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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration / Court Decisions

DOCTRINE OF UBERRIMAE FIDEI ENDS INSURED’S CLAIM FOR BENEFITS UNDER MARITIME POLICY

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The Ninth Circuit affirmed summary judgment for defendant insurer United Specialty Insurance Company based on the admiralty doctrine of uberrimae fidei or “utmost good faith,” a doctrine sometimes used in reinsurance arrangements. The court held an insurer can invoke the doctrine to void a marine insurance contract if it can show either: (1) an intentional misrepresentation of fact, regardless of materiality, or (2) non-disclosure of a fact material to the risk, regardless of intent. Plaintiff failed to disclose the true owner of the insured vessel to the defendant, a fact that was material to the defendant’s assessment of the risk, according to the court. SW Traders, LLC v. United Specialty Ins. Co., No. 09-0778 (9th Cir. Nov. 18, 2010).

This post written by Ben Seessel.

SECOND CIRCUIT AFFIRMS THAT INSURER NEED NOT PROVIDE A DEFENSE AND INDEMNITY IN ARBITRATIONS

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In a summary order by the Second Circuit Court of Appeals, the Court affirmed the lower court’s summary judgment that found that a professional liability insurer was not required to defend and indemnify its insured for certain ongoing arbitration proceedings in which the insured was a defendant. The Second Circuit agreed with the lower court that as of the inception date of the policy, the insured “had knowledge or a reasonable basis upon which to anticipate that a wrongful act or interrelated wrongful act could result in a claim” under the underlying policies. The district court’s opinion reveals that the definition of Claim in the policies expressly covered demands made in either litigation or arbitration. Quanta Specialty Lines Ins. Co. v. Investors Capital Corp., No. 10-0219 (2d Cir. Nov. 16, 2010).

This post written by Michael Wolgin.

UK COURT REJECTS CLAIMS BASED UPON DEFECTION OF LLOYD’S BROKERS TO A COMPETITOR FIRM

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The defection of three brokers from Global Risks, a Lloyd’s insurance and reinsurance broker, to competitor Tyser & Co., gave rise to claims of breach of contract, violation of employment and fiduciary duties and conspiracy, due to the alleged solicitation by the defectors of clients and employees of Global Risks. The court rejected the claims for different reasons for each claim, including lack of duty, failure of proof and lack of damage. If you are interested in a description of how a Lloyd’s broker works, this would be an interesting opinion to read. Lonmar Global Risks Limited v. West, [2010] EWHC 2878 (Queen’s Bench Nov. 11, 2010).

This post written by Rollie Goss.

DISTRICT COURT AWARDS SWISS RE REPAYMENT OF FUNDS ASSOCIATED WITH DEFENSE OF UNDERLYING LITIGATION

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On cross-motions for summary judgment, a federal court in Minnesota ruled that an indemnitor, SuperValu, was in breach of an indemnity agreement it had entered with the now-defunct Amwest Surety Insurance Company. The suit arose out of a multi-million dollar jury verdict obtained against Tidyman’s Management Services on whose behalf Amwest issued an appeal bond of over $5 million. Swiss Re subsequently entered into a reinsurance agreement to secure and guaranty Amwest’s performance of the appeal bond obligations. At issue was whether Swiss Re was entitled to be reimbursed by SuperValu for payments to the persons who obtained the original jury verdict. Swiss Re was entitled to recover over $100,000, but was not entitled to attorneys’ fees. Amwest’s insolvency did not change the fact that the claims were made “relative to the bond,” the equities favored Swiss Re’s recovery, and Swiss Re acquired Amwest’s right by assignment. Swiss Reinsurance America Co. v. SuperValu, Inc., Case No. 09-3083 (USDC D. Minn. Oct. 15, 2010).

This post written by John Black.

COURT COMPELS ARBITRATION OF PAST DISPUTE UNDER ARBITRATION CLAUSE COVERING FUTURE TRANSACTIONS

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In a suit over an energy developer’s alleged failure to pay for energy services, a court has granted a motion to compel arbitration based on an arbitration clause in a contract that was made after the transaction in dispute, and despite the contract’s express application to future transactions between the parties. The court reasoned that, despite the bulk of the agreement’s application to future contingencies and dealings, some of the agreement’s provisions, including the arbitration clause, evidenced a present agreement that would take effect immediately. The court further held that, given that the arbitration clause at issue was a broad one and that federal and Oklahoma policies favor arbitration, the clause would apply “despite the fact that the dealings giving rise to the dispute occurred prior to the execution of the agreement.” Warrior Energy Services Corp. v. Last Run, LLC, Case No. CIV-10-0961 (USDC W.D. Okla. Dec. 1, 2010).

This post written by Michael Wolgin.