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Arbitration / Court Decisions

No McCarran-Ferguson Reverse Pre-Emption Under State Insurance Insolvency Statutes

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Acting as Rehabilitator of Centaur Insurance Company, the Director of the Illinois Department of Insurance, Michael McRaith, brought suit against two reinsurers, seeking a declaration that they are obligated to reimburse Centaur for portions of a $32 million settlement it agreed to in resolving underlying asbestos litigation. The reinsurers had removed the case to federal court, but McRaith sought a remand based on the doctrines of McCarran-Ferguson reverse preemption and Burford abstention. The court denied the motion to remand under both theories, finding that none of the McCarran-Ferguson reverse preemption criteria had been met, as the state law issues pertaining to the rehabilitation proceedings did not specifically relate to the business of insurance, and there was not a clear conflict with federal law vis-à-vis state insurance solvency rehabilitation procedure. Burford abstention was also inappropriate because the dispute pertained less to the “complex [state] regulations pertaining to insolvent insurers” than to a simple breach of contract dispute between the parties under certain reinsurance certificates. McRaith v. American Re-Insurance Co., No. 09-C-4027 (USDC N.D. Ill. Feb. 17, 2010).

This post written by John Pitblado.

Court Rules That Professional Service as a Party-Appointed Arbitrator Does Not Constitute Evident Partiality

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After the federal district court granted a motion for reconsideration by Arrowood Indemnity Co. (“Arrowood”) and remanded three questions to the arbitration panel, Trustmark Insurance Co. (“Trustmark”) moved to stay the remand and for discovery into the Umpire’s relationship with Arrowood and its counsel. Trustmark argued that, since the outset of the present arbitration in 2003, Arrowood had selected the Umpire as its party-appointed arbitrator in at least six unrelated arbitrations and the Umpire is therefore biased. The court noted that the Umpire’s relationship with Arrowood and its counsel was disclosed and grew out of the Umpire’s professional service as an arbitrator, and ruled that, under the Federal Arbitration Act, this sort of relationship does not constitute evident partiality. In addition to denying the motion to stay the remand and for discovery, the court also denied Trustmark’s motion to vacate an order admitting Arrowood’s counsel pro hac vice and an emergency motion to stay the remand. Arrowood Indem. Co. v. Trustmark Ins. Co., Case No. 03-1000 (USDC D. Conn. Feb. 2, 2010).

This post written by Dan Crisp.

New York Appellate Court: Claims Against Reinsurance Brokers Survive Dismissal

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New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.

MOTION TO COMPEL REINSURANCE ARBITRATION GRANTED, THEN WITHDRAWN

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A federal district granted a motion to compel arbitration between parties to a reinsurance treaty, which motion was subsequently withdrawn by the moving party, Century Indemnity. In its January 8, 2010 motion, Century contended that AXA Belgium was “patently refusing to move forward with the selection of an umpire, with no legitimate basis to do so,” thereby precluding Century “from proceeding with the contractually-agreed method of dispute resolution.” Century asked the court to order arbitration with a panel of the parties’ respective candidates and an umpire selected by the court from a slate of candidates proposed by Century’s candidate. The motion to compel arbitration was granted in a one-page order dated February 2, 2010. On March 11, 2010, however, Century filed a notice of withdrawal of the motion. Century Indemnity Co. v. Royal Belge Incendie Reassurance S.A., No. 10-MC-2 (USDC E.D. Pa. Feb. 2, 2010).

This post written by Brian Perryman.

DISTRICT COURT RULES AGAINST TRAVELERS IN DISCOVERY DISPUTE

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On February 25, 2010, the US District Court for the Eastern District of Missouri issued a Memorandum and Order resolving a discovery dispute in Sunnen Products Co. v. Travelers Cas. and Surety Co. At the outset, the Court ruled on a minor issue ordering Travelers to produce any documents withheld based solely on boilerplate, introductory objections. Further, the Court granted Sunnen’s motion to compel information related to similar policies, claims and lawsuit of other insureds finding that the Interrogatories at issue were not ambiguous, prejudicial or overly burdensome at this stage. Explaining that Travelers could raise such issues at the motion in limine stage or at trial, the Court ordered production of a limited class of responsive documents (as proposed by Sunnen). The Court also ordered production of a relevant Reinsurance Agreement as well as certain audits concerning Sunnen’s claim for coverage. Finally, the Court ruled that Sunnen was entitled to discovery of a list of all Missouri law firmed engaged by Travelers, or engaged and consented by Travelers, to defend claims against an insured whose Other Policy placed a duty to defend on Travelers. The Court explained that this information was relevant to Travelers’ claim that Sunnen’s choice of arbitration counsel in the underlying action prejudiced Travelers. Sunnen Products Co. v. Travelers Cas. and Surety Co. of Am., Case No. 09-00889 (E.D. Mo. Feb. 25, 2010).

This post written by John Black.