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Arbitration / Court Decisions

REINSURANCE BROKER’S SALES COMMISSIONS ARE AN “IDENTIFIABLE CHATTEL” AND SUPPORT A CONVERSION CLAIM

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In a dispute between reinsurance brokers, Guy Carpenter sued its competitor, Lockton, arising from broker fees alleged owed to Guy Carpenter as a result of its placement of reinsurance on behalf of two reinsurers, whose business went (after placement) to Lockton when one of Carpenter’s brokers switched his employment to Lockton. Carpenter asserted that the broker fees, which were established and became payable upon placement of the reinsurance at issue, were improperly withheld by Lockton after they were received from the reinsurers. Lockton moved to dismiss all three claims asserted by Carpenter, including conversion, tortious interference with contract, and unjust enrichment. The court denied the motion (save for its dismissal of the unjust enrichment claim), notably holding that the monies owed to Carpenter constitute an “identifiable chattel” and thus supported the conversion claim. The court also held that Lockton’s alleged withholding of money owed pursuant to the broker agreement between the reinsurers and Carpenter adequately stated a tortious interference with contract claim. Guy Carpenter & Co., LLC v. Lockton Re, LP, No. 10-Civ-4932 (USDC S.D.N.Y. Nov. 4, 2010)

This post written by John Pitblado.

SECURITIES FRAUD ACCOUNTING RULE CLASS ACTION AGAINST REINSURER DISMISSED

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A federal district court dismissed a securities fraud class action against Swiss Re brought by a pension fund on behalf of all purchasers of Swiss Re’s shares. In addition to other claims, plaintiff alleged that Swiss Re committed securities fraud by failing to disclose its exposure to losses associated with its issuance of credit default swaps insuring mortgage-related securities against default. The case was dismissed notwithstanding Swiss Re’s admitted failure to disclose its credit default swap obligations in conformity with GAAP Financial Accounting Standards Board Interpretation No. 45, which requires a guarantor to disclose the nature and amount of any guarantee, even if the likelihood of the guarantor’s having to make payments under the guarantee is remote. The court reasoned that, although such an admission could be evidence of an intent to defraud, the stronger inference was that Swiss Re “missed the applicability of FIN 45,” because the provision generally does not apply to reinsurers, and there was a scarcity of other evidence of scienter. Plumbers’ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., Case No. 08-1958 (USDC S.D.N.Y. Oct. 4, 2010).

This post written by Ben Seessel.

COURT ORDERS ARBITRATION UNDER “FOLLOW FORM” AGREEMENT TO ARBITRATE IN EXCESS LIABILITY POLICY

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C.B. Fleet Company, Inc., a manufacturer of certain FDA-regulated over-the-counter medication, sued one of its excess liability carriers, Aspen Insurance UK Ltd., alleging it breached the excess policy by refusing to provide coverage for underlying products liability suits against Fleet. Aspen moved to stay the lawsuit in favor of arbitration. Fleet contested the existence of an agreement to arbitrate, and, even if there was one, Fleet asserted that Aspen waived its right to invoke it by engaging in the litigation process. The court rejected both arguments, finding that a valid, binding arbitration agreement was incorporated by reference into the Aspen excess policy, because the underlying policy to which Aspen’s policy “followed form” contained an arbitration agreement. The court also held that Aspen’s limited engagement in the litigation process prior to demanding arbitration did not constitute waiver of the right to arbitrate, citing the policy underlying the FAA which heavily favors arbitration of disputes. Aspen had only engaged in limited discovery pertaining to whether an agreement to arbitrate existed, filed an answer raising an affirmative defense pertaining to arbitration, and then demanded arbitration ten days later. C.B. Fleet Company, Inc. v. Aspen Insurance UK, Ltd., No. 6:09-cv-00062 (USDC W.D. Va. Oct. 15, 2010).

This post written by John Pitblado.

COURT REFUSES TO MODIFY CONFIDENTIALITY ORDER PROTECTING INSURER’S AND REINSURER’S TRADE SECRETS FROM DISCLOSURE

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Pursuant to a confidentiality order entered by the federal district court, Everest National Insurance Company and Everest Reinsurance Company produced trade secrets, claims data, and other confidential information to Centrix Consolidated LLC and other parties to the litigation. Centrix, concurrently involved in liquidation proceedings in bankruptcy court, was served with a document request by the liquidating trustee for all documents produced in the Everest case, including all documents designated as confidential under the court’s protective order. Centrix looked to the court that had issued the confidentiality order for guidance on how to proceed. The court refused to modify its confidentiality order, finding that Everest had a legitimate business interest in maintaining the confidentiality of the requested documents. Everest Nat’l Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J. Oct. 28, 2010).

This post written by Ben Seessel.

YOU SNOOZE YOU LOSE: “ACCOUNT STATED” DOCTRINE BARS RECOUPMENT OF PAST AMOUNTS PAID UNDER VOIDED FACULTATIVE AGREEMENT

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Seaton Insurance Company sued its reinsurer, Yosemite Insurance Company, for breach of contract. Seaton alleged that Yosemite breached two facultative reinsurance agreements the parties entered into in the 1970s. Yosemite paid claims under the agreements until 2008, when it notified Seaton of its belief that the agreements were void because Seaton had violated the agreements’ retention warranties. When Seaton sued, Yosemite counterclaimed, seeking repayment of funds paid since inception. Both parties moved for summary judgment. The court agreed with Yosemite as to one of the facultative agreements, finding that Seaton breached the retention warranty, voiding that agreement and precluding any future payments due. Disputed factual questions, however, impacted proper interpretation of the other agreement, so summary judgment was improper. However, citing California’s “account stated” doctrine – a waiver principle applied to certain contractual arrangements – the court denied that aspect of Yosemite’s counterclaim seeking repayment of past amounts paid under both agreements, noting that “acquiescence to the debt arises from a failure to object within a reasonable time such that the law implies an agreement that the account is correct as rendered.” Yosemite did not identify any issue with its liability until 2007, and thus could not recoup payments made under either agreement before that time. Seaton Ins. Co. v. Yosemite Ins. Co., No. 08-542-S (USDC D.R.I. Nov. 4, 2010).

This post written by John Pitblado.