Arbitration / Court Decisions

GRANITE RE ENTITLED TO PRE- AND POST-JUDGMENT INTEREST IN BANKRUPTCY ACTION

March 10, 2011 by Carlton Fields

Following a $9 million judgment in its favor, Granite Re was further awarded pre- and post-judgment interest on that judgment. Granite Re filed a proof of claim in Acceptance Insurance’s bankruptcy action for the amount of $10.9 million, the balance of the premium due under a reinsurance contract plus interest. Acceptance disputed the claim, arguing it no longer needed reinsurance, and filed a separate adversary proceeding against Granite Re alleging unjust enrichment. The Eighth Circuit’s Bankruptcy Appellate Panel reversed the bankruptcy court’s ruling in favor of Acceptance. The Eighth Circuit affirmed the Bankruptcy Appellate Panel’s ruling. Granite Re moved for an entry of judgment, requesting $9 million under the claim plus 1.5% pre- and post-judgment interest. The bankruptcy court ruled that because the exception for unilateral performance applied, Acceptance’s repudiation did not accelerate premium payments and thus Granite Re was entitled to pre-judgment interest. Likewise, Granite Re was entitled to post-judgment interest at the rate specified by federal statute. In re Acceptance Insurance Co., Case No. 05-80059 (Bankr. D. Neb. Jan. 20, 2011).

This post written by John Black.

MERGER CLAUSE IN ONE REINSURANCE AGREEMENT DOES NOT PRECLUDE OFFSET OF AMOUNTS OWED UNDER ANOTHER REINSURANCE AGREEMENT

March 9, 2011 by Carlton Fields

In a suit surrounding the application of an offset provision in one reinsurance agreement to amounts allegedly owed under a second reinsurance agreement, a court narrowly construed a merger clause in the first agreement, denying a motion to dismiss. American Medical and Life Insurance Company and Guarantee Trust Life Insurance Company entered into two separate reinsurance agreements. In the first, the former would reinsure the latter with respect to certain insurance business. In the second, the latter would reinsure the former with respect to other insurance. After GTL allegedly failed to perform under the second agreement, American Life used an offset provision in the first agreement and refused to pay its share of claims under the first agreement. GTL then sued for breach of the first agreement and American Life counterclaimed for breach of the second agreement. GTL moved to dismiss American Life’s counterclaim, contending the first agreement’s merger clause prohibited linking the second agreement with the first agreement. The court denied GTL’s motion, holding that the offset provision, which permitted offset based on “any other agreement between the parties,” could not be barred by the merger provision in that same contract. Further, the merger provision applied only to “the business reinsured hereunder,” so unrelated business reinsured under a separate agreement would fall outside that provision’s reach. Guarantee Trust Life Insurance Co. v. American Medical and Life Insurance Co., Case No. 10 C 2125 (USDC N.D. Ill. Feb. 3, 2011).

This post written by Michael Wolgin.

ENGLISH COURT UPHOLDS ENGLISH JURISDICTION OVER EXCESS LOSS REINSURANCE DISPUTE

March 8, 2011 by Carlton Fields

Glacier Re unsuccessfully appealed the decision of an English court allowing Gard Marine and Energy to bring proceedings under their participation in a contract of excess of loss reinsurance. Gard invoked English jurisdiction under the Lugano Convention, contending it brought claims against a London-domiciled participant and that the risk of irreconcilable judgments favored bringing all claims together at once. Glacier argued that its participation in the agreement was governed by Swiss law, so there was no risk of irreconcilable judgments. The appellate court determined that the parties to the excess loss reinsurance contract had chosen English law, and that the reinsurance arose out of Glacier’s participation in the London market. The underlying policy also was governed by English law. Further, the court determined that it did not make commercial sense for one portion of the contract to be considered under English law, and another under Swiss law. For these reasons, the appeal was dismissed. Gard Marine and Energy, Ltd. v. Tunnicliffe, Case No. A3/2009/2376; EWHC 2388 Comm (Ct. App. Q.B. June 10, 2010).

This post written by John Black.

DESPITE ABSENCE OF FORMAL REINSURANCE AGREEMENT, COURT APPLIES “FOLLOW THE FORTUNES” DOCTRINE AND FINDS BAD FAITH

March 7, 2011 by Carlton Fields

In a dispute between reinsurers Trenwick America Reinsurance Corp. and IRC Re Limited regarding the alleged breach by IRC Re of a retrocessional reinsurance agreement, a court applied the “follow the fortunes” doctrine to find that IRC violated the agreement in bad faith. The dispute arose when IRC Re “at the 11th hour” denied the existence of a written reinsurance agreement and refused to pay its share of the liabilities arising from the underlying insurance program. The court found that an unwritten agreement existed based on IRC Re’s conduct (e.g., accepting premium payments), correspondence, and testimony from other parties involved in the program. The 56 page opinion contains extensive discussion regarding the existence and terms of the reinsurance contract, its place in a larger reinsurance program, and IRC’s conduct in the reinsurance dispute. IRC Re was not permitted to raise claim payment defenses due to the “follow the fortunes” doctrine. The court found that the doctrine was customary in the reinsurance industry and was therefore applicable even in the absence of a written agreement. The court further held that IRC Re, its CEO, and IRC Re’s affiliate responsible for managing the underlying insurance program, violated the Massachusetts unfair and deceptive trade practices statute. With the program’s manager and the program’s reinsurer “aligned on the same side” there was “little chance of resolving the claim in a timely fashion and surely without litigation” and they “did everything they could to obfuscate the issues and stall their ultimate resolution.” Trenwick America Reinsurance Corp. v. IRC, Inc., Case No. 07-12160 (USDC D. Mass. Feb. 16, 2011).

