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Arbitration / Court Decisions

PREJUDGMENT INTEREST: COVERED UNDER REINSURANCE POLICY; POSTJUDGMENT INTEREST: NOT SUBJECT TO INDEMNIFICATION

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OHIC Insurance sued to recover payment of statutory interest and legal expenses incurred in a 1998 Wisconsin medical malpractice lawsuit pursuant to a clause in a reinsurance agreement with ERC indemnifying OHIC for certain “losses” and “claim expenses.” Both parties moved for summary judgment, leaving the Court to decide two primary issues: (1) whether the “prejudgment” interest imposed pursuant to a Wisconsin statute is covered by the reinsurance agreement; and (2) whether a portion of the “postjudgment” interest imposed by statute and the legal expenses incurred by OHIC in defending the malpractice suit are covered by the reinsurance agreement.

Resolving question 1, the Court concluded that OHIC’s payment of the prejudgment interest constituted a “loss” under the reinsurance agreement. Thus, ERC was obligated to reimburse OHIC as to this loss. Conversely, the Court determined that OHIC was not entitled to indemnification for a portion of the legal expenses and postjudgment interest incurred in defending the malpractice suit. In addition to these determinations, the Court also granted ERC’s request to exclude OHIC’s expert’s opinion and granted ERC’s motion to file sur-reply briefs. OHIC Ins. Co. v. Employers Reinsurance Corp., Case No. 08-cv-93 (S.D. Ohio Mar. 8, 2010).

This post written by John Black.

SOVEREIGN IMMUNITY BARS LAWSUIT ALLEGING INTERNATIONAL REINSURANCE FRAUD

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The Second Circuit affirmed the dismissal of a lawsuit alleging that the Republic of Indonesia and its state-owned social security insurer, P.T. Jamsostek, negligently supervised Jamsostek employees who perpetrated an international commercial reinsurance fraud scheme against plaintiff Anglo-Iberia Underwriting Management Company. Indonesia and Jamsostek moved for dismissal for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, arguing the defendants were not engaged in “commercial activity” under FSIA. FSIA abrogates sovereign immunity where a foreign state has engaged in commercial activity; a foreign state engages in commercial activity when it acts not as a regulator of a market, but in the manner of a private player within it. In ruling on the motion, the district court found, and the Second Circuit later agreed, that Jamsostek does not sell insurance to workers or employers “in any traditional sense,” and does not compete in the marketplace like a private insurer. Rather, as the default health insurer under Indonesia’s national social security program, Jamsostek provides a “floor” for health insurance, and ensures that certain Indonesian employers comply with the governmental mandate that they provide basic health insurance coverage to their workers. Thus, FSIA barred the suit. Anglo-Iberia Underwriting Management Co. v. P.T. Jamsostek (Persero), Case No. 08-2666 (2d Cir. Mar. 29, 2010).

This post written by Brian Perryman.

SOUTHERN DISTRICT OF OHIO CONFIRMS FINRA ARBITRATION AWARD

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Following a FINRA arbitration award in favor of defendant Carlos Reisen, plaintiff J.J.B. Hilliard, W.L. Lyons, LLC (“Hilliard Lyons”) filed a complaint (treated by the court as a motion to vacate) before the US District Court for the Southern District of Ohio seeking to vacate the award. Reisen filed a cross motion to confirm the award and to enter judgment in his favor. The Court, applying the Sixth Circuit’s “manifest disregard of the law” test, confirmed the arbitration panel’s determination that Hilliard Lyons had made defamatory statements in its Form U5/Uniform Termination Notice. The Court concluded that it could not vacate the award on the basis that the panel had acted recklessly, as claimed by Hilliard Lyons. Likewise, the Court confirmed the award of attorneys fees and the post-award interest, finding that the panel did not act in manifest disregard of the law because there were statutory bases for the decisions. Hilliard Lyons has since filed a notice of appeal to the Sixth Circuit. Hilliard v. Reisen, Case No. 09-cv-535 (S.D. Ohio Mar. 2, 2010, Mar. 5, 2010).

This post written by John Black.

FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT IN FAVOR OF REINSURER ASSERTING NONCOMPLIANCE WITH PROMPT NOTICE PROVISION

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A federal district court adopted in part, and vacated in part the report and recommendation of a magistrate judge on defendant TIG Insurance Company’s motion for partial summary judgment, which sought rulings that: (1) Illinois law governed a reinsurance coverage dispute and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; (2) AIU Insurance Company breached the reinsurance contracts by providing late notice of its 2001 claim; and (3) TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982. AIU issued four umbrella insurance policies covering the period from October 1, 1978 to October 1, 1982. AIU subsequently reinsured its exposure under three of the umbrella insurance policies, covering the period from October 1, 1978 to October 1, 1981, with TIG’s predecessor company under nine reinsurance certificates. AIU later sought reimbursement for certain settlement payments pursuant to the reinsurance certificates by submitting a reinsurance claim to a TIG affiliate, which responded by citing the certificates’ prompt notice provision, and reserving its rights. On this denial, AIU brought an action alleging breach of contract and seeking declaratory relief based on TIG’s failure to pay amounts due.

The magistrate judge assigned found that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. The magistrate judge further found that TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982 because AIU conceded that after filing its complaint it became aware that TIG had not, in fact, reinsured AIU for this period. The magistrate judge, however, further recommended that TIG’s motion be denied without prejudice to the extent it sought a ruling that AIU breached the reinsurance certificates by failing to provide prompt notice of a 2001 claim. On that point, questions clouded the issue of AIU’s knowledge of potential claims. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Feb. 11, 2010) (report and recommendation of magistrate judge).

The district judge declined to adopt the report and recommendation, except to the extent the parties did not dispute that coverage did not exist between October 1, 1981 and October 1, 1982. Because discovery was still being conducted on all the issues, summary judgment was premature. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Mar. 9, 2010) (order of district judge).

This post written by Brian Perryman.

DISTRICT COURT DENIES MOTION FOR RECONSIDERATION BROUGHT BY ASSIGNEE OF REINSURANCE CLAIMS

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This is our third installment covering the action brought by B.D. Cooke & Partners Ltd. (“Cooke”) to recover money from certain underwriters at Lloyd’s, London as the assignee of rights under certain reinsurance contracts. In an April 24, 2009 post, we detailed the federal district court concluding, among other things, that the liquidator’s right not to be compelled to arbitrate was not assigned to Cooke and compelling arbitration between Cooke and the defendants. In a January 27, 2010 post, we covered the federal district court denying the defendants’ motion to stay arbitration pending the result of Cooke’s motion for reconsideration. The federal district court has now denied Cooke’s motion for reconsideration, finding that Cooke essentially asserted the same arguments regarding the enforceability of the arbitration clause and the defendants’ waiver of the right to remove the action and rejecting Cooke’s argument concerning the scope of the arbitration clause because the dispute concerned matters of performance under the contracts. B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyd’s, London, Case No. 08-3435 (USDC S.D.N.Y. Mar. 9, 2010).

This post written by Dan Crisp.