Arbitration / Court Decisions

VACATUR OVER “FRAUD-ON-THE-PANEL” AFFIRMED BY APPELLATE COURT

May 26, 2011 by Carlton Fields

The Illinois Appellate Court affirmed a ruling vacating a reinsurance arbitration award as having been procured by fraud. Virginia Surety and Lloyds entered into two motor vehicle warranty contractual liability reinsurance agreements, one covering a period starting in 1996 and one in 1998. Virginia Surety demanded arbitration, contending that Lloyds wrongly refused to pay amounts owed on both treaties. The parties arbitrated, and, at the end of the proceeding, but prior to submission, the parties announced they had settled all disputes arising from the 1996 Treaty, each party to bear its own costs, and that they only needed a decision as to the dispute under the 1998 Treaty. The panel thereafter found in favor of Lloyds, relieving it of payment obligations, and directing it to return premiums under the 1998 Treaty. The panel also made an award of costs and expenses due to its finding of material misrepresentations on the part of Virginia Surety, and ordered Lloyds to submit billings for costs and fees. Lloyds submitted billings, under condition of confidentiality, and the panel enforced confidentiality against Virginia Surety, despite its attempts to seek to review the billings. The panel awarded Lloyds $2 million in costs and fees. Virginia Surety moved to vacate, arguing that the size of the costs and fees award indicated that Lloyds submitted billings relating to both the 1996 Treaty dispute and the 1998 Treaty dispute, which was a fraud perpetrated on the panel, because the parties had agreed that each would bear its own costs for the 1996 Treaty dispute. The court agreed, finding that Virginia Surety made the required showing for vacatur due to fraud, as Lloyds had in fact submitted billings pertaining to both disputes. Virginia Surety Co., Inc. v. Certain Underwriters at Lloyd’s, No. 09-CH-45355 (Ill. App. Ct. April 20, 2011).

This post written by John Pitblado.

IN ABSENCE OF A PRESCRIBED METHOD, A PARTY CAN CHOOSE ITS OWN REPLACEMENT ARBITRATOR

May 25, 2011 by Carlton Fields

The manner in which a replacement arbitrator is selected where the agreement is silent was resolved in a recent case. Northwestern National Insurance Company petitioned the court to appoint an ARIAS-certified replacement arbitrator for its reinsurer Insco, Ltd. Insco’s arbitrator had resigned three days before argument on Northwestern’s summary judgment motion amid allegations from both sides that the other’s arbitrator was improperly partial. The arbitration agreement provided that each party would select its own arbitrator and that a neutral umpire would be appointed; the agreement, however, did not supply a method for replacing an arbitrator. Shortly after Northwestern filed its petition, Insco appointed an ARIAS-certified arbitrator of its own choosing. The court denied Northwestern’s request. Although the court had the power to appoint an arbitrator under Section 5 of the FAA, allowing Insco to appoint a replacement was consistent with the terms of the reinsurance agreement and the underlying goals of arbitration. Northwestern National Insurance Co. v. INSCO, Ltd., Case No. 11 Civ. 1124 (USDC S.D.N.Y. May 12, 2011).

This post written by Ben Seessel.

COURT DISMISSES CASE AGAINST FOREIGN REINSURER FOR LACK OF PERSONAL JURISDICTION

May 24, 2011 by Carlton Fields

Pacific Employers Insurance Company entered into a quota share reinsurance agreement with AXA Belgium in the 1970s, when Pacific was a California domiciliary. The agreement was never formalized so it included no terms concerning exclusive jurisdiction, service of suit, choice of law or forum selection. Pacific moved its offices to Pennsylvania in the early 1990s. Pacific continued to bill AXA on occasion, and AXA paid claims and submitted billings to Pacific at its Pennsylvania office. The parties then became engaged in dispute over AXA’s continuing obligations. Pacific brought suit in Pennsylvania federal court. AXA challenged personal jurisdiction. Pacific produced evidence in support of its claim of jurisdiction, including billings AXA sent to it in Pennsylvania, and the fact that AXA representatives had conducted an audit of Pacific at its Pennsylvania offices. It also contended that AXA directed numerous written and telephone communications to Pacific in Pennsylvania. Finally, Pacific argued that AXA did other substantial business in Pennsylvania, in support of its “general jurisdiction” claim. The Court rejected all of Pacific’s claims, and granted AXA’s Rule 12(b)(2) motion to dismiss. Pacific Employers Ins. Co. v. AXA Belgium, S.A., No. 09-5211 (USDC E.D. Pa. April 27, 2011).

This post written by John Pitblado.

REINSURANCE BROKER CANNOT BE SUED FOR BREACH OF FIDUCIARY DUTY

May 23, 2011 by Carlton Fields

Insurance brokers are not subject to breach of fiduciary duty claims under California law, a court held. Workmen’s Auto Insurance Co. sued its reinsurance intermediary-broker, Guy Carpenter & Co., for negligence, breach of fiduciary duty, and breach of contract in connection with Carpenter’s placement of a finite quota share reinsurance agreement on Workmen’s behalf. The trial court granted Carpenter’s motion for summary adjudication with respect to Workmen’s allegation that Carpenter failed to secure the best terms for reinsurance, and sustained Carpenter’s demurrer on Workmen’s breach of fiduciary claim. A jury found for Carpenter on the negligence and breach of contract claims. Workmen’s appealed, but the court of appeal affirmed, holding that an insurance broker cannot be sued for breach of fiduciary duty. An insurance broker’s duties are defined by California insurance law, which ascribes to brokers a duty of care, not a fiduciary duty. The appellate court declined to address as untimely raised Workmen’s argument that the standard should be different for reinsurance brokers because the nature of the relationship with the client is more complex and comprehensive. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., No. B211660 (Cal. Ct. App. May 4, 2011).

This post written by Ben Seessel.

$1.2 BILLION SETTLEMENT OF PROPERTY DAMAGE CLAIMS ARISING FROM 9/11 TERRORIST ATTACKS AFFIRMED

May 19, 2011 by Carlton Fields

The Second Circuit has affirmed a $1.2 billion settlement of numerous property damage claims made against American Airlines, United Airlines, and their respective security firms, that arose from the September 11, 2001 terrorist attacks on Towers One and Two of the World Trade Center. The settlement, which was approved based on New York law, was challenged by a group of plaintiffs that elected not to participate in the mediation of the case. In affirming the settlement, the Second Circuit rejected arguments that the Air Transportation Safety and System Stabilization Act of 2001 (the “ATSSA”) preempted New York law, that the settlement was not fair, and that the defendants’ settlement payments could not be credited towards their liability limits under the ATSSA. In re September 11 Property Damage Litigation, No. 10-2970 (2d Cir. April 8, 2011).

This post written by Michael Wolgin.