Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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

Arbitration / Court Decisions

ENGLISH HIGH COURT RULES THAT EQUITAS MAY USE ACTUARIAL MODELING TO RECOVER LONDON MARKET EXCESS OF LOSS SPIRAL LOSSES

by

This dispute concerns indemnity for losses stemming from the Exxon Valdez oil spill in 1989 and the loss of aircraft at the Kuwait International Airport when Iraq invaded Kuwait in 1990. Equitas Ltd. (“Equitas”), as the assignee of the rights of Lloyd’s syndicates, brought claims against R&Q Reinsurance Company Ltd. (“R&Q”) under reinsurance contracts written by R&Q within the London Market Excess of Loss spiral. Equitas argued that recoverable losses were capable of being proved, Equitas had succeeded in proving these losses to a standard of the balance of probabilities through the use of actuarial modeling, and, therefore, Equitas was entitled to recovery. R&Q argued against any recovery unless Equitas could prove contract by contract, at each level of the spiral, that the sums claimed were properly due. The High Court sided with Equitas, ruling that how Equitas proved losses was one of fact or evidence. Equitas was not required to prove losses contract by contract at each level of the spiral. The High Court next ruled that actuarial modeling, although imperfect, was an acceptable solution to prove properly recoverable losses incurred by the syndicates. Equitas Ltd. v. R&Q Reins. Co. Ltd., [2009] EWHC 2787 (Comm. Ct. Nov. 11, 2009).

This post written by Dan Crisp.

NINTH CIRCUIT FINDS REVISED CLASS ACTION BAN IN ARBITRATION AGREEMENT UNCONSCIONABLE

by

The Ninth Circuit Court of Appeals held that a “new twist” on the previously addressed issue of when an arbitration provision barring aggregation of individual claims is unconscionable did not command a new result. Plaintiffs brought a class action suit in California federal court against AT&T Mobility, LLC, alleging that they were unfairly charged sales tax on the retail price of a new phone that had been offered as “free” with the sign-up of new service. AT&T demanded that the claims be submitted to individual arbitration, as per the arbitration provision of the provider agreement. The plaintiffs pointed to a previous Ninth Circuit decision, Shoyer v. Cingular Wireless Services, Inc., (9th Cir. 2007), which held that a similar arbitration provision was unconscionable in part because it tended to prevent plaintiffs from suing on individual claims due to the disproportionate legal expense of doing so vis-à-vis the small amount of damages at issue. The class action procedure, the Court held in Shoyer, is designed to avoid this problem. However, AT&T’s arbitration clause contained a provision requiring the company to pay $7,500 to any claimant who won an arbitration award in excess of AT&T’s last offer, in order to provide financial incentive for claimants to bring individual claims and to address the inequity identified by the Court in Shoyer. Nevertheless, the Ninth Circuit was not convinced that this new language cured the defect of tending to prevent individual claims from being vindicated, due to the small amount of damages. The Court additionally held that the FAA does not trump California contract law on unconscionability. Laster v. AT&T Mobility, LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).

This post written by John Pitblado.

DISTRICT COURT DENIES SUMMARY JUDGMENT IN OLSON, FINDS REINSURER HAD RIGHT TO SEEK REVIEW

by

In the latest development in the Olsen v. United States case, the US District Court for the Eastern District of Washington issued an Order denying Plaintiffs’ Motion for Partial Summary Judgment. Following a complicated procedural history involving a number of arbitration decisions which were ultimately vacated, Plaintiffs initiated the instant action challenging under the APA the National Appeals Division’s resolution of Plaintiffs’ claims for payment of their crop insurance. Plaintiffs asserted two primary arguments: (1) Reinsurer FCIC had no legal right to revise claim determinations made under a private contract of insurance that FCIC was not a party to; and (2) NAD lacked jurisdiction over the issue of whether Plaintiffs had been overpaid by AGIC. The District Court denied Plaintiffs’ Motion, finding that the insurance contract granted FCIC authority to revise the claim and that administrative review of Plaintiffs’ claims by the NAD was appropriate. Olson v. United States, Case No. 08-5012 (USDC E.D. Wash. Sept. 30, 2009).

This post written by John Black.

CONTINENTAL CASUALTY AND SCOR AGREE TO DISMISS REINSURANCE CASE WITH PREJUDICE

by

On October 14, the US District Court for the Northern District of Illinois entered an Agreed Order of Dismissal of a reinsurance dispute as to whether the commutation and release agreement between Continental Casualty and SCOR also covered reinsurance contracts purchased from non party insurers Unity Fire and General Ins. Co. and Allstate Ins. Co. Following an April 2009 Order denying SCOR’s motion for a stay pending arbitration, this matter came before the Court by agreement of the parties and the action was dismissed with prejudice. Continental Cas. Co. v. Commercial Risk Re-Insurance Co., Case No. 07-6912 (N.D. Ill. Oct. 14, 2009).

This post written by John Black.

REINSURER’S ROLE IN INSURANCE POLICY FOUND TO BE AMBIGUOUS, SUPPORTING A DIRECT ACTION AGAINST IT BY THE INSURED

by

Felman Production, Inc. brought suit against Industrial Risk Insurers (“IRI”), an unincorporated association, after one year of inconclusive coverage discussions. The suit also named two of IRI’s member companies as defendants, one of which was Swiss Reinsurance America Corporation (“Swiss Re”). Swiss Re moved to dismiss, arguing that Swiss Re is merely the reinsurer of the policy, not the original insurer. The court disagreed, finding that Swiss Re’s role was ambiguous pursuant to certain policy language. The court thus denied Swiss Re’s motion to dismiss. Felman Prod., Inc. v. Industrial Risk Insurers, Case No. 09-0481 (USDC S.D. W.Va. Oct. 19, 2009).

This post written by Dan Crisp.