New reinsurance-related and arbitration developments from Carlton Fields
The doctrine of uberrimae fidei, or utmost good faith, has been invoked in reinsurance disputes for many years. In a Special Focus feature, John Pitblado explores the origins of this doctrine and its current status in the reinsurance field.
This post written by John Pitblado.
In an action for breach of an insurance policy and the tort of bad faith, the Western District of Arkansas recently compelled arbitration and stayed the action. The court considered whether an arbitration clause in a policy governed by the Federal Arbitration Act (FAA) was invalidated by an Arkansas state law that purports to invalidate arbitration clauses “in any insurance policy” in Arkansas. The court held that although the McCarran-Ferguson Act would typically operate to preempt the FAA with the state insurance law, in this case an exception to McCarran-Ferguson existed, namely that another federal law that “specifically relates to the business of insurance” and provides for arbitration (the Federal Crop Insurance Act), applied to the policy at issue and required arbitration. The court also stayed the entire action, rather than just the claim for breach of contract, based on the language of the relevant arbitration clause, on the broad mandate of the FAA to “stay the trial of an action” until arbitration has occurred, and in the interests of judicial economy. Hays v. Rural Community Insurance Services, Case No. 1:10-cv-01020 (W.D. Ark. Oct. 7, 2010) (Magistrate Report and Recommendation adopted on October 26, 2010).
This post written by Michael Wolgin.
Deep Sea Financing, LLC filed suit against British Marine as an alleged loss payee under a policy of marine hull insurance issued by British Marine to Dragados Mundiales del Caribe S.A. de C.V., covering a dredge and other equipment owned by Dragados. When the dredge ran aground on an environmentally sensitive reef near Puerto Cancun, Mexico, various claims were made under the policy, including a claim by Deep Sea. When Deep Sea’s written demand was not accepted by British Marine, it filed suit in Georgia state court seeking statutory bad faith penalties. British Marine removed the case to federal court and filed a separate interpleader action naming Dragados and Deep Sea. In Deep Sea’s action, Deep Sea moved for partial summary judgment on its statutory bad faith claim. The contract — which was originally negotiated as reinsurance to a Mexican primary policy that later became unnecessary, and so was converted to a primary policy under British Marine’s typical “London terms,” — nevertheless still included (whether inadvertently or not) a choice-of-law provision requiring application of Mexican law. British Marine argued this provision precluded the statutory claim under Georgia law, and the court agreed. Deep Sea moved for reconsideration, but the court stuck by its initial decision. Deep Sea Financing, LLC v. British Marine Luxembourg, S.A., CV 409-022 (USDC S.D. Ga. Sept. 1, 2010).
This post written by John Pitblado.
In a case pending in English court brought by a property insurer against Swiss-based Glacier Reinsurance AG, another reinsurer, and an English reinsurance brokerage, Glacier moved to dismiss, contending that the proper venue for the claims against it was a court in Switzerland, its domicile. The English court denied Glacier’s motion and the English Appellate Court affirmed. The court applied Article 6 of the Lugano Convention and applicable interpretive case law, which provide that a defendant may be sued in the state of domicile of one of its co-defendants when necessary to avoid the risk of irreconcilable judgments. The court explained that this risk exists when the same situation in law and in fact applies to the claims of multiple defendants. The court held that English Law governed the claims against Glacier because Glacier made a “demonstrable choice” of English law when, among other things, it participated in the London market. The court noted that the reinsurance agreement, which was presented to Glacier and accepted by Glacier in Switzerland, should not be construed as a separate placement in the Swiss market. The court also stressed the “commercial need” for a dispute involving multiple parties to be determined by one tribunal. Gard Marine & Energy Ltd. v. Lloyd Tunnicliffe, [2009] EWHC 2388 (Ct. App. Oct. 6, 2010).
This post written by Michael Wolgin.
Manifest Disregard:
Amway Global v. Woodward, Case No. 09-12946 (USDC E.D. Mich. Sept. 30, 2010) (rejecting multiple manifest disregard of law challenges, including that arbitrator, in applying Michigan law, failed to follow Fifth Circuit ruling that plaintiff’s standard agreement was illusory and unenforceable under Texas law)
Church Insurance Co. v. Ace Property & Casualty Insurance Co., Case No. 10-00698 (USDC S.D.N.Y. Sept. 23, 2010) (granting unopposed petition to confirm award; court’s independent review found no evidence of manifest disregard)
Exceeding Arbitrators’ Authority:
Wachovia Securities, LLC v. Brand, Case No. 08-02349(USDC D.S.C. Aug. 26, 2010) (granting motion to confirm award; panel did not exceed authority to make award under South Carolina Frivolous Civil Proceedings Sanctions Act)
Ike America, LLC v. Kredit Karte, Inc., Case No. 10-03153 (USDC E.D. Pa. Sept. 1, 2010) (granting motion to confirm award; rejecting argument that award was improper because the award creditor’s sole shareholder was an Italian national whose immigration status did not allow him to collect income from the award, and argument that arbitrator exceeded authority because part of the award held the award debtor responsible for the actions of a non-party)
Octagon, Inc. v. Richards, Case No. 10-00652 (USDC E.D. Va. Oct. 5, 2010) (holding that because an arbitration agreement severable from an unlawful agreement covered the dispute, the matter was arbitrable, and because the dispute was of the type contemplated by both parties to be submitted to arbitration, the arbitrator did not exceed her powers)
Choice of Law:
Eyewonder, Inc. v. Abraham, Case No. 08-03579 (USDC S.D.N.Y. Sept. 3, 2010) (California rules governing unconscionability of employment agreement did not apply where sufficient contacts supported “a sufficiently reasonable relationship between New York and the transaction”)
Remand for Clarification:
Ernest v. Lockheed Martin Corp., Case No. 07-02038 (USDC D. Colo. Sept. 1, 2010) (denying motion to partially vacate arbitration award and motion to confirm arbitration award to allow remand to arbitrator for a mutual, final and definite award on the limited issue of back pay damages; observing that remand for clarification is necessary when there is more than one reasonable interpretation of the arbitration panel’s award)
Personal Jurisdiction:
NGC Network Asia, LLC v. Pac Pacific Group International, Inc., Case No. 09-08684 (USDC S.D.N.Y. Sept. 20, 2010) (denying motion to transfer, stay or dismiss petition; movant agreed to arbitrate in New York and thus also consented to personal jurisdiction and venue there)
Claim Preclusion:
Belmont Partners, LLC v. Mina Mar Group, Inc., Case No. 10-00005 (USDC W.D. Va. Oct. 1, 2010) (granting motion to confirm the arbitration award and denying motions to suspend and vacate the award; judgment by Canadian court had claim preclusive effect barring this court from deciding whether to modify or vacate the award)
Timeliness of Motion to Vacate:
R&Q Reinsurance Co. v. American Motorist Insurance Co., Case No. 10-02825 (USDC N.D. Ill. Oct. 14, 2010) (denying motion to vacate as untimely since it was filed one day after the “three month” deadline in Federal Arbitration Act section 12, declining to read “three months” to mean ninety days)
Arbitrator Bias:
CRC, Inc. v. Computer Sciences Corp., Case No. 10-04981 (USDC S.D.N.Y. Oct. 14, 2010) (rejecting motion for vacatur of a partial arbitration award and disqualification of the American Arbitration Association panel that issued it based on assertion of arbitrator bias due to professional connections between the arbitrator’s law firm and the law firm representing the respondent)
This post written by Brian Perryman.