Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions

Arbitration / Court Decisions

USF&G WINS $260M JUDGMENT AGAINST REINSURERS FOR UNDERLYING CONSOLIDATED ASBESTOS SETTLEMENT

by

USF&G won a significant judgment against its reinsurers under certain reinsurance agreements covering liabilities in the 1950’s and early 1960’s (particularly 1959) in New York state court. USF&G, after protracted and largely unsuccessful coverage litigation with its insured, Western Asbestos Company, settled consolidated underlying asbestos claims for approximately $987 million (the settlement generally placed the liabilities in calendar year 1959). USF&G thereafter looked to its reinsurers under certain reinsurance agreements that covered that time period. The defendant reinsurers resisted, including American Re, under a certain reinsurance agreement for which USF&G sought $202 million, and another pool of reinsurers, under a reinsurance treaty for which USF&G sought an additional $59 million. The defendants asserted numerous theories limiting or eliminating their liabilities altogether, and the parties all cross-moved for summary judgment. The court rejected each of the defendants’ arguments, focusing principally on the follow-the-fortunes doctrine, and awarded USF&G the approximately $260 million in judgments it sought, along with interest and costs. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604571/02 (N.Y. Sup. Ct. Aug. 20, 2010)

This post written by John Pitblado.

GEN RE DISMISSED FROM AIG CONSOLIDATED SECURITIES LITIGATION

by

A New York federal court granted judgment on the pleadings to the Gen Re defendants in the consolidated AIG securities litigation (about which we have previously posted on July 17, 2008 and November 17, 2009). The partial judgment under Rule 54 does not affect the other defendants. In 2008, Gen Re and certain of its individual officers moved for judgment on the pleadings, arguing that they were not liable to AIG as a matter of law for alleged “fraud on the market” in connection with alleged statements made pertaining to AIG, as a result of the U.S. Supreme Court’s decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008). In its recent ruling, the court agreed, holding that AIG’s pleading failed to allege the elements of “material misrepresentation or omission,” and “reliance upon that misrepresentation” under the standards set in Stoneridge, and therefore granted judgment on the pleadings to the Gen Re defendants. In re American International Group, Inc. Securities Litigation, No. 04-cv-8141 (USDC S.D.N.Y. Sept. 10, 2010)

This post written by John Pitblado.

SUPREME COURT’S “LOOK THROUGH” ANALYSIS FOR FEDERAL QUESTION JURISDICTION IN ARBITRATION PETITIONS DOES NOT OVERRULE PRIOR PRECEDENT IN DIVERSITY JURISDICTION PETITIONS

by

Federal courts have diversity jurisdiction over a petition to compel arbitration of claims that are part of a pending state court action that includes one or more nondiverse parties not named in the petition, the Eighth Circuit has held. The matter arose on separate actions to compel arbitration of state law tort claims pursuant to arbitration agreements governed by the Federal Arbitration Act. The plaintiffs filed lawsuits in state court asserting tort claims against nursing home operators and the administrators of two nursing homes. The operators, but not the administrators, filed federal actions to compel arbitration, basing federal jurisdiction on diversity of citizenship between the operators, alleged to be Alabama citizens, and the state court plaintiffs, alleged to be Arkansas citizens.

The plaintiffs did not contest the citizenship allegations, and the district court granted petitions to compel arbitration. Thereafter, in Vaden v. Discover Bank, the Supreme Court held that a federal court entertaining a petition to compel arbitration based upon federal question jurisdiction should determine its jurisdiction by “looking through” a petition to the parties’ underlying substantive controversy. Relying on Vaden, the district court vacated the arbitration orders, concluding that while Vaden addressed only federal question jurisdiction, its “look through” analysis implicitly overruled prior federal cases compelling arbitration based upon diversity of citizenship. The Eighth Circuit reversed and reinstated the orders. There was no credible evidence in Vaden itself to suggest that “the otherwise on-point decisions” in Moses H. Cone Memorial Hospital v. Mercury Construction Corp. and other precedents had been overruled. Northport Health Services of Arkansas, LLC v. Rutherford, No. 09-2433 (8th Cir. May 14, 2010).

This post written by Brian Perryman.

DISTRICT COURT QUASHES ARBITRATOR’S NON-PARTY SUBPOENA

by

The U.S. District Court for the North District of Illinois has granted a motion to quash an arbitration subpoena directed to a non-party for her deposition. The court noted a Circuit split as to whether an arbitrator is authorized to subpoena pre-hearing discovery from non-parties. The court sided with the Second and Third Circuits, holding that the plain language of Section 7 of the FAA does not authorize arbitrators to issue subpoenas for depositions of non-parties outside the physical presence of the arbitrator. The court noted that opinions from the Fourth and the Eighth Circuits had permitted such discovery under certain circumstances. Accordingly, the subpoena was quashed. Ware v. Peacock, Inc., Case No. 10-2587 (N.D. Ill. May 7, 2010).

This post written by John Black.

FEDERAL COURT DECLINES TO ABSTAIN FROM DECIDING REINSURANCE DISPUTE NOTWITHSTANDING FIRST-FILED STATE CASE

by

A federal district judge has agreed with a magistrate judge’s recommendation to deny a motion to abstain where an earlier-filed reinsurance coverage lawsuit was pending in Connecticut state court. In May 2009, the defendant filed suit in state court, contending there was no coverage under two reinsurance agreements for losses the plaintiffs incurred regarding asbestos-related claims. Five months later, the plaintiffs filed suit in federal court, seeking monetary relief for the defendant’s alleged breaches of contract, and for a declaration of the parties’ rights and obligations. The federal suit concerned the same two reinsurance contracts at issue in the state suit, but also involved claims under eleven additional contracts between the parties.

The defendant asked the federal court to defer to the first-filed state suit, which itself had been stayed on the state court’s finding that the federal suit would be the better vehicle to resolve the disputes. The magistrate judge recommended against abstention. The parties submitted briefing on the defendant’s objections to the recommendation, including objections, opposition to the objections and a reply in support of the objections. In adopting the magistrate judge’s recommendations, the district judge noted that, while the same parties and two of the same contracts were involved in the state suit, the claims were more comprehensive in the federal court because of the additional contracts at issue, and because the damages claims were absent from the state suit. Seaton Insurance Co. v. Clearwater Insurance Co., No. 09-516 S (USDC D. Conn. Sept. 2, 2010).

This post written by Brian Perryman.