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Arbitration / Court Decisions

PRELIMINARY APPROVAL GRANTED FOR CLASS SETTLEMENT INVOLVING ALLEGED UNDERREPORTING OF WORKERS COMPENSATION PREMIUMS

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We have previously reported on the class action lawsuit by members of the National Worker’s Compensation Reinsurance Pool (the “Pool”) against AIG for alleged “fraudulent underreporting of workers compensation premiums for the purpose of reducing its share of the residual workers compensation market – and consequently increasing the residual market costs of the other members of the [Pool].” The amount allegedly underreported by AIG was estimated at approximately $2.1 billion. Subject to “some minor modifications” to the class notice and settlement agreement, the district court has granted preliminarily approval to a class settlement between AIG and certain members of the Pool that intervened in the case. Factors militating in favor of settlement approval included: that the strength of plaintiffs’ case compared to the settlement offer was “within a reasonable range,” that the likely complexity, length and expense of trial weighed heavily in favor of the settlement’s fairness, and that the amount of opposition to the settlement was minimal thus far. The highlights of the settlement include A $450 million settlement award to the class, $146 million in penalties, back taxes, and assessments payable to certain states, and a reformation of AIG’s methodology for reporting workers compensation premiums. The settlement has also been approved by the insurance commissioners of all 50 states and the District of Columbia. American International Group, Inc. v. ACE INA Holdings, Inc., Case No. 07-02898 (USDC N.D. Ill. July 26, 2011).

This post written by Michael Wolgin.

NO MANIFEST DISREGARD OF THE LAW FOR AWARD REINSTATING UNION EMPLOYEE WHO VIOLATED COMPANY RULES

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The Tenth Circuit Court of Appeals recently affirmed the denial of a motion to vacate an arbitration award that reinstated a union-member employee who had been terminated by the employer ostensibly for “just cause.” In holding that the arbitrator did not commit a “manifest disregard of the law” and that the award drew its essence from the governing collective bargaining agreement, the court found that the arbitrator could conclude that: (1) the employee was not terminated for “just cause,” an undefined term in the CBA, notwithstanding the employee’s violation of company rules; (2) the violation was “forgivable,” and (3) the employee should be placed on probation (a “last chance agreement”), notwithstanding that such a remedy was not provided in the CBA. Chevron Mining Inc. v. United Mine Workers of America Local 1307, No. 10-8074 (10th Cir. Aug. 12, 2011).

This post written by Michael Wolgin.

ARBITRATOR’S UNDISCLOSED RELATIONSHIP WITH COUNSEL RESULTS IN VACATION OF AWARD

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Recently, a Texas Court of Appeals issued a ruling on an appeal from an order confirming a $22 million arbitration award in a partnership dispute. The appellants argued on appeal that their rights were prejudiced by the evident partiality of the arbitrator because the arbitrator failed to disclose his personal and professional relationship with appellee’s counsel. The court, assessing all contacts between the individuals, found this argument persuasive, noting that the standard for disclosing such relationships reflects the determination that courts should not involve themselves in evaluations of partiality that are better left to the parties. The court found that the relationship between the arbitrator (a US Magistrate Judge) and the appellee’s counsel (a former US District Court clerk) stretched for years and that the social relationship had business overtones. Accordingly, the court concluded that the arbitrator’s duty of disclosure had been triggered and the failure to disclose the relationship constituted evident partiality. The court reversed the confirmation award and judgment, vacated the award, and remanded for further proceedings. Karlseng v. Cooke, No. 05-09-01002 (Tex. Ct. App. June 28, 2011).

This post written by John Black.

CALIFORNIA BILL REVISES PROVISIONS GOVERNING SURPLUS LINES COVERAGE TO CONFORM TO DODD-FRANK

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Approved by Governor Jerry Brown on July 13, 2011, California Assembly Bill 315 significantly changes provisions of the California Insurance Code governing surplus lines coverage to make them consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Certain of the Bill’s provisions became operative on July 21, 2011. The Bill sets forth detailed legislation altering the manner in which surplus lines brokers and non-admitted insurers are governed. Among other provisions, the Bill creates rules regulating the advertising, marketing, and sales of surplus lines coverage, capital requirements for non-admitted insurers, and the taxation of surplus line insurance. The Bill also gives the Commissioner of Insurance the authority to create an advisory organization to monitor surplus lines activity. Assembly Bill No. 315, Ch. 83 (Cal. 2011).

This post written by Ben Seessel.

U.K. COURT AFFIRMS 21-MONTH SENTENCE FOR REINSURANCE BROKER CONVICTED OF GOVERNMENT CORRUPTION

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Julian Jeffrey Messent, a reinsurance broker who was head of the Property Division (Americas) of PWS International Limited, a London-based reinsurance broker, was convicted in London in late 2010 of corruption offenses, stemming from his supervision of payments made to various Costa Rican governmental officials. The payments were found to be bribes meant to steer reinsurance placement for Costa Rican government-owned utility organizations to PWS. For his placement of the contracts, Messent received large incentive bonuses between 1999 and 2002 from PWS. After a new President of Costa Rica was elected in 2002, newly appointed Costa Rican officials discovered the improper payments, and both the Costa Rican and U.K. governments undertook criminal investigations which led to Messent’s arrest in 2007. Messent appealed his sentencing of 21 months each on two counts of corruption (to run concurrently), as well as a fine of £100,000. The convictions were affirmed on appeal, the court noting “there can be no doubt that corruption of foreign government officials . . . is at the top end of serious corporate offending both in terms of culpability and harm.” Regina v. Messent, [2011] EWCA Crim 644 (Eng. Ct. App.).

This post written by John Pitblado.