsurance contract for the exception to the late notice rule to apply. The court therefore granted summary judgment for American Club, based upon Weeks’s late notice of the claim. Weeks Marine, Inc. v. Am. Steamship Owners Mut. Prot. & Indem. Ass’n, Inc., Case No. 08-9878 (USDC S.D.N.Y. Aug. 25, 2011).

This post written by Ben Seessel.