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Arbitration / Court Decisions

REINSURER CANNOT DENY COVERAGE BASED ON LATE NOTICE WITHOUT SHOWING PREJUDICE

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A federal district court held that, under Pennsylvania law, a reinsurer must show prejudice to deny coverage based on an insurer’s failure to provide prompt notice of loss, even where timely notice is a condition precedent to coverage. Global Reinsurance Corporation of America claimed that Pacific Employers Insurance Company was not entitled to benefits under the parties’ facultative reinsurance contract because Pacific Employers failed to provide prompt notice of loss arising from underlying asbestos litigation. Under the contract, prompt notice was a condition precedent to coverage. New York law, which Global argued should apply, provides that a reinsurer is not required to show prejudice to avoid coverage if the insurer fails to provide prompt notice and timely notice is a condition precedent. The court concluded, however, that Pennsylvania law should apply and denied Global’s attempt to avoid paying benefits for what it called the insurer’s “technical breach” of providing late notice. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. May 23, 2011).

This post written by Ben Seessel.

JUDGMENT AFFIRMED AGAINST GUY CARPENTER OVER TERMINATION OF REINSURANCE BROKERAGE AGREEMENT

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The Second Circuit affirmed a judgment against reinsurance broker Guy Carpenter, finding that its former client, Royal Palm Insurance Company, effectively terminated the parties’ brokerage agreement when it switched to another broker before the end of the agreement’s three-year term. Guy Carpenter contended the district court improperly relied on a Florida statute, which allows a reinsurer to terminate a brokerage agreement at any time. The Second Circuit affirmed, however, noting the statute was irrelevant given the plain terms of the brokerage agreement, which afforded Royal Palm the right to unilaterally terminate the agreement at any time. The three-year term was merely an outer time limit for the relationship, rather than a fixed term. Royal Palm Insurance Co. v. Guy Carpenter & Co., No. 10-2814-CV (2d Cir. May 27, 2011).

This post written by John Pitblado.

COUNSEL PERMITTED TO REPRESENT FORMER CLIENT’S ADVERSARY DESPITE AWARENESS OF FORMER CLIENT’S “PREDILECTIONS” ON THE SELECTION OF AN ARBITRATOR

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In an action by a former client to disqualify its former attorney from representing an adversary in an impending reinsurance arbitration, disqualification was denied because the two matters were “neither the same nor substantially similar.” The court first determined that the dispute was properly before the court, rather than the arbitrators, because the dispute over disqualification of counsel did not arise “out of [the] Contract,” as required by the underlying agreement between the parties. The court then held a “substantial relationship” was lacking between the attorney’s prior representation of the former client and the attorney’s representation of the adversary in the current dispute, despite the fact that both cases involved arbitrations. “General ‘litigation thinking’ – the general strategic plan or hopes of the lawyer and client on how best to pursue or defend claims – does not satisfy, without more, the substantial relationship test.” This includes “predilections” and “prejudices” on the selection of an arbitrator “gained from a small number of prior representations.” Employers Insurance Co. of Wausau v. Munich Reinsurance America, Inc., Case No. 1:10-cv-03558 (USDC S.D.N.Y. May 16, 2011).

This post written by Michael Wolgin.

DISTRICT COURT DENIES CHARTIS’ MOTION TO COMPEL ARBITRATION PENDING COURT HEARING AS TO WHETHER ARBITRATION IS MANDATORY

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On April 5, the US District Court for the District of Colorado granted in part and denied in part defendant American International Special Lines’ (now known as Chartis Specialty Insurance Company) Motion to Compel Arbitration, Stay Proceeding, and to Dismiss. The suit arises out of an insurance policy, containing an arbitration clause, relating to costs associated with a cleanup at Lowry Air Force Base in Colorado. The Court denied Chartis’ Motion to Compel Arbitration and to Stay the Proceedings, finding that language in the arbitration clause was ambiguous. Specifically, the Court found that the clause’s operative language (stating that a dispute “may be submitted” to arbitration and that any party “may commence such arbitration”) did not clearly establish whether arbitration was permissive or mandatory. Accordingly, if Chartis wishes to compel arbitration, it must carry its burden to establish that arbitration is mandatory through a factual determination on the issue by the court. Finally, the Court granted Chartis’ Motion to Dismiss on Lowry’s claim for breach of fiduciary duty, finding there was no fiduciary or quasi-fiduciary relationship between insured and insurer in a first-party context. Lowry Assumption, LLC v. Am. Int’l Specialty Lines Ins. Co., Case No. 10-02901 (D. Colo. Apr. 5, 2011).

This post written by John Black.

INJUNCTION ISSUED TO PREVENT WRITING OR AMENDING REINSURANCE RISKS PURSUANT TO BINDING AUTHORITY PENDING ARBITRATION

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The US District Court for the Eastern District of New York recently adopted the US Magistrate’s Report and Recommendation, granting United Insurance Company’s Motion in Aid of Arbitration for a Preliminary Injunction. The dispute arose out of a Binding Authority Agreement (“BAA”) authorizing World Wide Re (formerly World Wide Management Consultants) to underwrite and bind reinsurance risks on UIC’s behalf subject to the underwriting guidelines. The BAA allows both parties to terminate the agreement immediately upon notice for cause, in the event that either party breaches the agreement. The BAA also provides for mandatory arbitration of all disputes. On February 28, 2001, UIC sent a Notice of Termination to World Wide asserting that it breached the agreement when it disregarded UIC’s specific instructions not to bind the risk related to Arcelor Mittal’s reinsurance. By letter dated March 3, World Wide responded, stating that it would continue to write business until an arbitration decision was rendered granting the relief sought. World Wide has since continued to bind risks on behalf of UIC. UIC subsequently filed the instant motion for a preliminary injunction.

The Magistrate issued a Report and Recommendation (adopted by the District Court) granting the motion. The Magistrate concluded that World Wide’s continued actions to continue binding risk on behalf of UIC constituted irreparable harm, and that UIC had demonstrated a likelihood of success on the merits. Accordingly, World Wide was enjoined from writing reinsurance risks on behalf of UIC or modifying or canceling existing risks. United Insurance Co. Ltd. v. Word Wide Web Re, Case No. 11-01177 (E.D. N.Y. Apr. 27, 2011).

This post written by John Black.