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Arbitration / Court Decisions

COURT FINDS UNJUST ENRICHMENT CLAIM INAPPROPRIATE IN REINSURANCE CLAIM BREACH OF CONTRACT LAWSUIT

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A federal district court dismissed Lexington Insurance Company’s unjust enrichment claim against reinsurer Tokio Marine, holding that the parties’ dispute was governed by their reinsurance contract. Lexington had issued two layers of excess property coverage to the Port Authority, which owned the World Trade Center. Tokio Marine reinsured 100% of the risk. Tenants of the World Trade Center successfully argued to a jury that the September 11, 2001 attacks constituted two separate occurrences and the judgment was affirmed by the Second Circuit. Lexington paid its policy limits for one occurrence and was fully reimbursed by Tokio Marine. After engaging in coverage litigation over whether the Port Authority could recover for a second occurrence, Lexington and the primary carrier, American Home, settled with the Port Authority for a second payment. Lexington sued Tokio Marine after it rejected Lexington’s claim as to the second payment, arguing that the primary carrier should have paid a larger share. The court held that Lexington’s dispute was governed by the parties’ reinsurance agreement and not properly brought as an unjust enrichment claim. The breach of contract claim is still pending. Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., Case No. 11-391 (USDC S.D.N.Y. Sept. 7, 2011).

This post written by Ben Seessel.

SPECIAL FOCUS: PROMPT NOTICE IN REINSURANCE CLAIMS

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Did you know that the notice/prejudice rules vary from state to state, and may be different for direct insurance and reinsurance claims? These rules may lead to unexpected burdens of proof and unexpected results. Special Focus Editor John Pitblado sorts out the rules in this area in a Special Focus article that recently appeared in Mealey’s Reinsurance titled: Pride and Prejudice: Prompt Notice in Reinsurance Claims.

This post written by John Pitblado.

ARBITRATION DENIED WHERE PROPONENT LACKED “SUFFICIENTLY CLOSE” RELATIONSHIP TO ARBITRATION AGREEMENT

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Arbitration was denied in a putative class action lawsuit for alleged violations of the Fair Debt Collection Practices Act brought by two cell phone users against Collecto Inc., a collection agency contracted by Verizon and AT&T. Collecto was not a party to the underlying cell phone service contracts between the plaintiffs and cell phone carriers, but sought to enforce the contracts’ respective arbitration provisions based on the doctrines of agency and estoppel. The court applied the two-prong test in the Supreme Court’s Stolt Nielsen decision, which requires a non-signatory seeking to compel arbitration to show (1) that there are “intertwined factual issues” between the claims asserted and the agreement, and (2) that there is a relationship among the parties that justifies estoppel. While the court found that the first pong was met, it found that the second prong failed because the relationship between Collecto and the cell phone carriers was not “sufficiently close” to warrant estoppel. The court made this determination because no corporate relationship existed between Collecto and the carriers, the underlying contracts between Collecto and the carriers expressly disclaimed any agency relationship, and plaintiffs contended that Collecto had acted without valid authorization from the carriers. The court concluded that although “the FAA strongly favors arbitration, the applicable rule recognized in this case – that a party cannot be forced to arbitrate without agreeing to do so – must succeed.” Butto v. Collecto, Inc., Case No. 10-cv-2906 (USDC E.D.N.Y. Aug. 15, 2011).

This post written by Michael Wolgin.

US COURT RULES SYRIAN DEFENDANTS SPONSORED TERRORISM

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The US District Court for the District of Columbia recently held an evidentiary hearing on two actions initiated by Lloyd’s against the Syrian Arab Republic, the Syrian Air Force Intelligence Agency, and Syria’s Director of Military Intelligence (the claims against the named Libyan defendants having been dismissed pursuant to the enactment of the Libya Claims Resolution Act). Lloyd’s seeks judgment and an award of damages for acts of state-sponsored terrorism that resulted in the hijacking and destruction of the aircraft of EgyptAir Flight 648 in 1985. The US Magistrate Judge ruled that the Syrian defendants provided material support and resources to and conspired with the terrorists in the hijacking of Egypt Air Flight 648, and that the Syrian defendants intended that their support would promote and cause extrajudicial killings of American citizens and the destruction of the EgyptAir aircraft. The Court additionally found that the actions could not have occurred without the explicit authorization of then-Syrian President Hafiz al-Asad. Accordingly, the Court will enter judgment and grant an award of damages on behalf of the plaintiffs against the Syrian defendants in a separate order. Certain Underwriters at Lloyd’s London v. Great Socialist People’s Libyan Arab Jamahiriya, No. 06-cv-731 (USDC D.D.C. Sept. 2, 2011).

This post written by John Black.

ORDER VACATING CONFIRMATION OF ARBITRATION AWARD FOR LACK OF JURISDICTION AFFIRMED WHERE DEFENDANT DID NOT APPEAR IN CASE

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On December 15, 2010, we reported on Aurum Asset Managers, LLC v. Banco de Estado do Rio Grande do Sul, in which a court vacated its prior confirmation of an arbitration award in favor of Aurum upon independently finding that subject matter jurisdiction was lacking over the case. The appellate court has now affirmed that decision, rejecting the argument that the award could be overturned only if it constituted a “clear usurpation of power.” The court explained that the “clear usurpation” legal standard applies only when jurisdiction has been litigated “such that re-litigation of the issue is barred by principles of res judicata.” Here, the defendant had elected to ignore the judicial proceedings. The lower court did not err by conducting its own jurisdictional analysis, finding that jurisdiction did not exist, and vacating the arbitration award. Aurum Asset Managers, LLC v. Bradesco Companhia de Seguros, No. 10-4281 (3d Cir. Aug. 15, 2011).

This post written by Michael Wolgin.