Arbitration / Court Decisions

ARBITRATOR SHOULD DECIDE TIMELINESS EVEN WHERE CONTRACT SELECTS LAW THAT PERMITS IT TO BE DETERMINED IN COURT

May 17, 2011 by Carlton Fields

The Second Circuit Court of Appeals has recently reversed a court decision to apply New York law to bar the arbitration of a Brazilian construction dispute as untimely, holding that this issue should have been determined by the arbitrator. The Second Circuit held that the underlying contract ambiguously contained both a provision calling for “any” contract dispute to “be finally settled by arbitration” and a New York choice of law provision. New York law permits a party to litigate in court a statute of limitations defense. In resolving the ambiguity in favor of arbitration, the Second Circuit applied Supreme Court precedent, which holds that where a contract contains a broad arbitration provision and a general choice of law provision that does not itself specify that a timeliness defense should be withheld from arbitration, the choice of law provision “encompasses substantive principles” that courts would apply, but not “special rules limiting the authority of the arbitrators.” Bechtel Do Brasil Construcoes Ltda. v. UEG Araucaria LTDA, No. 10-0341 (2d Cir. March 22, 2011).

This post written by Michael Wolgin.

UNCONSCIONABILITY DOCTRINE PREEMPTED BY FAA

May 16, 2011 by Carlton Fields

In a Special Focus analysis, we profile the long-awaited Supreme Court decision in AT&T v. Concepcion, which holds that the Federal Arbitration Act prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class wide arbitration procedures. AT&T v. Concepcion, No. 09-893 (US Apr. 27, 2011).

This post written by John Black.

COURT STRIKES PORTION OF AFFIRMATIVE DEFENSE RELATING TO PREJUDICE FROM LATE CLAIM NOTICE

May 12, 2011 by Carlton Fields

We previously reported on May 5, 2010, June 21, 2010 and January 7, 2011 about litigation between Pacific Employers Insurance Company and Global Reinsurance, relating to their dispute over a facultative reinsurance agreement covering certain underlying asbestos-related injury claims. After discovery, Pacific Employers moved to strike certain portions of Global’s affirmative defenses. Global opposed the motion. The court invoked its discretion to hear the untimely Rule 12(f) motion, but limited review to the pleadings only. The court granted the motion in part and denied it in part. The court ordered stricken a paragraph pertaining to prejudice arising from Pacific Employer’s late claim notice, as Global had since abandoned any claim of prejudice. The court, however, did not strike paragraphs relating to Global’s affirmative defense of breach of the duty of utmost good faith. Global did not waive the defense, and that the defense was inextricably linked with Global’s late notice defense, the case’s central issue. Pacific Employers Insurance Company v. Global Reinsurance Corp. of America, No. 09-6055 (USDC E.D. Pa. Apr. 18, 2011).

This post written by John Pitblado.

INTERPRETATION OF TREATY’S “ACT-AS-ONE” PROVISION HELD TO BE A PROCEDURAL ISSUE FOR ARBITRATORS TO DECIDE

May 11, 2011 by Carlton Fields

National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).

This post written by Ben Seessel.

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.