This post written by Michael Wolgin.

ARBITRATION AWARD CONFIRMATION DECISIONS

March 2, 2011 by Carlton Fields

Preclusive Effect of Prior Litigation

Regale, Inc. v. Thee Dollhouse Prods. N.C., Inc., Case No. 10-280 (USDC E.D.N.C. Jan. 20, 2011) (denying motion to vacate and/or modify award and granting motion to confirm award; no manifest disregard of the law; award did not fail to draw its essence from the agreement; court’s decisions in prior tort case did not preclude decision of contract issues subject to arbitration)

Foreign Awards

Int’l. Trading & Indus. Inv. Co. v. Dynacorp Aerospace Tech., Case No. 09-791 (USDC D.C. Jan. 21, 2001) (confirming arbitration award under the FAA and Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”); manifest disregard standard does not provide a basis for denying confirmation under the New York Convention; arbitrator did not manifestly disregard Qatari law, notwithstanding Qatari high court’s conclusion that the arbitrator failed to follow Qatari law)

Mistake of Law

Brown v. Pulte Home Corp., Case No. 10-mc-201 (USDC Feb. 14, 2011) (granting plaintiffs’ petition to confirm arbitration award in part and denying petition to vacate award in part; arbitrator’s finding of “liability” in liability phase did not bind the arbitrator to hold for plaintiffs on all counts in damages phase; arbitrator’s alleged mistake of law in refusing to order damages under unfair trade practices and consumer protection law beyond the scope of judicial review)

Contech Constr. Prods., Inc. v. Heierli, Case No. 09-01483 (USDC D.C. Feb. 4, 2011) (granting petition to confirm final award and cross-petition to confirm partial award; fact that the arbitrator may have misapplied the law or rules not a basis for vacating the award under the FAA)

Exceeding Authority; Manifest Disregard of the Law

Westminster Securities Corp. v. Petrocom Energy Ltd., Case No. 10-07893 (USDC S.D.N.Y. Jan. 19, 2011) (granting petition to confirm award and denying motion to vacate award; arbitration panel did not manifestly disregard the law in holding that agreement’s tail provision applied to transaction at issue; panel did not lack the authority to adjudicate unjust enrichment claim)

N.J. Bldg. Laborers Statewide Benefit Funds v. GMAC Constr., Case No. 10-6518 (USDC D.N.J. Jan. 31, 2011) (confirming arbitration award requiring that contributions be made to employee trust funds and benefit plans; no evidence to suggest arbitrator acted in manifest disregard of the law or exceeded his authority)

Popkave v. John Hancock Distribs., LLC, Case No. 10-3680 (E.D. Pa. Feb. 7, 2011) (denying petition to vacate award; arbitrators did not exceed their powers, nor manifestly disregard the law by issuing an award against an entity that may not have been the proper party; the party had not sufficiently educated the arbitrators about the law, and did not independently recognize the law, so they could not have manifestly disregarded it)

Bailey v. Northrop Grumman Ship Sys., Inc., Case No. 08-04685 (USDC E.D. La. Feb. 2, 2011) (denying motion to vacate arbitration award; no statutory grounds under the FAA for vacatur—manifest disregard not a basis for vacatur; arbitrator did not exceed his authority)

Weiner v. Commerce Ins. Co., Case No. 10-P-234 (Mass. Ct. App. Jan. 7, 2011) (affirming vacatur of initial arbitration award because the arbitrator exceeded his authority in declaring UIM claimant’s claim as premature and failing to determine damages; affirming confirmation of subsequent award by a second arbitrator appointed by the court)

Contravention of Public Policy

Kiely Constr. Co. v. Util. Workers Union of Am., Case No. 10-4871 (USDC D.N.J. Jan. 3, 2011) (denying motion to vacate award; award drew its essence from the collective bargaining agreement; award did not contravene public policy)

Nat’l Football League Players Ass’n. v. Nat’l Football League Mgmt. Council, Case No. 10-1671 (USDC S.D. Cal. Jan. 5, 2011) (granting motion to confirm arbitration award requiring application of Tennessee law to workers’ compensation claims brought in California and denying motion to vacate award; no manifest disregard of the law; not contrary to public policy)

Evidence of Partiality or Corruption

Tysinger Motor Co., Inc. v. Chrysler Group, LLC, Case No. 10-554 (USDC E.D. Va. Jan. 7, 2011) (denying motion to vacate award; FAA did not apply, special procedure created by Congress governed, which did not provide for judicial review; even so, there was no evident partiality or corruption by arbitrators)

This post written by Ben Seessel.