Arbitration / Court Decisions

COMMUTATION AGREEMENT EXTINGUISHES REINSURANCE LIABILITIES, BUT REINSURER CANNOT RECOUP VOLUNTARY PAYMENTS MADE POST-COMMUTATION

May 9, 2011 by Carlton Fields

Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).

This post written by Ben Seessel.

AFTER ORDER CONFUSED INSURANCE FOR REINSURANCE, COURT RE-ENTERS SUMMARY JUDGMENT BASED ON FAILURE TO NOTIFY INSURER OF CLAIM

May 5, 2011 by Carlton Fields

On March 16, 2011, we reported on a summary judgment finding Lexington Insurance Company not responsible for a $28 million claim arising under a Lexington medical malpractice insurance policy issued to United Healthcare. While the decision was based on United’s failure to comply with notice provisions in the underlying policy and the resulting prejudice to Lexington, United sought reconsideration on the grounds that the court’s opinion erroneously described the policy as reinsurance, instead of insurance. United argued that an insured should be afforded more protection against the forfeiture of benefits than a reinsured. The court has now issued an amended opinion that corrects its description of the relationship between the parties, but stands by its original conclusions. The court refused to apply rules of contract interpretation that compel a court to construe an insurance policy in favor of an insured because “United is not an innocent consumer but rather a sophisticated insurance company who negotiated, and indeed drafted, the terms of their policy.” Lexington Insurance Co. v. United Health Group, Inc., Case No.09-10504 (USDC D. Mass. April 18, 2011).

This post written by Michael Wolgin.

NO COSTS AWARDED TO AIG AFTER APPELLATE VICTORY OVERTURNING $35 MILLION JURY VERDICT

May 4, 2011 by Carlton Fields

In a suit between AXA and AIG in which AIG prevailed over AXA’s claim that AIG fraudulently induced it to enter into two reinsurance facilities, a court has set aside AIG’s award of over $200,000 in litigation costs. AIG had prevailed in the case after the Second Circuit Court of Appeals reversed a $35 million jury verdict in favor of AXA, which awarded compensatory and punitive damages, on the grounds that the case was barred by the statute of limitations. The court reasoned that it would be “inequitable to award costs to AIG,” especially in light of the fact that “after a two-week trial, a jury of twelve citizens unanimously found that AIG had defrauded AXA to such a deplorable extent that the conduct merited an award of punitive damages.” AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 05-10180 (USDC S.D.N.Y. March 9, 2011).

This post written by Michael Wolgin.

COURT COMPELS DISCOVERY IN REINSURANCE DISPUTE INVOLVING MUNICH RE

May 3, 2011 by Carlton Fields

Recently, the US District Court for the District of New Jersey granted defendant American National Insurance’s motion to compel discovery responses, extend discovery, and for a protective order. The dispute arose out of a reinsurance contract where, according to plaintiff Munich Re, defendant agreed to reinsure certain liabilities arising as a result of Munich Re’s participation in a Workers Comps Excess of Loss Reinsurance Agreement. Granting American National’s motion, the Court ordered that Munich Re produce a 30(b)(6) designee for deposition regarding relating to whether plaintiff will pay certain claims (and thus whether defendant will be liable) and provide substantive responses to interrogatories, rather than merely citing to all documents produced. The Court also extended the discovery period and granted American National’s motion for protective order pending an in camera review of the purported privileged documents. Munich Reinsurance Am., Inc. v. American Nat. Ins. Co., Case No. 09-6435 (D. N.J. Apr. 18, 2011).

This post written by John Black.

SUPREME COURT HOLDS STATE UNCONSCIONABILITY LAW PREEMPTED BY FAA IN AT&T v. CONCEPCION

May 2, 2011 by Carlton Fields

On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.

Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.

Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)

This post written by John Black.