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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration / Court Decisions

REINSURER ORDERED TO PAY $1.4 MILLION IN PRE-JUDGMENT INTEREST

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Massachusetts Mutual Life Insurance Company was awarded in excess of $1.4 million in pre-judgment interest, on a $32 million breach of contract award against its reinsurer, Employers Reinsurance Corporation. A Missouri federal court applying Connecticut law analyzed the issue under equitable principles, and found that the Connecticut statute authorizing pre-judgment interest sets a maximum of ten percent interest, but that the Court may, in its discretion, award a lesser amount. The Court found that the appropriate interest rate to be applied in the case was the one-year constant maturity Treasury rate adopted into the federal statute governing pre-judgment interest (and attested to in an affidavit indicating the current Treasury rate). The Court dated the accrual of interest back to April, 2006, when Employers Re stopped making reimbursement payments to Mass Mutual, which payments the Court previously held were required under the parties’ reinsurance treaty. Employers Reinsurance Corp. v. Massachusetts Mutual Life Ins. Co., No. 06-0188 (USDC W.D. Mo. August 19, 2010)

This post written by John Pitblado.

SEVENTH CIRCUIT: COURTS MUST DETERMINE WHETHER A CONTRACT EXISTS BEFORE ENTERING STAY

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Recently, the Seventh Circuit issued an opinion in Janiga v. Questar Capital Corp. on the issue of whether the court or an arbitrator is responsible for deciding whether a particular document signed by the parties constitutes a contract and, if so, whether that contract includes an arbitration clause. The Court of Appeals – noting that arbitration itself is a matter of contract – determined that the District Court must decide whether a contract exists before it decides whether to stay an action and order arbitration. The question of enforceability, however, falls squarely on the arbitrator. Applying governing state law on the formation of contracts, the Seventh Circuit then ruled that Janiga had signed a valid contract and thus assented to arbitration. The case was remanded for further proceedings consistent with the opinion. Janiga v. Questar Capital Corp., Case No. 09-2982 (7th Cir. Aug. 2, 2010).

This post written by John Black.

COURT PUNTS TO ARBITRATOR ON EFFECT OF VOLUNTARY DISMISSAL ON CLAIM AGAINST REINSURER

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A third-party complaint disputing the nature and extent of an obligation to reinsure an insurance company with respect to losses arising from assumed reinsurance risks has been dismissed without prejudice, to allow an arbitrator to decide the scope of a settlement agreement. Through a settlement agreement, the insurance company resolved its dispute with the defendant named in the original complaint. The original complaint was dismissed with prejudice. Thereafter, the insurance company contended that its claims against the third-party defendant reinsurer should be voluntarily dismissed without prejudice to allow arbitration of those parties’ claims. The reinsurer argued the voluntary dismissal should be with prejudice, as the insurance company’s claims in the third-party complaint were derivative of the claims in the original complaint. The court declined to dismiss with prejudice, finding that the question of whether the claims were, in fact, derivative was a question better left for the arbitrator. Eagle Star Insurance Co. v. Highland Insurance Co., Case No. 02-2165 (USDC S.D. Cal. July 22, 2010).

This post written by Brian Perryman.

ARBITRATION AWARD VACATED FOR ARBITRATOR BIAS AND MISCONDUCT

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In a labor dispute governed by the Labor-Management Relations Act, the U.S. District Court for the Eastern District of Louisiana has vacated a labor arbitration award due to bias and misconduct on the part of the arbitrator. The arbitrator had admitted that he had a prior business relationship with a party affiliated with the plaintiff. The arbitrator also made a request of plaintiffs’ counsel to assist him in recovering money connected with the prior business relationship and implied that plaintiff’s counsel’s compliance would effect the result of the arbitration. The Federal Mediation and Conciliation Service Arbitration Review Board had found that the arbitrator violated the Code of Professional Conduct for this behavior. The court held that “it is crucial that arbitrators remain, and appear, completely unbiased” and the arbitrator’s failure to do so required that the arbitration award be vacated. United Steel Workers AFL CIO v. Murphy Oil USA, Inc., No. 09-7191 (U.S.D.C. E.D. La. Aug. 3, 2010).

This post written by Michael Wolgin.

LET IT SNOW: ARBITRATION COMPELLED IN VAIL RESORT PARKING KERFUFFLE

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A Colorado district court granted a Vail resort condominium developer’s motion to compel arbitration under a condominium purchase agreement. Residents brought suit alleging that they were denied promised parking rights at the resort-side condominium they purchased, and were instead secretly substituted with valet parking rights instead, which rights were of lesser value. The residents sued the developer. The developer demanded arbitration under the purchase agreement, which the residents resisted. The developer brought a separate action to compel arbitration. The court found for the developer, rejecting the residents’ arguments that (1) they were not bound by the arbitration provision because they were not parties to the original purchase agreement, but instead were assignees; (2) the claims do not arise out of interpretation of the agreement; (3) the developer waived its right to arbitrate by failing to assert that right as an affirmative defense to the lawsuit brought by the residents, and (4) the residents’ claims under the Colorado Consumer Protection Act were not arbitrable. Stone v. Vail Resorts Development Co., No. 1:09-CV-02081 (USDC D. Col. July 1, 2010)

This post written by John Pitblado.